ON POLITICAL BOOKS: The Predators' Fall
Lewis, Michael
The Predators’ Fall Surej Milken and Boesky got busted. But that’s not why Wall Street went bust. by Michael Lewis One day some smart person will refute the conventional wisdom that the...
...But the criminals were caught...
...Does he mean to say that the corporate names vanished because of the crimes of a handful of men...
...The common perception is that the new corporate willingness to borrow money was caused by a tax code that favored debt over equity...
...I offer two small examples (behe was paid $550 million, Milken spent hours lobbying CEO Fred Joseph for an extra $1 5,000...
...Instead he suggests that since the crime coexisted with a financial revolution, the two are inextricably linked-he cannot mention the one without drifting into the other...
...Perhaps I am putting words into the author’s mouth, for he never argues his thesis outright...
...And Stewart believes that the system worked, and to work even better requires only heavier fines and more efficient watchdogs...
...But the real connection between the sixties and the eighties is that both witnessed a direct challenge by American youth to the American corporate establishment...
...Winnick was hrious to learn that Milken’s spread had actually been 30 points, and that Milken had kept 29’h for himself...
...Boesky only picked at his food...
...Stewart is a master of the invisible spin, which he applies in the usual way of the newspaper reporter: by selection of material, by finding someone else to say what he thinks, by seemingly innocent juxtapositions, by an apocalyptic tone of voice...
...On it were the eight featured dishes of the day...
...To me it seems more plausible that the link between the financial revolution of the eighties and the crimes was direct but incidental: The indulgence of junk bond buyers fueled the takeover boom, and the takeovers presented the investment banking advisers with information not available to the market as a whole, and thus with a chance to profit by trading...
...The spiritual center of the financial eighties was Drexel Burnham’s annual junk bond sales conference, known as the Predator’s Ball...
...Certainly other Wall Street firms contributed their share of financial mayhem without committing any crimes-let us observe a moment of silence for First Boston and Campeau, Goldman Sachs and Macy’s, Salomon and Revco...
...He always felt at least a twinge of guilt and anxiety...
...The weakness of the book lies less in the story than in its interpretation...
...Winnick earned one eighth of a point on the spread, or the difference between the price the customer paid and what Milken charged him...
...Gray as the lines sometimes were,” he writes, “Siegel was almost never in any cause all of the examples are small...
...When the food arrived,” writes Stewart, “the waiter wheeled a table next to them...
...None of this matters,” he tells the same friend, now an accomplice...
...The lawbreaking, while central to Milken’s grip on his market share, was irrelevant when it came time to do the deals...
...By the standards of financial and legal reporting, Den of Thieves is a masterpiece...
...For the first time in history,” said Joseph, “We’ve leveled the playing field...
...Taken together it conveys a fairly trenchant view of Wall Street as, well, a den of thieves...
...That quote is lifted from Den of Thieves*, which inclines towards another view: that Michael Milken acquired enough market power through his criminal activities to muscle corporations into issuing junk and investors into buying it...
...Perhaps Stewart fears that he taints his material if he makes too obvious an attempt to think about itthat readers are less likely to buy reporting if they think they are being sold an opinion or two in the bargain...
...The government is stupid...
...Stewartprobably relying on Siegel, who was clearly his key source-claims that Freeman regularly swapped illegal tips with Siegel...
...Which means there is nothing to stop it from happening again...
...They only make 30 grand, if that...
...They listened raptly to CEO Fred Joseph explain Drexel’s newest idea for financing any client with the right attitude who wished to raid a company...
...a strong editorial line runs right through his story...
...When the stupid government eventually catches him, however, he seems almost pleased...
...To dwell on the ill-gotten gain,” he writes in his preface, “is to miss the big picture...
...Ivan Boesky is accurately described by his son as “stark raving mad...
...A lot of classroom economics is premised on the idea that the more money a person makes, the less he wants...
...He selected one and sent the rest back...
...Or, as another Drexel banker put it, “We’re going to tee-up GM, Ford, and IBM and make them cringe...
...It doesn’t matter as long as you’re famous...
...I think so...
...Still, Levine, who both traded on insider information and sold information to Boesky, comes across as a crackpot parody of Wall Street attitudes...
...Dining one evening with a fellow arbitrageur, he ordered all the dishes on the menu...
...What is really unsettling about the last decade is that the economy was more or less screwed up legally...
...Anyone who explains the success of the Predator’s Ball explains a lot of what happened in the last Michael Lewis is the author of Liar’s Poker and The Money Culture...
...During this crime wave, the ownership of entire corporations changed hands, often forcibly, at a clip never before witnessed...
...Nobody with any brains is in that operation...
...The crimes were in my view less a first cause than a symptom of the larger antisocial attitudes that became convenient to hold on Wall Street, because they paid...
...decade...
...Greed alone cannot account for such a toll...
...They were, after all, colleagues...
