A V.G. BLOGGER -- http://zelleblog.blogspot.com/ -- HAS WONDERED...
...why Michael Milken is a hero of Kelso's. It's worth a complete answer, but you all have to close your eyes first, banish your images, banish everything you've read in the media, and -- most of all -- banish your reflexive prejudices. You are seeing a white canvas and nothing more right now.
Imagine now a Wharton MBA candidate with a concentration in finance. It's master's thesis time and the guy decides base his thesis upon the alternate hypothesis that sub-investment grade corporate debt has been systematically undervalued. He, Milken, like Kelso, is by-and-large a believer to some extent the "Efficient Markets Hypothesis" as proposed in three forms by Eugene Fama, which is why he has chosen an illiquid market to study with the purpose of defeating the null hypothesis that the sub-investment grade corporate debt market -- because of its illiquidity and information assymetries -- has been efficient. The student, Milken, is able to disprove said null hypothesis at a very strong confidence level and his paper shows that there are extra-normal profits to be made buying such securities, using a fine seine to weed out market risk and default risk.
He gets job in finance, then some others and eventually brings Drexel, Burnham and Lambert out of the woods by killing the "junk bond" market as a trader and becomes the firm's biggest producer. By this time, few skeptics remain. Add in a little Modigliani and Miller ("firm's value is comprised by BOTH its equity and debt) and now leveraged buy-outs at a level unheard of before are the rage, because "the market" has come to believe that subordinated debt is not such a bad investment after all.
With the new size of this market, however, come the imitators, the cheaters, the size and -- yes -- the efficiency. What was an easy game trading small size for the brainy kid doesn't exist anymore. It's now one of the world's biggest markets. And the original idea, is no longer valid. So, the whole operation grows and grows and is no longer about exploiting small inefficiencies, it's about power and wealth. Bring in Freud here because Kelso understands why it might have been fun to trade these bonds being the only one with a model to do so, but doesn't understand the lust for power and riches beyond all measure.
Milken's now running the DBL office in Beverly Hills, but as Kelso mentioned on Zelleblog, he's still driving a Nissan and living in Van Nuys because it was always about the work for him and never about the luxury. Enter America's Mayor (egged on by the oh-so-liberal Wayne Barrett and Village Voice) while he was just AUSA for the Southern District -- having lost to Cutler three times over Gotti, having made an ass of himself in the Freeman, etc., frog-march episode -- he's looking to make a name for himself and sets his sights on Milken. The latter by virtue of having to ride a bucking bronco had gotten himself and his brother jammed up in all sorts of financial malfeasance having to do with taxes, stock-parking, hidden ownership, insider-trading, and so forth. Maybe it was stubbornness on Milken's part. Maybe he got off on the idea that his Wharton master's thesis made him so powerful, who the fuck knows?
At the point at which the junk bond market is so big that it is indeed efficient and as overly risky as it hadn't been during Milken's MBA days, the indictments come. So, what does Milken do, to spare his brother, he takes all the heat himself. Think about that for a second. Do you have that much courage?
And, boy O boy, courage it took, because former stripper (as Mike Malloy says "no offense to sex workers" -- Kelso adds this fact about just as a point of inforamation), federal judge Kimba Wood, hits Michael Milken for 10. As in 10 years. No parole. Upon appeal, the sentence gets reduced to 2 years at Pleasanton, CA, Federal Penitentiary. After the usual processing, it is inquired of Milken what job at the prison he could do. Milken volunteers to teach math and reading, including remedial courses. The courses are popular. Milken's paying his debt to society and so forth.
Ok, fine. Around this time little Polly Klaas is abducted in Petaluma, and the fascist California State Attorney General Dan Lundgren along with the ethically-challenged actress Winona Ryder begin campaigning for a "3-strikes-and-your-out-law." This is velly, velly popular stuff. Law-and-order is getting everybody crazed-up in California especially given the Rodney King riots, etc. Some enterprising reporter decides to look in on Milken up at Pleasanton and finds out that the dude is teaching math and reading. The reporter gets his panties into a twist about this and claims that it's not fair that a hyper-villain like Milken should get to "have fun in a country-club prison teaching math and reading...da da da..." Under pressure, the Pleasanton warden abandons the math and reading program and makes Milken spend the rest of his sentence cleaning toilets.
