An article was recently posted on this forum which characterized Michael Milken as some kind of virtuous victim. Benjamin Stein's book A License to Steal (which I recently reread) presents a contrasting view.

According to Stein, Milken attracted buyers for junk bonds by falsely claiming that their rate of default was small enough to make their true return far superior to other investments. He assembled much technical data that appeared to support this claim, and presented it with such flair and ingenuity that discovering its flaws would require a great effort by the skeptic.

Attracting buyers was only Milken's first hurdle. The next was how to avoid investors running for the exits once the true default rate of the junk bonds became apparent. His strategy was to take the revenue from newly issued junk bonds and use it to pay the interest owed to the existing holders of junk.

Milken's mechanism for doing this was to orchestrate junk bond "trades" at his firm, Drexel Burnham Lambert. In other words, Milken would take junk bunds out of Investor A's account and place them in Investor B's account, at the same time taking money out of Investor B's account and putting it into Investor A's. This gave the appearance of a "trade," whereas in reality Milken was deciding who would profit and who would lose. This gave him absolute control over the cash flow, as well as the almost limitless ability to reward family, friends and others in his circle at the expense of those outside.

It should have seemed remarkable that the companies borrowing money through the issuing of junk bonds, would have been willing to pay a rate of interest greater than necessary to be competitive with higher rated instruments. Milken's charisma and powers of persuasion were apparently sufficient to convince many investors that he had made a shocking financial discovery. But his most devoted investors were no doubt attracted by the lush kickbacks and insider trading tips Milken sent their way, and which their depositors or pensioners (whose funds they were pouring into Milken's junk) would seldom if ever see.

Another wonder was that the SEC permitted this to go on for an entire decade (from roughly 1978 to 1988). It seems that the Milken public relations machine had succeeded in making him the darling of virtually the entire financial world, including the General Accounting Office.

When it finally became unmistakably clear that Milken's junk bonds were inflated, they sank like a stone. The losses incurred by Savings & Loans and other federally insured institutions who were holding Drexel junk when the music stopped, is on the order of fifty billion dollars, reimbursed at taxpayer expense.

-- David L (bumpkin@dnet.net), April 19, 2001

Answers

Hey Dave,

To the extent he made his money by outright fraud or theft or violating his contract with his clients, -- it was wrong and he should be punished.

If you feel he should be punished over and above those -- well, I'll need to see an argument. I have no problem with "insider trading" for example. It should be recognized as a fact of life and if people don't like it -- well, they can take their money elsewhere. If enough investors did that, I'm sure the corporations would take their own corrective measures. In other words, let the market take care of itself (with rare exceptions -- e.g., pollution). In most cases, I'm sure all will turn out well.

-- Eve (eve_rebekah@yahoo.com), May 17, 2001.

Hey Eve:

Would you believe that there are people out there that are so silly that they believe Ayn Rand created real characters and not cartoon characters?

Amazes me too. :)

Very,

Bemused

-- Bemused (Bemused@comedy.xxx), May 17, 2001.

Hey Eve,
You seem to feel that Milken received overly harsh punishment and that his good works drawfed whatever securities violations he might have committed. This was the view espoused in the article you had posted.

It is also a view that is directly contradicted by the facts as I understand them. Hence I wrote and posted an explanation of what Milken did, which was based on what I had absorbed from Stein's book.

Despite the relative brevity of my above summary, I think it gives the reader a pretty good sense of the magnitude of Milken's fraud and its negative impact. But it is still just scratches the surface of what Stein covers.

To seriously attempt to rebut my view would require either providing contrary evidence at the same level of detail as Stein provides, or showing why Stein's details or the conclusions he draws from them, are wrong. Only then is a meaningful discussion possible.

To evaluate the harshness of Milken's punishment, it should be noted that for having amassed a multibillion dollar fortune through fraud, Milken was required to serve two years in a federal correctional facility.

-- David L (bumpkin@dnet.net), May 18, 2001.

Dave -- I hear ya, but I stand by my post. And here's a book with another view...

Milken Book Review

Bemused,

Yes -- many of Rand's characters WERE somewhat unreal -- lacking dimensions. But I think this was deliberate -- she focused on her philosophical aims, and used the characters as vehicles to present her philosophy.

I know I would have at least given John Galt a sense of humor, more emotions and a wild, spontaneous side. :)

-- Eve (eve_rebekah@yahoo.com), May 18, 2001.

Eve,
OK, I shall read the Fischel book (the one you reference), compare it with Stein and post my findings. Will you do likewise.

-- David L (bumpkin@dnet.net), May 18, 2001.

Dave -- I'll try, but my time is limited; I don't know if I could do this anytime soon. Do you see, though, how my post might stand regardless of what either book says? I'm speaking in general principles right now, while the books would be crammed with facts. All I'm saying so far is, if he violated the individual rights of clients (including fraud or other breach of contract), he should be punished. If he didn't, he shouldn't be.

