Michael Milken’s championing of junk bonds, with their subsequent role in leveraged buyouts and the rise of Drexel Burnham Lambert, became for many a symbol of the greedy 1980’s. Kornbluth argues that this perception of a financial system out of control was largely responsible for the lengthy investigation and prosecution of Milken and Drexel. He finds few heroes or villains on either side as he sifts through conflicting stories looking for the truth.
Milken showed great promise from an early age: Brilliant, hard-working, and self-effacing, he was an academic and social success as a student. His great insight into the bond market occurred while in college. He realized that a good portfolio of low-grade bonds outperformed “investment grade” bonds—bond rating was overdependent on past performance, while the ability to service debt was dependent upon current cash flow. This concept would later transform the financial markets and support the entire firm of Drexel Burnham Lambert.
Drexel’s success in junk bond financing turned it into the most powerful firm on Wall Street nearly overnight, and its growth seemed unstoppable. Such frenetic deal-making encouraged some people to play fast and loose with the rules; Drexel employees Dennis Levine and Martin Siegel were among the first to get caught, for exchanging insider trading information with arbitrageur Ivan Boesky. This connection eventually brought down Milken and Drexel, although Milken was never accused of insider trading.
Much of HIGHLY CONFIDENT is devoted to following the years of legal maneuvering which culminated in Milken pleading guilty to five security law violations (none involving junk bonds or insider trading). The account is flattering to neither side, with politics frequently dominant over law or justice. Arrogance repeatedly characterizes prosecutors, lawyers, and defendants alike. Kornbluth’s treatment is impressive in its depth and fairness. He puts a human face on a complex legal action, and probably comes as close as humanly possible to giving all viewpoints an unbiased hearing.