...They stood out not just because of their value as evidenceneither, standing alone, was proof of any crime-but because of what they revealed about the state of mind that prevailed on Wall Street in the mid-eighties.’’ Of a conversation between Boesky and a friend: “[It] captured the peculiar dynamics of Wall Street during the heyday of the eighties, when criminal activity seemed to have insinuated itself into the very fabric of human relationships...
...The Predators’ Fall Surej Milken and Boesky got busted...
...He weaves the financial and legal threads so that his narrative reads more like true crime than another boring tome about business...
...Put too simply, it is this: The financial eighties were one giant criminal conspiracy, with Milken in the starring role of Omnipotent Evil Genius...
...Milken, too, seems stranger than fiction...
...In an era that purported to glorify free-market capitalism,” he writes, “this story shows how the nation’s financial markets were in fact corrupted from within, and subverted for criminal purpose...
...James B. Stewart...
...There is much more of the same...
...Only this time the radicals wore suits...
...Siegel gave Freeman details of International Controls Corporation’s bid for Kidder Peabody client Transway International...
...But it does not follow...
...by Michael Lewis One day some smart person will refute the conventional wisdom that the hippies of the six- ties and the yuppies of the eighties were polar opposites...
...Before the publication of Stewart’s book, the popular perception was that Goldman’s most infamous criminal, Robert Freeman, was the victim of overzealous prosecution...
...Much of the more colorful material is new...
...It is true that in a short 20 years the attitude of American youth to the free market turned 180 degrees-that the Berkeley seniors who once hooted with delight as Abbie Hoffman floated dollar bills onto the heads of traders from the gallery of the New York Stock Exchange cheered when Ivan Boesky, in his famous commencement address, told them that “[Glreed is healthy...
...The small can go after the big...
...I hear I’m on the cover of Newsweek...
...Of the sleazefilled taped conversations obtained in a raid of Princeton Newport Securities, Stewart writes that “two made a deep impression on the prosecutors...
...The [insider trading] game is fun, Bob, it’s easy,” he tells a friend at Lazard Freres...
...A favorite explanation is that investors succumbed to the mass insanity of the bull market...
...Den of Thieves...
...But this is not as easy as it sounds...
...The second tells how the prosecutors hunted them down and shows that the key to the investigation’s success wasn’t the highly publicized RICO Act, but the ability of the prosecutors first to terrify and then to immunize smaller fry, who then ratted on their superiors...
...The first tells of the four financiers-Dennis Levine, Martin Siegel, Boesky, and Milken-at the center of the two main circles of insider trading on Wall Street...
...While Goldman was involved in the Philip Morris acquisition of General Foods, Siegel asked Freeman, ‘What do you think of the [General Foods] stock?’ Freeman replied, ‘It looks good to me.’ This meant that Siegel should buy it, which he did...
...I suppose by now we should be surprised at nothing we hear about financiers...
...Freeman told Siegel he had taken a big Transway position for his children...
...Household names-Carnation, Beatrice, General Foods, Diamond Shamrock-vanished in takeovers that spawned criminal activity and violations of the securities laws , . . thousands of workers lost their jobs, companies loaded up with debt to pay for deals, profits were sacrificed to pay interest costs . . . bondholders and shareholders lost many millions more...
...The trouble is that the man has views...
...The event first took place in 1977 as a sober gathering of less than a dozen Drexel clients but quickly became an annual celebration of the ideas that made the last decade revolutionary: that debt is good, that the market is inherently moral, and that finance could and should be used as a weapon against entrenched corporate drones...
...The book consists of two parts...
...He implicates almost every major firm on Wall Street, most damningly the venerable Goldman Sachs...
...What’s more, the tax argument fails to explain why investors bought junk bonds...
...Simon & Schuster: $25...
...At the end of the year in which doubt when the line was crossed...
...To Stewart, the financial eighties were one giant criminal conspiracy, with Milken in the starring role of Omnipotent Evil Genius...
...Winnick was astounded that Milken would be so greedy...
...Stewart recounts another time when “a salesman in Drexel’s midtown Manhattan office, Gary Winnick, bought some of Milken’s bond inventory for one of his clients...
...You can be greedy and still feel good about yourself...
...What you don’t know,” said one patron of the 1985 Predator’s Ball, “is whether you have a watershed in American business or a South Sea Bubble...
...By 1985, the Predator’s Ball was drawing more than 100 companies that had issued junk bonds through Drexel, and an audience of 1,500 investors who controlled an estimated 1 trillion dollars in junkbond buying power...
...Although the narrative inevitably converges on Drexel Burnham-which employed Milken, Siegel, and Levine-Stewart admirably resists the notion that its crimes were peculiar...
...But the tax code favored debt long before Drexel’s junk bond king, Michael Milken, came of age, and it still does...
...Boesky looked them over carefully, circled the table, took one bite of each...
...Not this junk bond king...
...These are the costs of greed coupled with market power-power unrestrained by the normal checks and balances of the free market, or by any fears of getting caught...
...Stewart, a lawyer by training and a Wall Street Journal editor by profession, handles both stories skillfully...
Vol. 24 • January 1992 • No. 1