The two years are up, but Milken discovers he's got prostate cancer so he takes what money he has left and invests it into research into the treatment and possible cure of this disease. His contribution has indeed had an effect. Irony of ironies, we now find Rudy Giuliani, prostate cancer survivor himself, leading the field for the Republican Nomination for President of the United States. Winona Ryder got busted for shop-lifting and possession of large quantities of opiates without a prescription. And didn't do a fucking day. Polly Klaas's father, Marc, laments how his family's tragedy was used to further a retrograde criminal justice agenda. Wayne Barrett writes two books attacking Giuliani, especially for Giuliani's lack of leadership during the tragic events of 7/11.
Was it just Kelso or did it seem like James Stewart's book on all of this, Den Of Thieves, carry a kind of ugly anti-semitism throughout?
It was never asked exactly of Mr Milken what his personal politics are and were, but from all indications, he probably was to the left of most people you'll meet in everyday life. A complicated guy, a confused guy at times, a felon, but ultimately a man of morals.
Kelso has also heard that, once again, the junk bond and convertible markets are live anew if one has the inclination to do the math.
When the media WAS a little bit liberal, they got it as wrong on Milken as they as right-wing corporatists on Bush. Kelso was a bit more knee-jerk as a younger man, but he never bit on Milken. Worth taking a look at the lyrics of one of our favorite songs "Stands To Reason" by Stiff Little Fingers (the tougher, older brother of U2 back in the day):
They say our country's on the rocks and Britain's the greatest
They say the blacks get all the jobs. They say that they are lazy
A nice girl won't let you have sex. Enjoys it if you make her
The media all twist the facts. I read it in the paper
Stands to reason
You've heard it said so it has to be the truth
Fact or fiction. What's the difference.
They say it's so
But think again.
Repeat mistakes and it's never gonna change
And you never get the truth if you never ask yourself...What do they know?
They say all cops are bastard thugs. They're all a bunch of
Scots are mean. The Irish mugs. At heart all men are rapists
Girls today they ask for it. I never touched your mother
And youngsters now are all on drugs.
Yes, thanks, I'll have another
Stands to reason
Mark my words. Take a tip from one who knows
You will know more when you're older. They say it's
so, but come again. Question it when you see it doesn't fit
And you never get the truth if you never ask yourself
So you ask me what's the score
Well, I can only say to make up your own mind
I'd rather see the whole world die than you or I believe a lie
What do I know?
We had it hard when I was young.
We used to have such great times
A man took pride in what he'd done.
You should have seen the breadlines
To get back to that golden age there must be unemployment
But kids today don't want to work. They're just out for enjoyment
Stands to reason
It won't change cos it's always been the same
People hating, people fighting. They say it's so
Do you believe that? Perhaps you do but it's only up to you
And you never get the truth if you never ask yourself...What do they know?
Let's go Mets v Rudy Giuliani's Girls this weekend.
Kelso's Nuts love you.
9 comments:
Kelso I see where you are coming from, I can't talk alot about my recollections when it all went down as I am a bit younger than you and believe I was in high school when Milken was charged?
I also don't get too deep into financial discussions because while I do have some background- it is really not my area. It's not that I don't care about money or the ways it impacts our society. It's just not an area of expertise or deep familiarity. I took financial courses when I HAD to! Not because I ever wanted to.
I am hoping to find some good blogs to direct you to, where there is actual interaction and good discussion on the topics you enjoy, I will let you know what I find.
I was hoping you might find some commonality with the readers at DW, but I think they might be his students? I might have misunderstood the format there.
Got to call you on "what money he had left..." I think Milken was very well fixed when he came out, and as I recall quickly began all sorts of financial activity in violation of his parole, using fronts when necessary. He was a founder of Leapfrog, if I remember right, and probably made a bundle on the IPO. A cursory look at the LF chart will show that investors in it did about as well as Mikey's junk bond buyers ultimately did when the music stopped in the '80's. So not too much admiration for Milken from this corner.
I do agree with you on Den of Thieves, though: it was very anti-Semitic.
Harvey:
Forgot about LEAPFROG, and I completely AGREE with you about the BUYERS of the junk bonds. He was a buyer when they were cheao ahd a seller when they were dear and with all risky situations, it's neither Milken nor Kelso's problem that there is a sucker born every minute.
