Pardon Michael Milken

There's already talk about which lucky criminals will get George W. Bush's end-of-term pardons (see, e.g., link). Here's my number one candidate: Michael Milken.

It always surprises me how fast reputations fade. These days, hardly any of my law students has even heard of Michael Milken. Seems like only yesterday (but in fact, it was April 24, 1990-) that Milken was the Darth Vader of finance, the poster boy for everything that was bad in the financial world. That was the day he pleaded guilty to six. That was the day when Milken pleaded guilty to six felony charges related to securities reporting and price manipulation. He also agreed to a $200 million fine and $400 million in disgorgement.

Milken (just to make sure we are all on the same page) may be characterized, not quite incorrectly, as the man who invented the junk bond--the notion that anything is a bargain at the right price, and that you can issue bonds on highly risky asset pools provided the return matches the risk. He was also a center-stage spotlight performer in the great bacchanalian spectacle that was the invesment market of the 80s.

I haven't any doubt that Milken broke the rules along the way. And probably more than he admitted to: although numbers like $200 million may sound like a lot to chumps like me, the fact is that his plea bargain was a masterpiece of litigational artistry on the part of his lawyer (the late Arthur Liman) who got him off on what was, in the context of the matter, pretty much a parking ticket. Per Forbes, Milken in 2007 still ranked as the 458th richest person in the world, with a net worth estimated at $2.1 billion.

Aside from buffing his balance sheet, Milken after his plea spent a few months in prison; he suffered, and so far survived from, prostate cancer; and he sloshed buckets of money-mainly health care, a good bit to his own disease, but also many others. His efforts have so far bought him, if not exactly new celebrity, still perhaps what under the circumstances may be even better than celebrity--a kind of anonymity, in which a generation of law students don't even know what he is.

So Milken paid his money and served his time and has worked to reestablish his place in polite society. All this is wonderful, but the real reason for his pardon is none of these. The real reason is the motivation for his prosecution in the first place. For as any detached observer would have to concede, Milken went to prison not so much for his securities crimes, real though they may be, as because of the way he jolted the old-boy circuit. Before Milken, investment banking, and particularly the bond market, was a tight little club of Episcopalians and German Jews who made life easy for each other and pretty much blew off everybody else. In Chicago, they say the rule is "we don't want nobody nobody sent." The same applied to the old-fashioned bond market: before Milken, no matter how good your idea, if you weren't well-connected, you could pretty much forget it. Milken, an outsider with a cheap toupee, changed all the rules.

Just to close the circle--I should make it clear that in the end, I think this was mostly to the good. Granted there was a lot of turmoil in the Milken market and a good many of his deals went sour. But at the end of the day, I think a good deal of the amazing dynamism of the American economy (the "real" economy, not just the paper economy) in the 1990s can be traced to Milken and the ay he broke the mould.

So I'll accept that Milken probably deserved the punishment he got, maybe more. But I think there is a strong case that he was punished for the wrong reasons, and that it is time to recognize him as a mould-breaker who created a lot of things that are best about our financial system.

Background: The literature on Milken is extensive and almost entirely impaired by partisanship on one side or the other. One of the more constrained inquiries is Jesse Kornbluth, Highly Confident. Daniel Fischel, Payback, is savagely pro-Milken, but it explains the deals more clearly than anybody else.

Idle Thought: Remarkable how often the mould-breakers wind up outside the law. John Law, an ahead-of-his time financial thinker, had to flee Paris after he created the word's first great stock market bubble. Marc Rich, Bill Clinton's pardon poster boy, virtually created the spot market for oil (but unlike the case of Milken, I don't think Rich had/has any legitimate claim for relief).

Miscellany: Martha Stewart? Sure, go ahead. Scooter Libbey? Well, I don't suppose anything I say will stop it (of course, that's true for everybody I write about).