'Every night, we were in the Polo Lounge, drinking Cristal' and other amazing quotes about the reign of the junk bond king
Portia Crowe
Mike Milken
(Gerald Herbert/AP)Former junk bond trader Michael Milken.
Twenty-five years after Drexel Burnham Lambert filed for bankruptcy, some alumni are getting together this week for a reunion in New York.
So Bloomberg's Max Abelson, Jason Kelly, and David Carey put together an extensive, incredible oral history of the former investment bank. It was once the fifth-largest on Wall Street until it capitulated due to illegal junk bond trading activities led by trader Michael Milken.
Bloomberg interviewed more than a dozen former Drexel bankers, traders, and clients, as well as regulators, to narrate Milken's – and Drexel's – journey through junk bonds. To them, he was more than a man:
"He would speak in parables. … It became almost like mystical," said Don Engel, a former Drexel investment banker.
Former colleagues described how Milken's revolutionary junk bond trades transformed the bank from a second-rate institution to the Wall Street titan it became.
"I would pick him up in the morning, and I would take him home at night... when you saw him in the morning, he'd be reading the paper. He'd be looking at the spreadsheets, the trading sheets, and there would be very, very little conversation or anything personal. At night he'd be giggling and laughing," said Lorraine Spurge, who led capital markets at Drexel.
They described the good times, when major clients started to roll in...
"We had a major fight/discussion for a couple years before we did our first Las Vegas casino. Because we weren't convinced that it was morally the right thing to do. Is it taking money from people who can't afford it in a less than socially desirable fashion? Ultimately we turned around and we looked at it and we saw that a number of our competitors were financing them," said G. Chris Andersen, who was head of the investment banking wing, describing the bank's relations with Steve Wynn.
"The blanket term greed has no meaning. … That's just an adjective for people who write about this who don't understand what it was like," said Peter Ackerman, who was head of international capital markets.
Clients and traders described Drexel's annual convention, held to match companies in need of financing with investors...
"The so-called Predators' Ball, which I always thought was a s----- name. … It just did not correctly reflect the substance and level of intellectual discourse that actually happened," said Leon Wagner, an executive in the junk bond department.
"Whatever the conference cost us, in the millions, we made it up in the first hour because deals were done there," said Engel.
"The Polo Lounge was our headquarters. In the Polo Lounge—from Monday night, right through Saturday—every night, we were in the Polo Lounge, drinking Cristal. ...We stayed up until 4 or 4:30 and they served breakfast, and then we went to the conference," said Engel.
...And the bank's influence in Washington:
"There were 25 pieces of legislation entered in the Congress of the United States of America to try and outlaw the sale of junk bonds. … So I took several of my guys and went to Washington for the spring and summer of 1985. And I got 25 pieces of legislation withdrawn," said Andersen.
But then things started to shift...
"It might not have been the greatest thing for Drexel to have used junk bonds for hostile takeovers," admitted Sorte.
"I don't think we ever really understood how pissed off people were getting in the rest of the financial markets. I don't want to sound haughty about the thing, but even in retrospect, people couldn't compete," said Richard Sandler, a Drexel consultant and Milken's personal lawyer, referring to rivals on Wall Street.
Regulators started to arrest traders, one at a time.
"I sat there in the bunker for eight days, and I called Fred and I said, 'Fred, we've got it wrong. They're not trying to hurt us. They're trying to kill us,'" said Anderson, referring to then-CEO Fred Joseph.
"Except for the craziness of the investigation, I think the firm did some of its very best work. … RJR Nabiscohappened after Boesky. Mellon Bank deal happened after Boesky," said Ackerman, referring to insider trader and Drexel client Ivan Boesky, who was arrested in 1986.
In 1989, Mike Milken was indicted.
"The spirit and the moral fiber were broken by the great one not being there. It was a tragedy," said Engel.
"Some of these crazy guys, they tried to buy an airline ticket around the world quickly while the credit card still worked," Jon Sokoloff, who worked in corporate finance.
Since 1990, the high yield, or junk, bond market has steadily grown.
Former Drexel employees and clients reflected on the aftermath of Drexel's implosion — and qualify it.
"Even if you said some of these things were wrong or even illegal, they were done to try and help people out where practically nobody was getting hurt, where you're talking about eighths of a point on a $43 stock. Who gives a s---? And in retrospect, they're nothing compared to the fraud of the '90s and 2000s," said Stephen Weinroth, who was in charge of underwriting.
"We live in a society where the president of the United States was getting blow jobs in the Oval Office. And nobody's perfect. And people make mistakes," added Wagner.
And some still stand by their actions:
"Somebody did something and called for a vote on who had the greatest positive influence, Michael Milken or Mother Teresa. And Michael Milken won hands down," said Anderson.
