The Fall of Drexel

THE bankruptcy of Drexel Burnham Lambert has been greeted with lots of crocodile tears and even outright gloating. The huge investment bank had plenty of ill-wishers. Some of the spite came from Wall Street competitors who felt Drexel's sharp elbows in its pushy rise during the '80s.

But much of the hostility came from moralists for whom Drexel epitomized the ``greed'' that, in this view, consumes America.

Drexel is denounced for creating the market for high-yield, high-risk ``junk'' bonds, thus fueling the takeover rampage that disrupted corporate America and left companies bent under heavy debt; for paying ``obscene'' compensation to junk-bond king Michael Milken; for violating securities laws (though US prosecutors themselves may have erred in their heavy-handed use of racketeering laws against Drexel).

But amid the posthumous moralizing (and cackling), some points should be kept in mind:

Much thinking about the $200 billion high-yield bond market has been skewed by the ``junk bond'' label. These began simply as IOUs of the more than 95 percent of American companies that can't issue what the ratings agencies designate ``investment grade'' securities. Before he focused on megadeals, Mr. Milkin created a financing market for thousands of jobs-creating companies. Though the junk-bond market has softened, most of the offerings are still sound.

The takeover mania that Drexel helped foster enabled many stockholders to realize the full value of shares that were underpriced due to, among other factors, lackadaisical or self-interested management. And the mere threat of takeover energized other complacent executives.

To the extent that the buyout binge hurt companies by piling on debt, or that S&L operators, pension-fund managers, and other fiduciary investors recklessly stocked their portfolios with junk bonds, thereby impairing some people's savings, the blame must be widely dispersed.

Drexel's collapse did not start a chain reaction throughout the financial markets, which are less teetery than many people think.

The fall of Drexel Burnham Lambert was a business event, not a thunderbolt from some avenging deity. Moralistic theories don't further public understanding.

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