junk bonds

Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance, and the Road Ahead

by Kenneth Rogoff  · 27 Feb 2025  · 330pp  · 127,791 words

same time that swap-line use burgeoned in March 2022, the Fed unveiled a plethora of other facilities that backed everything from municipal bonds to junk bonds.15 Nevertheless, it is possible to somewhat disentangle these effects by using very-high-frequency data—that is, by looking at market rates right after

Blank Space: A Cultural History of the Twenty-First Century

by W. David Marx  · 18 Nov 2025  · 642pp  · 142,332 words

only discovered electronic dance music in his early fifties. Solomon’s professional résumé was more impressive than his discography: He had worked in Bear Stearns’ junk bond division, helped secure Lululemon’s IPO, and was now CEO of Goldman Sachs. He arrived in Chicago on Goldman’s Gulfstream G650, met clients in

Triumph of the Yuppies: America, the Eighties, and the Creation of an Unequal Nation

by Tom McGrath  · 3 Jun 2024  · 326pp  · 103,034 words

his mastery of a relatively obscure financial instrument called a “high-yield bond” (if you were being nice) or a “junk bond” (if you were being snarky). Milken hadn’t invented junk bonds, but by 1980 no one knew more about them—or believed in the potential they held for Wall Street and corporate

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default. Why would the firms want to get their clients involved with companies that might not be able to pay the borrowed money back? Such “junk bonds” cast a shady sheen over an investment firm, the kind of thing that might drive top-tier clients away. But Milken was fascinated with

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junk bonds, in part because of research done decades earlier by an academic named W. Braddock Hickman. Hickman examined their performance in the first half of the

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diverse enough group of companies, they actually outperformed the higher-rated investment-grade bonds. Yes, individual issuers of junk bonds were more likely to default, but taken all together the higher interest rates that junk bond holders earned more than made up for those losses. In short, an investor could make more money buying

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junk bonds than good bonds. Armed with this knowledge, a subsequent academic study that confirmed everything W. Braddock Hickman had said

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client was seven-eighths of 1 percent of the value of the bond; when it issued junk bonds for a client, it got 3 to 4 percent of the value of the bond. By 1980, the junk bond market, while still relatively small and still looked down upon by most leading Wall Street firms

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billion. The establishment crowd on Wall Street might still be skeptical, but it couldn’t help but notice. For Drexel’s status as a firm, junk bonds were starting to be a game changer. For Milken himself, they were personally lucrative. But it wasn’t necessarily the money that seemed to be

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town. Wynn understood the role Milken played in his career. “He made me,” he’d say years later. As for Milken, his confidence in what junk bonds could do was only growing. By the end of 1980, with Wall Street changing, with America’s mood shifting, and with a new generation passionate

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about, as Jerry Rubin put it, “money and financial interest,” Milken started wondering how junk bonds could transform not just Wall Street, but all of American capitalism. CHAPTER 4 Cuisinarts and Perrier Precisely how many Yuppies—to use the word Dan

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at the very center. He was not only the man in charge, but literally the man around whom everything in their world—the world of junk bonds—revolved. By now, the zeitgeist shift Jerry Rubin had sensed three years earlier—that money and financial interest would capture people’s passions in the

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. By such a yardstick, few people were doing better than the guy at the center of the X, Mike Milken. Traditionalists might still have viewed junk bonds with suspicion, but the market that Milken had almost single-handedly created had exploded in size, and Drexel’s dominance of it had only grown

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, but to whom the bonds had subsequently been traded—made his power immense. “Michael is the market” became a common refrain when it came to junk bonds. There was no better proof of that than the limos that had begun to line up outside Milken’s Beverly Hills office in the early

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-coming companies, all Drexel clients, would pitch themselves to the investors. The investors, if they were persuaded, would then buy up millions in Drexel-originated junk bonds, giving the young companies the capital they craved, the investors the high returns they needed, and Drexel the lavish transaction fees that were driving the

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continued to back small outsiders, as it had for a decade, it was increasingly doing business with Fortune 500 clients, which were using Milken’s junk bonds to help finance their large mergers. His reputation and influence could be seen not just at the Predators’ Ball, but in the waiting area outside

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that the management of many large American corporations was inept—and that shareholders were thus being deprived of value—had only deepened, and he saw junk bonds as a way to correct that. Drexel’s bonds were being used as part of the financing of large mergers, as well as in so

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, when he started buying shares of one of America’s largest and most successful energy companies, Gulf Oil. With financing raised largely through Milken’s junk bonds, Pickens—whose company, Mesa, was sixty times smaller than Gulf—had begun purchasing the larger company’s stock at $41 per share. He kept amassing

