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A License to Steal: The Untold Story of Mich

A License to Steal: The Untold Story of Michael Milken and the Conspiracy to Bilk the Nation

Benjamin Stein
1992
T3 219 pages · about 3h 39m to read OL1849681Wgoodreads

Prosecution-side polemic; the angriest book on the shelf.

Summary

Stein, a lawyer and writer who had covered the junk bond market for Barron's, wrote a hostile account of Michael Milken's operation at Drexel Burnham Lambert. He argues that the high-yield bond market Milken built was not a legitimate financing innovation but a mechanism for extracting value from savings institutions, insurance companies and shareholders.

The specific claims concern the network. Stein argues that Milken assembled a group of buyers, including savings and loan institutions such as Columbia Savings and Loan and insurers such as First Executive, who bought the bonds Drexel underwrote, and that these buyers were dependent on Milken for their own financing and for the trading marks on their portfolios. He argues that this let Milken place issues that no independent buyer would have taken, that the reported liquidity of the market depended on Drexel making the price, and that the collapse of many of these institutions at public expense was the predictable result. He also covers the parking arrangements with Ivan Boesky, the stock manipulation charges, and the use of warrants and equity participations that transferred value from issuers to Milken's own partnerships.

The book is a polemic and does not conceal it. Stein wrote much of it during the prosecution, and his account of Milken's motives is unsympathetic throughout.

Daniel Fischel's Payback and Jesse Kornbluth's Highly Confident, both also in this reference, take positions ranging from defence to ambivalence, and readers should compare them. The empirical question of whether high-yield bonds performed adequately as investments has been studied since, with results that partly support the defence: default-adjusted returns on the asset class were reasonable, though the returns to specific portfolios concentrated in Drexel underwritings were not. Stein's account of the interlocking buyer network is the part that has held up best.

Key takeaways 7

  1. Milken assembled a captive network of buyers whose own financing depended on him, which allowed issues to be placed regardless of merit.
  2. The liquidity of the high-yield market depended on Drexel making prices, so the reported marks were not independent.
  3. Savings and loan institutions bought high-yield bonds with federally insured deposits, which transferred the eventual losses to taxpayers.
  4. Equity warrants and side partnerships transferred value from issuing companies to Milken personally rather than to Drexel's shareholders.
  5. Concentration of a market in a single dealer produces prices that reflect the dealer's needs rather than credit fundamentals.
  6. The parking arrangements with Boesky were designed to conceal ownership and evade disclosure and margin rules.
  7. Financial innovation and self-dealing can occupy the same transaction, so judging the instrument does not settle the conduct.

Who should read it

Readers wanting the prosecution's case against Milken, to be read against Fischel's defence rather than on its own.

Where it sits in the reference 3

Companies
Biographies
Assets

Similar books 6

Chosen by shared topics, the entries that hold them, and the people who recommended both.

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