by Connie Bruck
Milken must have been determined from his youth to show the world just how smart he was, and to make wealth his measure. One of his favorite anecdotes concerns a recent Wharton graduate who returned to the school to speak while Milken was a student. The graduate had blueblood credentials. He had attended a prestigious prep school and an Ivy League college. He was twenty-nine years old, and he told the assembled group of students he was worth $30 million. Milken was impressed. But what emerged a little later—the punch line that so delighted Milken—was that the young multimillionaire had inherited $50 million when he was twenty-five. (This was the individual-squandering-wealth analogue to those corporate-disaster stories Milken also loved, about the blue-chip, triple-A companies that lost hundreds of millions, even billions, of dollars of capital in foolish business decisions.) The moral, of course, was that however impressive appearances might be, it was not birth, not a prestige education, and not inherited wealth that counted at the continuing, year-after-year bottom line, but performance. Nothing else. Milken resolved to outperform them all.
And for him, high-yielding bonds were a custom-made vehicle. They were the outcasts and misfits of the securities world, disdained by the rating agencies and the establishment, many of them victims of misconceptions. In that gap between perception and reality, as Milken liked to say, there was money to be made. Later, when he began to underwrite them, and when they were eventually used by his chosen—the outsiders of American business life—to challenge the corporate giants, his operation of course metamorphosed into something far larger and more powerful than even the farsighted Milken could have dreamed when he first started trading these contemned bonds at Drexel Firestone in 1970. But the whole long journey, starting with the bus ride from Cherry Hill and culminating at the pinnacle of power in American finance, was an unbroken continuum.
Milken’s group, the first one ever which fit him like a glove, had been cloaked in mystery for years. As bits and pieces of information emerged, they added descriptive detail to the image of the peculiar, cultlike whole, but did not explain it. Milken, however, did that. It became clear, in listening to him, that his group was the physical embodiment of his theory of productivity, fused with his need for absolute control.
Milken believed that people were at their most productive when they felt they were part of a collective enterprise. There could, therefore, be no stars, and that included him. That was why he refused to have his picture in Drexel’s annual report—it would detract from the team spirit. He had no office, only his desk on the trading floor, for the same reason. He had no meaningful title in the firm, and there were no meaningful titles in his group; no one was to be ranked over someone else. (As Milken had mentioned, his group’s Christmas card, in the form of a bond, was an undifferentiated printing of the names of all its members—a graphic illustration of this principle.) He would not, of course, have allowed the members of his group to speak to the press, because of his insistence upon secrecy and control; but he also mentioned that he did not want his people to start thinking of themselves as stars. It would be harder to motivate them, come four-thirty Monday morning.
Keeping his people pure—consumed and fixated on the work at hand—was his perpetual effort. Milken believed that two of life’s major distractions, romance and wealth, were counterproductive, diminishing the kind of intensity he required of his people. He therefore advocated long-term, stable relationships; he took pride in what he claimed was the group’s low divorce rate. Wealth, of course, was a double-edged sword for Milken. Its achievement (largely through the equity stakes in the investment partnerships) was what gave his people incentive. But once he had made his people wealthy beyond their imaginings in order to both motivate them and bind them to him, that very wealth tended to divert them with life’s pleasures.
Milken attempted to cure this dilemma through control. Much of his people’s wealth, of course, was in the investment partnerships, kept out of their reach, although as the years went on and the accumulated wealth of the group grew mountainous, a substantial portion did reach its owners. Still, when Milken was displeased, he manipulated the levers of the partnerships, reducing someone’s existing percentage, freezing him out of the next.
There were other, more subtle but probably more powerful means of control, understood by any charismatic, messianic leader. Milken sought to inspire by example. He expected no one to work any harder than he did, and as his power increased he worked the same punishing hours he always had, or longer. He climbed no social (and time-consuming) ladder. He had been married to the same woman, with whom he had three children, since 1968. He lived simply, rejecting the symbols of materialism that he wanted his people to reject, in emulation. He lived in the Valley, not in decadent, splashy Beverly Hills, and he urged his people, also, to buy homes outside of Beverly Hills (many, indeed, lived in the Valley). For a man who was driven by limitless greed (one could hear the pleasure that money gave, sometimes, when he spoke), he espoused—in terms of lifestyle—anti-materialism. Everything, but everything, in Milken’s life—and, if he had his way, in his people’s lives—was subsumed to productivity.
Milken meant to inspire so that his people would feel like cathedral-builders, not bricklayers, and he did so. “If he was walking over a cliff,” declared one former disciple, “everyone in that group would have followed him.”
As Milken himself suggested with his allusion to Gandhi, he had not built this holy army for the sole purpose of buying and selling securities. It had begun that way. But by the late seventies, when Milken was providing capital to an underclass of corporate America that had not been able to obtain it before, he had started to envision his larger purpose. That was also when he moved back to California and began building his cadre in earnest.