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—but by the fall Perelman had won out, acquiring Revlon for $900 million, $750 million of which Milken had arranged for him to borrow through junk bonds. For the companies being acquired in such deals—and for much of the business establishment—what was happening was head-spinning. Michel Bergerac, the ousted

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the trading scandals, Milken showed no signs of backing down. On the contrary, he was ready to fight. Milken viewed what he’d done with junk bonds as nothing less than a financial revolution, and he was quite cognizant that, whenever there’s a revolution, the people who are threatened will push

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—who never did interviews—began talking a little more to the press, including a story with writer Edward Jay Epstein in Manhattan, inc. magazine. What junk bonds had done, Milken explained to Epstein, was to democratize finance and business. As for his alliances with raiders like T. Boone Pickens and Carl Icahn

The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life

by Alexander Green  · 15 Sep 2008  · 244pp  · 58,247 words

curve is inverted, they may yield more.) Their shorter maturities make them less volatile than long-term bonds. 9. High-yield bonds. High yield or “junk bonds” are corporate bonds that do not qualify for investment-grade ratings. These bonds pay higher rates of interest because the issuers are less creditworthy. Default

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’s. They are issued by companies less creditworthy than those that issue investment-grade bonds and are considered speculative. But don’t let the name junk bond throw you. A diversified portfolio of these bonds, even after accounting for defaults, has returned more than either Treasuries or high-grade corporates. And while

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find controversial. I want to address those potential objections now. Some, for example, may object to the inclusion of asset classes like gold shares and junk bonds. Others will question the weightings of different asset classes. Still others will question the “one-size-fits-all” nature of this strategy. I’m happy

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Gone Fishin’ strategy. It doesn’t allow you to benefit from investment opportunities overseas, the inflation protection available from TIPS, and other alternative investments like junk bonds, gold shares, and REITs. Holding a lot of cash is like dragging an anchor. If it makes you feel comfortable, keep enough money in cash

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in bonds for safety. That’s true, but putting riskier assets in your portfolio increases the return of the portfolio as a whole. (And, technically, junk bonds are safer than stocks because they represent a senior claim on the assets of the company.) 2. High-yield bonds are extremely tax-inefficient. Yes

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when high-yield bonds perform better than equities. To those who insist high-yield bonds are simply too risky to include, remember the words of junk bond king Michael Milken: The rating on triple-A bonds only has one way to go—down. Sure, most investment-grade obligations maintain their standing. But

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domestic stocks are down, bonds generally go up. REITs move independent of most stocks and yet have given excellent returns over the past 30 years. Junk bonds do well in an economic recovery. Inflation-adjusted bonds will protect your purchasing power when consumer prices start to rise. And gold shares act not

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. Another tax-inefficient asset is high-yield bonds. Here the majority of the return comes from interest income—and all of it is taxable. A junk bond fund will typically make capital gains distributions from time to time, as well. So the Vanguard High-Yield Fund should also be placed in your

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. Stocks return more than bonds, but are more volatile still. And when you blend these noncorrelated assets together, including slightly more exotic fare like REITs, junk bonds, and gold shares, you are likely to capture excellent returns within an acceptable level of risk. The pursuit of “the very best” asset allocation is

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Expenses VANGUARD HIGH-YIELD CORPORATE FUND Description The fund invests mainly in a diversified group of high-yielding, higher-risk corporate bonds—commonly known as junk bonds—with medium- and lower-range credit-quality ratings. The fund invests at least 80% of its assets in corporate bonds that are rated below Baa

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taxes/expenses, reduction iShares iBoxx $ High Yield Corporate Bond Fund description holdings iShares Lehman TIPS Bond Fund description holdings Jensen, Michael (mutual fund manager analysis) Junk bonds, inclusion (criticism) Kaderlis, Billy/Akaisha (retirement example) Keogh, usage Large-cap stock, market capitalization Legg Mason Value Trust Lewis, Michael Life philosophy, presence Lifestyle, calculation

The Last Tycoons: The Secret History of Lazard Frères & Co.

by William D. Cohan  · 25 Dec 2015  · 1,009pp  · 329,520 words

for cogent, insightful advice on mergers and acquisitions: nothing more, nothing less--and not a trace of apology for not being the top underwriter of junk bonds (a product he railed against) or equity offerings. No frustration with not being a private-equity investor. The Big Boys, a 1986 book by Ralph

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rightly, that Felix invented the persona of investment banker as trusted corporate M&A adviser. Although he might find the comparison indelicate because he abhorred junk bonds, in the 1960s Felix divined the business of providing independent M&A advice to corporate chieftains in much the same way as the infamous Michael