My philosophy of rights is solidly anchored in the rest of my philosophy, and I'm betting your book doesn't get much into that, while the book (from the review I've posted), if anything, most likely supports my view. Although I'm always open to learning new things, I'm not sure that either of these books would change my views on these very basic principles of mine, other than to tell me whether or not he violated their rights, or whether his rights were violated, and to what extent. I have no doubt that I'd learn loads of new facts from them, though. And after I'd read both, I could very well see myself thinking he actually got off easy.

So my first question is, does your book address individual rights? The rights of Milken and his clients HAVE to be addressed in order to get a complete understanding of what should be, or should have been, done with Milken -- if anything. The rights I'm speaking of start with the basics -- the rights to life, liberty, property and the pursuit of happiness. The philosphy of rights is complex. But I'm sure you're aware I'm a libertarian, so you probably have a general idea where I might be comin' from on those.

In any case, from what you say, Milken apparently did things that in fact would justify punishment. So, actually -- in a sense, and to an extent -- I'm agreeing with you.

Further, I'm complerely open to discussing this on the thread; and I'm fine doing this as we are -- that is, with you having read your book and me having read neither. And for purposes of our discussion, I'll accept everything you tell me that's in your book as fact, as well. That way, even if the other book would dispute some facts assumed in your book, at least you'd see more clearly where I stood on all this.

-- Eve (eve_rebekah@yahoo.com), May 18, 2001.

Eve,
In my opinion, Milken's acts were so reprehensible that to even suggest (as you have) that his punishment take his rights into account, is really over the top.

-- David L (bumpkin@dnet.net), May 18, 2001.

Dave, morally and legally speaking, punishments MUST take rights into account. By its very nature, a punishment involves messing with someone's freedom (liberty), their life, their property (they stand to lose it -- or at least their use of it -- if they go to prison), etc.

So I guess I don't follow you here.

-- Eve (eve_rebekah@yahoo.com), May 18, 2001.

Eve,
Let me try expressing it another way. Consider someone's having committed a series of burglaries, armed robberies or murders. In such a case, the criminal's violation of his victims' rights is so egregious that I'd have no interest in an academic discussion of how punishment might violate the criminal's rights, except for whether the death penalty should be applied to deprive the criminal of his right to life.

Since in regard to the seriousness of his crimes, Milken is the white-collar equivalent of a serial violent criminal, and his sentence fell far short of the death penalty, I am extremely confident that the sentence did not unreasonably violate his rights. Hence my lack of interest in that question.

-- David L (bumpkin@dnet.net), May 18, 2001.

Eve seems to think all this dough represents seashells. Her reality rests on the impersonal view all Capitalists must have of reality.

Milken I doubt would screw his own mother. But does not blink once doing similar to nameless faceless folks who are represented by nothing more than bank entries. He could careless if his schemes displace many a worker and the resulting chaos this creates around the area of impact. So what if grannys nestegg vanishes, he never even thinks of any of this in those terms. None of these vermin ever do.

Milken got NO punishment. Par for the course. He can steal billions and gets a paid vacation or a promotion. Joe Black robs 10bucks from a 7/11 and does at least that much time as Betty Bendover. So screwed now, the justice even Joe Black gets is peanuts. Hell most everyone gets a freepass it seems.

Few if anyone would say whitecollar criminals get anything approaching their just dues, except an eve and her "rights" drivel.

-- (pinhe@d.detector), May 20, 2001.

Eve,
You said above that Milken's rights need to be considered in evaluating the suitability of his punishment. If you meant this statement to be framed in a hypothetical world outside the context of our society, then I would agree.

But I'd contend that Milken's rights don't need to be considered in evaluating his punishment relative to those punishments our society generally metes out for various crimes. Milken's rights seem no different from any other criminal's. Since Stein was evaluating Milken's punishment in this context, the latter's rights seem irrelevant to Stein's thesis.

Accepting as fact what I wrote about Milken, and considering his punishment in the context of the America of the past few decades, would you agree that Milken got off lightly.

Changing gears to insider trading, it seems to me immoral for someone in a business venture with several partners, to withhold proprietary information from them in the hopes of capitalizing on it. I see this principle as extending to the owners of a corporation, i.e., stockholders.

The first parties who act on proprietary information unfavorable to the corporation will likely be able to sell their stock at a higher price than those who act later. I don't see why the "inside" owners should have this opportunity to profit at the expense of the "outside" owners. Nor is it clear how in the absence of regulations requiring disclosure of trading by insiders, corporations would ever get any feedback to curb the practice (since an outside stockholder wouldn't even know that it was taking place).