One of its former members recounted that in 1979 he had read a thriller, The Matarese Circle, by Robert Ludlum, whose plot revolves around a worldwide terrorist conspiracy orchestrated and financed through the largest multinational corporations. The goal of the Matarese fanatics, who are so imbued with their cause that they willingly sacrifice themselves, is to plunge the established world powers into chaos and then impose their own new order, in which all power will be held by the Matarese through the corporations they control. The conspiracy’s mastermind is a brilliant, megalomaniac naif. Once a Corsican shepherd boy, he has built an inestimable fortune and is so consumed by his vision of world control that he bends everything in life to its shape.
“My nickname for Michael was ‘the Shep,’ ” commented this former disciple. “A few other people in the group read it, and they saw it, too. The incredible thing was, that was 1979—and then, over the next five or six years, we watched it happen.”
The comparison to the murderous “Shepherd Boy,” of course, is not meant to be taken literally. But the parallel that struck this former member of Milken’s group lay in the force of the obsession, the megalomania, the conviction of a cause so just that the end justified the means, and, finally, the conceptualization of the corporate vehicle as a means of extending control nationwide—and then worldwide.
The Michael Milken interviewed by this reporter displayed no hint of such rapacity. Though naturally intense, he seemed to strive for a casual manner. He was painstakingly modest, praising the achievements of others at Drexel, repeatedly attempting to shift the focus from himself. He refused to criticize rivals at other investment-banking firms, though he was well aware that many of them show no such restraint about him and Drexel. He spoke repeatedly of his pride in having financed companies which had been small, or in dire financial straits, when he first underwrote their bonds, and which had grown and prospered (not via acquisition). He described Drexel’s paradigmatic trait as an eagerness to help. He pointedly mentioned his being around to help in the hard times that would come in the future, as he has been in earlier hard times.
The problem with all this was its utter transparency. Milken, the world’s greatest bond salesman, was now attempting to sell himself—a
s a low-key, humble, beneficent public-servant type, who makes more money than other public servants because he does his version in the private sector. “I welcome competition,” insisted the individual whose hallmark since the seventies had been his relentless craving for 100 percent market share, who for years when competition arose would try to either crush it or buy it. What this sales pitch showed, more than anything else, was Milken’s shockingly poor judgment about himself in relation to others, to the wider world—a world that is not confined, as his has been for so long, to his beloved bonds.
Nearly two years earlier, when he was approached by this reporter after the speech he gave to the money managers in Boston, and was asked for his cooperation with this book, Milken replied that he had heard about the book from Fred Joseph. He asked a few questions about its genesis and its aims and then declared, “I do not want it to be done.” When he was told that it was already in progress, he reiterated that he did not want it done. He seemed surprised, almost, by the assurance that it would be done. Then he said, “I was saying to Fred, why don’t we pay you the commitment fee that your publisher would have paid you—except we’ll pay it to you to not write the book?
“Or,” he went on, as though he had not heard the response, “why don’t we pay you for all the copies you would have sold if you had written it?”
That was in February 1986. That was Milken in his prime, at the very apex of his power: assuming that in the wider world, as in trading, a price exists at which any transaction can be done; comfortable that the end justifies the means; determined that nothing which he did not control should come close to him. So cloistered, and so accustomed to people’s hanging on his words and bending to his will, Milken had not had any idea how to relate to the world outside his own.
He never had. But it seemed hardly to matter while the parameters of his world—in which he was not a misfit but sovereign—were so wide, and growing by the day. He was feared by his enemies, idolized by his followers. He was soon to be universally lauded by the business press and slavishly imitated by the rest of Wall Street. Many billions of dollars were at his command; capital, as Milken had been saying and proving for a long time, was not a scarce resource. The only limits to his power, it seemed, would be the limits of his febrile imagination.
After the speech to the money managers—many of whom he had first met nearly a decade earlier when he came knocking on their doors, peddling his oddball product—Milken was surrounded by well-wishers paying tribute. One longtime client, unable to see him through the press of the crowd, asked Milken’s assistant, Susan Cochran, where he was.
“The King,” she said, with a nod in his direction, “is over there.”
ACKNOWLEDGMENTS
THIS BOOK is the result of interviews I conducted with 250–300 people, during a two-and-a-half-year period. Many of these people I interviewed many times, often for interviews of several hours’ duration. Some of their names appear; others said that they could speak candidly to me only on a “background” basis, meaning that their comments would not be attributed to them. While I interviewed dozens of people who had been antagonists of Drexel and its players, the overwhelming majority of my interviews were with the subjects of my book themselves—employees of Drexel, and its network of clients. The hosts, and the guests, of the Predators’ Ball.
Fred Joseph’s agreement to cooperate with this book spoke for all of the firm with the exception of the West Coast—Milken and his group—a bifurcation that, as I would learn over the next two years, was a way of life within Drexel. Joseph agreed to grant me access in February 1986, nine months before Boesky Day; I therefore had the opportunity to learn about Drexel and its players at a time when their idyll was at its height. Awash in triumph, people spoke quite freely. Had I started to do the reporting on this book after Boesky Day, when the Drexel saga went from being publicly perceived as the success story of Wall Street to, perhaps, its greatest embarrassment and scandal, I would never have been granted such a frank and full view, by the participants themselves.