I never meant to imply that he left prisoh broke, hardly. He ended up keeping the better part of $1bn. I said plainly that he was a felon, si o no? Parole violation, though? Omigod. Stop the world. 0-2 count on the feller. If he swipes a pizza, he goes away for life w/o parole, no?
The Mike Milken in his heyday reminds us gamblers very much of the Austro-Canadian entrepreneur, Frank Stronach. The only person who made money doing business with Stronach was and will ever be Stronach himself.
One thing sort of in Stronach's favor,however, is his compulsion for a certain generous and gentlemanly sex act which involves a certain readily available, once very expensive now rather cheap, drug. So much so, that the act is certain circles is known as a "Stronach." The niece, Anita, is a Conservative MP from some ritzy part of Toronto.
Couldn't begin to offer any opinions as to Milken's sexual tastes although my understanding is that his are somewhat more conventional and an order on magnitude on the continuum different than James Stewart's are. I rarely use the anti-semite epithet, but it fits all of Stewart's writing like an...er...glove. Kelso's a bsstard sometimes and will resort to crude jokes in defense of his paisanos when the second oldest insult (blood libel #1) is thrown around by someone like Stewart with such relish: I got your DEN OF THIEVES...right here,
My point is not that he was unjustly accused or anything of the kind. My read on that is that once he became a SELLER of junk bonds and had such huge free-rolls in all sorts of companies via LBOs and the infamous "highly oonfident" letters, it was probably a huge high for hin to see his very elegant idea as a student turn into this behemoth and it was impossible for him to let go. And sure he became grandiose and drunk with his own power. I can't say that in his position I wouldn't have done the same. We know a few dudes like that ourselves very well, no?
I think, however, it took a lot of brains to discover the hidden value of the junk bohd market to begin with and a lot of balls and honor to take the heat for his brother, And to make good use of his prison time while he was allowed to do so, and to do some good for society later in life.
He did give some minorities (and I don't mean Reginald Lewis and Jean Fugett) access to capital they would have been redlined out of otherwise.
As far as contibution to the betterment of mankind through the prostate cancer donations, you must give me that he kicks the tar out of Bill Gates and Bono.
Fair enough. By the way, Reginald Lewis isn't black, as everyone thnks. He's Thai. I know a guy who knows him. Now ain't that a mindfuck?
Harvey: see how easy it is to agree when dialectic materialism comes into play? Athough, in 1990 we may have had opposite dogs ihn fight -- you in you prior life perhaps in representing a defaulted bond-holder (were they aware, however, of the embedded call option on the assets of the firm in the defaulted bond?), that is when you weren't disturbing people with LEGEND on 11 on your boom box. For me Milken's breakthrough was what an MBA could do for me intellectually. My theis wasn't ss innovative as MIlken's, but I did manage to come up with a measure of efficiency of stochsstic situations that is cleaner, easier to use, and more accurate than either Sharpe, Jensen or Kelly's. Those guys are/were geniuses, and Kelso couldn't be a lid on a garbage can at Mensa.
And for your trouble, you got some juicy gossip about Frank Stronach.
OK, I'll give you Reginald Lewis as Thai in the same sense that Tiger Woods is Thai.
Where's Lewis in the whole Obama thing, by the way, as a couple of Asians who've played the "black" card for all it was worth (apocryphal story about what Milken said when deciding to let Lewis buy Beatrice: "Let's give it to a schvartzer". I actually don't believe that one.) Is Lewis onside for Barack, or is self-consciousness/embarrassment driving him over to Hillary -- or wait, to Giuliani, even worse.
Lewis has joined the majority, I believe and Fugett's in charge. No idea what his politics are, but he was s Dallas Cowboy in the Staubach, Hayes, Hill (best football player from Manhattan!) era which could mean far left to far right.
Jeez, Lynn, sorry, yeah...the Wraith's a sharp guy, but the financial and economic discussions on the forums aren't really helpful to me and everything I've had to say or any question I might ask would bore everybody.
You're right. It's not a quantitative site at all and while the Wraith thinks the political stuff through, the comments are kind of standard fare (except yours, of course!)
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