-- David L (bumpkin@dnet.net), May 20, 2001.

Pinhead,

“Eve seems to think all this dough represents seashells. Her reality rests on the impersonal view all Capitalists must have of reality.”

I don’t follow you. What would be an example of a “personal” view?

Milken's punishment should be just, and no different from any other in a similar situation – under the libertarian assumptions I described above. Even under those principles – if he defrauded granny out of money he should be punished – absolutely. How much? Well, that would call for knowledge of the specific facts and circumstances, as well as the philosophy of law. As I’m not very familiar with Milken’s case (I never implied I was) I don’t have the knowledge to get into that – but if you laid out the set of facts, I wouldn’t mind speculating.

“...eve and her "rights" drivel. “

What is it you don’t like about what I said about rights? Theories of rights are complex, and I’d gladly elaborate on where I stand if you’re interested.

Dave,

“Accepting as fact what I wrote about Milken, and considering his punishment in the context of the America of the past few decades, would you agree that Milken got off lightly?”

Let’s take it a step at a time. Describe in detail one clear, unassailable act of outright fraud he perpetrated. Then tell me specifically how that affected his punishment, and I’ll be happy to comment.

The insider trading issue is more complicated than might seem from my blurb on it above. Please see the following essay on it that'll hopefully clear up some of the issues you have with it. If you still don't agree, let me know and we'll take it up directly.

What is Morally Right with Insider Trading

-- Eve (eve_rebekah@yahoo.com), May 21, 2001.

You now claim you really are lacking in Milken knowledge? way funny.

The seashell reference was made to show how these types operate. They live in a world between their ears. They have been cut-off from seeing commerce, literally. For them money is looked upon as seahells, chips, entries on a graph to indicate to them if they are "winning". Their values are skewed to all hell as they live in their own world. BTW, this is a sign of deviant behavior 101 coming.

In this world, it is never seen that a corporate raid anything but a good "strategy" to accumulate more "chips". Money has become IT. No longer is it viewed as a means of Trade. A unit which represents labor and creativity of others. This is a fundamental disrespect of others rights. We all do this, but most understand where the lines are. Milkens do not. They are not IN reality. Hell they have NEVER been in it for any period other than to learn they are unable to function in a way which places them INTO it. They have contempt for it, pathological contempt.

Eating one's sexual partner is just fine to a J Dammer. He lives in a whole different reality to the rest of us. Milken does as well and creates as much grief in his wake. Milken is a threat to society. That is if a decent balanced society is the desire of most. Sadly this belief is but given lip-service it seems these days.

Do you think GW Bush REALLY gives a crap about California? Has he shown ANY compassion? ANY willingness to do all he can do to help ease a very serious situation, no matter who is to blame? Why not? and why this campaign to show us all he really does care? Why do many simply believe he is nothing but a rep for fatcats and selfishness?

Milken is poison to a free open decent society. He is a pathetic SICK man who now operates several concerns in an attempt at proving to himself he is actually not the scumball he is. Script this, predictable as the day is long. GW and his compassionate conservatism and born-again attempts comes to mind in another example. Ed Yourdon and his "I must warn the masses to the mistakes *I* made and promoted regards Y2k Bugs". Where was Ed back when he could have prevented these errors he now feels 2 decades later he must act upon? These types always "feel" bad way past the point they should have...they are not in reality remember.

-- (pinhe@d.detector), May 21, 2001.

Pinhead,

So, if a doctor is in it for the money, but saves a life in the process -- is that just as bad?

Similarly, if Milken is just in it for the money, but saves a business (and its jobs, etc.) in the process -- that's bad?

Further, why do you stop at the "money"? Why don't you go any deeper? How about what he DOES with it? Would it make any difference to you if he gave it to a children's cancer fund, versus his OWN cancer treatment (he DOES have it, btw), gave it to inner city schools, got another sports car, or sets it on fire to light his cigars?

Later you say he had a "fundamental disrespect of others' rights." Precisely WHICH rights are being stepped on? I mean, maybe he DID disrespect others' rights -- like granny's. So, we can agree on THAT one -- and similar cases, too.

But if he sold junk bonds to save a business (and its jobs and products we use) -- assuming no grannies were stepped on in the process -- that was a good thing -- right?

"Milkens...are not IN reality."

What do you mean by THAT?

Also, would you please leave GWB and Ed Yourdon out of this? They're all individuals -- and would be better addressed in separate threads.

-- Eve (eve_rebekah@yahoo.com), May 21, 2001.

Instead of a game of educating eve here, go read on Milken please. See the Felonies, the fines, the violation of probation. Read on Ponzi schemes. See if you can drudge up any Capitalist justifying that scam as Moral.

Hell eve what do you think we have the freaking SEC for? I mean is the stupidity level here that low? I have to educate you even to carry-on a conversation? I am told not to use analogies and examples?