My meetings with Milken were the bookends of this project, coming at the beginning, when I asked for his cooperation, and very close to the end, when I received it. I feel confident that he never would have decided to go public if he were not in effect fighting for his life, in this battle that must be his worst nightmare—the government’s strobe lights playing mercilessly over what was once his perfectly controlled universe, full of secret pools and pockets known to him alone.
Milken almost surely believes, as some close to him have indicated, that he is paying the price not so much—or not at all—for having violated the law, but for having led the revolt of an underclass to scale the walls of corporate America and depose the rich, credentialed and powerful. This he did indeed do, and for this I (while not endorsing his selection of players to replace the captains and the kings) applaud him. Although I suspected when I set out to write this book that this stunning success story might well have some unholy if not illegal underpinnings, my sympathies were more toward Milken and his band of renegades than toward the corporate establishment they were attacking. To the extent that Milken, particularly, feels he is judged harshly here, he should know that these are judgments that were neither predetermined nor fueled by prejudice but that simply became—after more than two years of reporting—unavoidable.
Realizing the irony involved, I would nonetheless like to thank the many people at Drexel who spent countless hours explaining to me the workings of their world. The firm is of course filled with honest, very bright, hard-working people. I hope they will enjoy at least those parts of the book that describe the glory days of Drexel.
Drexel has been a much-covered story over the past couple of years, and articles by other reporters helped me in writing this book. Among them were pieces by James Stewart and Daniel Hertzberg in The Wall Street Journal, Chris Welles and Tony Bianco in Business Week, Allan Sloan and Howard Rudnitsky in Forbes, James Sterngold in The New York Times, and Cary Reich in Institutional Investor.
One researcher, Natalie Byfield, assisted me in the early days of this project, and she was followed by Todd Woody, who assisted me over the longer haul; I am grateful to both of them. My fact-checker, Karen Dillon, was superb, with a spirit and determination that kept going when mine started to flag. Her services were lent to me by The American Lawyer, whose editor and publisher, Steven Brill, has provided me with unstinting and vital support from the first moment of this undertaking to its last. His 1985 piece in The American Lawyer about Icahn’s raid on Phillips Petroleum, entitled “The Roaring Eighties,” provided the initial inspiration for this book. I owe him a considerable debt of gratitude.
I want to thank my editor at Simon and Schuster, Alice May-hew, whose legendary abilities I can now attest are real; I am fortunate indeed to have had the benefit of them. I also want to express my gratitude to her assistant, David Shipley, and to Elizabeth McNamara, associate counsel at Simon and Schuster, whose sound judgment was a great asset in the closing days of this book.
Finally, I want to thank my friend Deirdre Fanning, who provided a tireless and excellent sounding board; my mother and father, both of whom have never doubted for a moment that I could do anything, and always have tried to make it possible for me to do everything; my brother, David, for his continual generosity; and my son, who, through years of enduring either uncooked or burned dinners, fits of temper and general abstractedness, has displayed the patience, cheer and relentless humor that have made my life bright.
CONNIE BRUCK
February 1988
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INDEX
Abecassis, Paul, 202, 218, 223, 235–236
&nb
sp; AB Electrolux, 155
ACF, 19, 161, 163–64, 169, 173, 185, 186, 190–91
ACI (American Communications Industries), 73–74, 76, 306
Ackerman, Peter, 83–84, 108, 288, 306
Adams, Joseph, 179
Adler and Shaykin, 219, 221, 234, 235
Air Fund, 101–2, 106, 131, 168, 344
see also “highly confident” letter
airline business, problems of, 171, 172
Albright, Archibald, 31
Alexander, Norman, 285–86
Allen, Herbert, 111
Allen and Company, 65, 111, 249
Alliance for Capital Access, 259
Altman, Edward, 268
American Can Company, 18, 135, 141, 142, 147, 161
American Communications Industries (ACI), 73–74, 76, 306
American Financial Corporation, 35, 36, 38, 83, 93, 290
National Can Deal and, 124, 131, 132
American General Capital Management, 55–56, 277
American Home Products, 219
American Metal Climax, 272
American National Can, 147
American Natural Resources Company (ANR), 13, 107, 131, 204
Amir, Paul, 115, 116
Anaconda Copper Company, 97
Anchor Hocking, 161
Andersen, G. Christian, 46, 245–46, 249, 264
IBG and, 338–40
animal metaphors and imagery, 64
annuities, single-premium deferred (SPDA), 90
ANR (American Natural Resources Company), 13, 107, 131, 203–4
anti-Semitism, 29, 36, 205, 331
anti-takeover legislation and maneuvers, 160, 171, 177, 259, 260–65
