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Milken: driven junk-bond king

By Ron SchererStaff writer of The Christian Science Monitor / September 9, 1988



New York

THE man the United States government is after - Michael Milken - may be the J.P. Morgan of the 1980s. Like Mr. Morgan, who financed such giants as AT&T, General Electric, and US Steel, Mr. Milken has changed the financial landscape. A senior executive vice-president at Drexel Burnham Lambert Inc., Milken has transformed a little-used method of financing, called ``junk bonds,'' and used it to tweak the establishment by providing funding for corporate raiders.

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According to Drexel, Milken has been responsible for a significant number of Wall Streets's junk bonds. These long-term bonds, which are available to small and medium-sized companies, compensate for lower credit ratings by offering higher yields. In large part because of Milken, the junk-bond market, which Drexel dominates, has swelled to an estimated $160 billion to $200 billion.

Like Morgan, who one congressional committee in 1912 said ``controlled the bloodstream of the very economy,'' Milken has become a symbol of questionable financial power to some US officials. In charges filed Wednesday, the government charged that Milken, along with Drexel, schemed with convicted inside trader Ivan Boesky to violate securities laws at the expense of Drexel clients.

Rep. John Dingell (D) of Michigan says, ``We've had questions about the propriety of some of his activities and practices for some time.'' However, Rep. Thomas Bliley Jr. (R) of Virginia says, ``Anyone who talks with him must be favorably impressed.''

Outside the government, opinions are also strong about Milken. Connie Bruck, author of ``The Predators' Ball,'' a recent book on Milken and on corporate raiders he has financed, calls him ``utterly driven, obsessed, visionary.'' Even coworkers at Milken's Beverly Hills, Calif., office consider him to be ``intense,'' starting work at 4:30 a.m. so he and other key Drexel employees can work East Coast hours on the West Coast.

Milken's capacity for work, in fact, is legendary. In a rare interview, he says he finds traveling between Tokyo and Los Angeles an ``invigorating experience.'' Why? Because he gets to work a full day in Tokyo, then he gets to work on the flight back to California, and then, after crossing the international dateline, he has a chance to work the same day twice. When he vacations, he often chooses to go to Hawaii in part so he can begin work at 1 a.m. The time difference gives him several hours of uninterrupted work while his family sleeps.

Even though he is demanding, Milken's employees are extraordinarily loyal - an uncommon trait on Wall Street. Harvey Eisen, president of Integrated Resources Asset Management Corporation, who has done business with Milken, compares the ``junk-bond king'' to a good drill sergeant in the Army. ``While you're going through it, you hate the guy. But at the end you realize you have grown as a person. I have never seen anyone better than he is.''

But those same drill-sergeant attributes scare Ms. Bruck. ``Given his incredible compulsion to control and his enormous greed, I think he's a very dangerous individual,'' she says.

The son of an accountant, Milken grew up in southern California, not far from his current house in Encino. Seeds for Milken's deeds go back to his undergraduate days at the University of California, Berkeley, where he found a study that showed a portfolio of high-yielding, low-quality bonds that outperformed higher-rated bonds. But it wasn't until after he got his masters in business administration from the University of Pennsylvania's Wharton School of Business and went to work full time for Drexel that he got to prove the thesis.

Milken began by trading high-yield bonds and developing customers for them. Eventually, Drexel and Milken started underwriting the high-yield bonds. The bonds filled a gap in the portfolios of some investors.