Book Cover

In that gap between perception and reality, as Milken liked to say, there was money to be made.

# Review

Bruck tells the story of legendary financier Michael Milken, of how he transformed from a socially-awkward analyst into a kingmaker financier pioneering junk bonds. Bruck gives an in depth explanation of his meteoric rise and the beginning of his fall, detailing her extensive research into Milken’s deals and his intricate system of junk bond financing for his circle of corporate raiders.

Milken, a senior executive at investment bank Drexel Burnham Lambert, pioneered the market for junk bonds, high-yielding bonds which are rated below investment grade by credit rating agencies. Milken cultivated a syndicate of large buyers of junk bonds and with the support of his buyers, he financed numerous takeovers and mergers. Milken pioneered things like the “highly confident letter” (as in “I’m highly confident I can raise $X to buy company Y") and the “blind pool” (as in “here’s a billion dollars go shop for companies to buy”).

Milken’s critics claim he supports greemailers and both himself and his business partners are no different from bandits. Milken’s supporters, meanwhile, claim that the actions of Milken and his business partners helped shake up American corporate culture, which has become complacent and corrupt. Bruck illustrates arguments on both sides of the aisle. Bruck also has a very journalistic writing style although she does deviate from her style when speaking of Milken. Her language for Milken is akin to language describing royalty or a religious figure.

Bruck details the various takeovers that occurred as a result of the junk bond boon, such as Nelson Peltz and Peter W. May’s Triangle takeover of National Can, Carl Icahn’s purchase of TWA, and Ron Perelman’s Pantry Pride versus Revlon. Bruck goes into detail describing each deal as well as the personalities involved (and their links to Milken). Bruck describes the difference between their relationships with Milken, such as Peltz being more of Milken’s follower while Icahn was more of a client. Bruck also details the inner workings of the deals, such as Icahn’s brilliance in negotiating and the contrast between the establishment corporate culture and the new upstarts for Perelman’s deal. Throughout the book, I was amazed at the list of names that popped up which eventually became finance legends themselves, such as David Solomon (DJ D-Sol), Howard Marks (from Oaktree), and Leon Black (from Apollo).

Yes, there were blatant insider dealings in Milken’s circle, such as Milken forcing his partners’ companies to become more leveraged than they had to, in order to hold each other's debt. There were also organizational issues, such as Milken disregarding compliance directives from his own bank and not enforcing a Chinese Wall. To be fair, this was in the 80s, where compliance laws were lax if not non-existent, and people such as Milken were creating the systems as they went. There were several takeaways for me:

• The reason that Drexel Burnham Lambert was able to accomplish so much within the junk bond market was the reluctance of larger, more established banks to experiment. Bureaucracy and risk aversion hampered the abilities of the other investment banks to compete in the new market. I see many analogies today with crypto, as large established banks are hesitant to draw the ire of regulators by engaging in crypto business.

• Before Milken became a salesman, he traded capital for his bank. Milken had a stellar record as a trader. He was a contrarian thinker and he had many axioms which he abided by, such as buying companies whose management had substantial stakes themselves and identifying companies whose bonds traded at a discount to their value and whose assets were also discounted.

• Milken was an incredible salesman, he understood his product well and amazed people with encyclopedic knowledge of all the bonds in his catalogue. Milken knew what made people tick (money) and used that knowledge to build up staggering amounts of soft power and social capital. Milken then leveraged said soft power and social capital to create a network effect for his buyers and sellers. Milken is also a good leader for his group. He ruled through soft power and worked in the pit with his team in order to demonstrate camaraderie and be in the flow of information.

• Milken had an insane work ethic. Milken always multitasked. A trip to the grocery store can be for checking how well the store was being run, as well as which products his children liked. He did not let his wealth and power get to his work ethic and continued to work hard even when he attained success. His work ethic caused others around him to adhere to a stricter work ethic as well.

# Conclusion

Love him or hate him, it's hard to deny Milken's impact on American capital markets.

# Overall rating: 7.9

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