We live in a society where being Honest is viewed as a BET. Does this not disturb you in the least? Simply amazing anyone would defend a Milken to be honest with ya. On any grounds or levels. This is not that difficult.

-- (pinhe@d.detector), May 21, 2001.

Eating one's sexual partner is just fine to a J Dammer...

Wait a minute here, ah, nevermind, carry on.

-- Uncle Deedah (unkeed@yahoo.com), May 21, 2001.

Pinhead,

Tell ya what; I'll offer you the same challenge I gave Dave. Let's keep it as uncluttered as possible -- which means: let's take it one fraud or crime, etc. at a time.

Describe in detail one clear, unassailable, uncontested act of outright fraud Milken (not GWB and not Ed, etc.) perpetrated. Then tell me specifically how that affected his punishment, and I’ll be happy to comment.

Just try to cool down though, guy, ok? You just might find that we're not very far apart on these issues. You might even find that with some infractions I'd want a more severe punishment for him than YOU do.

And you speak of analogies -- well, if we can't even lay out what the Milken facts are, why would you jump to analogies? Analogical to -- what?

-- Eve (eve_rebekah@yahoo.com), May 21, 2001.

NO sweetie.... YOU go do the "readin" and get back to us. Just a reminder, do not be swayed by the many hucksters with links on search engines with favorable commentary on this vermin Milken, all to pitch some lame-ass book.

S tart here I would suggest instead.

-- (pinhe@d.detector), May 21, 2001.

Eve,
Style points aside, Pinhead is substantially correct. You have evaded one fact after another on this thread. I'm not saying it's deliberate, it probably isn't, but it is definitely happening.

I'll start at the beginning, with my original post. I thought it almost impossible for anyone to read the allegations I posted without being appalled either by Milken's having committed those deeds or by someone's claiming he did. Your reaction of apathy was simply unbelievable. It made me wonder if you really absorbed what I wrote.

In your first answer, you suggested that I might have been arguing for a harsher punishment for Milken than his acts deserved. That's rather interesting, considering that my original post said absolutely nothing about Milken's punishment. Even more interesting is that you later profess ignorance of the facts, yet you see fit to have decided that Milken's punishment was at least sufficient for the crimes you claim to have no knowledge of.

In that same answer, you address insider trading, as if I was criticizing Milken for that. What I was criticizing was where those who invested large amounts of their clients' money with Milken, had their personal holdings handsomely increased by Milken. It doesn't matter that he rewarded them with insider trading tips, morally it wouldn't have made an iota of difference if he'd given them luxury yachts. The point is that this created a huge conflict of interest for the investor.

You ask for one unassailable act of outright fraud that Milken perpetrated. Your answers on this thread don't give me much confidence that you are truly prepared to recognize anything Milken did as outright fraud. Heck, you couldn't even bring yourself to recognize that Milken had created conflicts of interest for his investors; instead you focused on the comparatively unthreatening phrase (to your philosophy), "insider trading."

We all have our blind spots. I don't doubt that I have them, even though I always try to be open minded. A blind spot makes one think his or her mind is open when it isn't. So I am prepared for your probable reaction of indignant surprise.

I can't say I'm happy about having to say all this to you, but not saying it would have done you a disservice.

-- David L (bumpkin@dnet.net), May 21, 2001.

Pinhead, I'll take a look at your link.

Dave, I'm sorry that you feel I've evaded the issues or facts. Maybe in a way I have, but it really wasn't intentional. Maybe my lack of reaction was because I'd seen statements by others that many or all of the charges were false or trumped up. And by realizing all the benefits his work has conferred through saving businesses and jobs (and therefore families of workers) as well. And that the SEC itself apparently had (deliberately?) done nothing for many years. And the complicated nature of some of the transactions. Etc. Because of these things, I'd hoped to see more before I "rendered my judgment". You probably see me as lazy; that I should be doing my own research. But that wasn't my approach. My approach was to share some principles I would utilize in analyzing complex cases like this -- because I didn't have the time to learn all the details.

Since I don't have much time to do my own research on this right now, I think I'd better back off. I didn't come into this thread to render offense and judgment at the few facts shown here -- I came to show where I would stand overall, knowing full well that I didn't have all the details, and wouldn't have the time to learn them all.

Given my lack of time in getting to learn this case, and the reaction from you guys, in retrospect, I probably should have stayed away from this thread to begin with.

To sum up: Assuming your initial post stands alone, is absolutely true, is complete, the acts were done deliberately, where Milken knew beforehand he was doing wrong, there's no mitigating circumstances, no other contextual issues to be concerned with, then, yes -- I'm appalled. Really.

-- Eve (eve_rebekah@yahoo.com), May 22, 2001.