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same underwriters can get stuck with major capital losses. Lazard, with a tiny balance sheet, has never been very interested in making loans or underwriting junk bonds, which require large amounts of capital. The subcommittee then zeroed in on another of Lazard's secret competitive advantages: its so-called interlocking directors, where

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to that time, and so the deal--even though Felix was one of the more outspoken critics of the LBO frenzy and the so-called junk bonds used to finance it--was big news around the firm. Although for some reason the Canadian bankers missed the fact that the Dr Pepper sale

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things are getting badly out of hand," he said. Although soon enough he would be wooing Perelman, he railed against Perelman-style takeovers, financed by junk bonds and "excessive risk taking." He called on the government to help. "The integrity of our securities markets and the soundness of our financial system are

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drift at the firm. "This is the time to be commercially aggressive," he wrote. "And we have, after all, missed important opportunities. We came to junk bonds too late, valuation expertise too late, business development too late, industrial focus too complacently, business organization not yet, the concept of investment of resources in

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not yet crossed. Since Lazard had no deal-financing capability to speak of and Felix had spent years publicly denouncing the use of so-called junk bonds to finance leveraged buyouts, Lazard missed many of these often very lucrative transactions. Compared with every other firm on Wall Street, Lazard may as well

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effect the combination of the crash and the closing of the financial markets had on deal makers. Felix had proved prescient about the dangers of junk bonds and too much corporate debt. Fear and loathing had returned to Wall Street. AT THE SAME moment that the global financial markets went into a

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apart informed the way Michel and Felix directed the firm professionally, too. Felix, of course, was a leading critic of the Wall Street fads of junk bonds, bridge loans, and advising corporate raiders, a source of huge but unsustainable profits at places like First Boston and Drexel Burnham in the 1980s. Michel

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Michael Milken and his firm, Drexel Burnham Lambert. As has been well documented, Milken revolutionized corporate finance through the creation and use of high-yielding junk bonds. Not only did Drexel underwrite these bonds for corporations that could not get financing from more traditional sources--banks, insurance companies, and the public-equity

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Campeau fiasco titled "The Biggest Looniest Deal Ever." Forbes observed: "Blood is everywhere." First Boston was left holding some $300 million, face amount, of Federated junk bonds and a $250 million Federated bridge loan. These securities were worth pennies on the dollar. The firm also faced numerous lawsuits about its role in

MONEY Master the Game: 7 Simple Steps to Financial Freedom

by Tony Robbins  · 18 Nov 2014  · 825pp  · 228,141 words

real estate market boom, and used the money to open a rustic diner in Wyoming. She invested what was left in high-risk stocks and junk bonds, thinking the interest would provide enough income to support her. And it did for a while. But the stock market crash of 2008 wiped out

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the issuer usually has to pay to bond holders for the risk that they’re taking. The expertly renamed high-yield bonds, formerly known as junk bonds, have a rating of lower than BBB, which makes them “subinvestment grade.” • Corporate Bonds. Corporations issue bonds when they want to raise money to expand

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—as long as these investments go into your Risk/Growth Bucket and not your Security Bucket! For instance, not everybody shies away from so-called junk bonds. You have to look at each one and decide if it’s worth the risk. In May 2014 Australia’s largest airline, Qantas, offered a

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go into an ETF is to trade. And so I’m not a big fan.” 2. High-Yield Bonds. You might also know these as junk bonds, and there’s a reason they call them junk. These are bonds with the lowest safety ratings, and you get a high-yield coupon (higher

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have a very high equity character. If the stock markets go down, the value of these bonds also decline. Like, in 2008, they tumbled like junk bonds. So they’re more like equities than Treasuries. I own some of these. That’s why when I say I’ve a low equity exposure

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on diversification, 490–91 market forecasting, 352, 353, 354, 489, 492 and Robin Hood Foundation, 16, 489 J.P. Morgan, 309, 498–99, 501–2 junk bonds, 318, 323 Kadlec, Gregory, 114 Kamen, Dean, 566 Karp, David, 125–26 Kay, Alan, 551 Keillor, Garrison, 334 Kennedy, John F., 19 Ki-hoon, Kim

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, 612 being prepared to lose, 321 collectibles, 324 commodities, 324 currencies, 324 diversification, 325–26 equities, 322–23 factors to consider, 331–36 high-yield (junk) bonds, 323 real estate, 323 structured notes, 324–25 riskless return, 174 Risk Parity, 390 risk/reward, 172–82 and asset allocation, 159, 326, 336–39

DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future

by Andy Bell  · 12 Sep 2013  · 348pp  · 82,499 words

. Corporate bonds range from the very secure, offered by cash-rich blue chip companies, right up the risk scale to the very insecure, known as junk bonds, offered by struggling companies facing financial headwinds or early-stage companies whose prospects are unclear. Bonds had, until the turn of the century, traditionally been

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decades of the 20th century saw an increase in the issue of corporate bonds. These early issues were mainly investment-grade bonds, with appetite for junk bonds verging on the non-existent. The modern market in non-investment grade, or high-yield bonds, really took off after the financial crisis of the

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. Ratings agencies have many different gradations of risk, but corporate bonds are generally divided into two clearly defined sectors – investment-grade and high-yield or junk bonds. As a DIY investor, if you are going to make direct investments into bonds, you should only touch investment grade ones, unless you really know

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apply equally to countries – the downgrade of a country’s investment rating can be politically and economically damaging. High-yield/junk bonds Anything rated below these levels is considered a high-yield or junk bond. These bonds, as you might have guessed, pay higher yields, but the chance of them going bust is also

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far higher. Furthermore, ratings agencies can downgrade high-yield bonds further, meaning their resale value will fall. The only way you should be investing in junk bonds as a DIY investor is through a high-yield bond fund, unless you really know what you are doing. table 13.1 Understanding ratings agency

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, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th, 14th, 15th transferring existing, 2nd who can pay into why have workings of ISIN number junk bonds, 2nd, 3rd KIID (Key Investor Information Document) life expectancy, 2nd, 3rd, 4th life insurance investment bonds long-term buy and hold, 2nd long-term investing

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present

by Jeff Madrick  · 11 Jun 2012  · 840pp  · 202,245 words

to supplement the down payment. These LBO partnerships bought the targets from shareholders, borrowing enormous sums from banks, insurance companies, and eventually through the junk bond market (junk bonds are risky securities that must pay high interest rates to attract individual investors and institutional investors like pension funds). They then either generously compensated the

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making bids, especially since they could charge handsome interest rates and high fees per loan. In the 1980s, Michael Milken almost single-handedly developed the junk bond market—where the bonds of riskier companies traded—which was used to finance the largest takeovers to that point. In the 1980s, Boesky hit jackpots

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catch was Michael Milken, whom Boesky implicated for securities law violations. Milken, who had by then become the richest man on Wall Street by selling junk bonds, ultimately pleaded guilty on six counts and was sentenced to ten years in prison. Boesky’s penalties came to $100 million, and Milken paid approximately

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including the authority to hire his own traders and sales force, and Burnham gave it to him. The high-yield bonds, soon referred to as junk bonds, a name Milken himself inadvertently gave them, according to one of his best clients, Boone Pickens, typically paid 2 to 4 percentage points more a

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faith in these companies and bid up the price of their bonds. Milken became close to the executives of many of the large companies whose junk bonds he both bought and recommended to his growing list of investment clients. In turn, Milken asked these companies to buy the bonds of other

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both buyer and seller, or controlled the buyers and sellers, and was effectively setting the price for these securities. By now, Milken was also trading junk bonds for Drexel’s “own account,” which often produced profits for the company. He was selling the bonds to brokerage customers, earning commissions for each trade

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the securities. In stocks, the New York Stock Exchange and the Nasdaq were self-regulating institutions, establishing rules for trading, which, if they existed in junk bonds, would have eliminated or seriously reduced Milken’s advantages. And Milken had no serious competition. Gradually, Milken’s interlocking web of clients who bought and

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part because he was under investigation by the SEC. Milken was not deterred, and by 1974 Lindner’s conglomerate, American Financial Corporation, an issuer of junk bonds, also became Milken’s best customer for bonds. (In 1979, Lindner settled with the SEC, when the federal agency questioned his compensation.) The fortune

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mostly traded in the fallen bonds of once healthy companies. Now he wanted to expand his business into investment banking by underwriting new issues of junk bonds for risky companies. In the past, such companies had to borrow from banks or insurance companies—loans that were heavily collateralized by assets or capital

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ensure that the deal worked, but sometimes just to pocket more potential profit. By 1978, after a slow start, Drexel was taking many new junk bonds to market. The major Wall Street firms were still hesitant to tarnish their reputations by dealing with the clients who had to issue high-yield

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Drexel to support trading and underwriting. Burnham obliged, finding a foreign investor, Bruxelles Lambert, to invest. One man, Michael Milken, was buyer and seller of junk bonds, and consultant, underwriter, and analyst. According to traditional practices of investment banking and financial brokerage, these were serious conflicts of interest. Most disturbing, as noted

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complex built there, Resorts International, was a runaway success. It took two years after their final meeting, but in 1981 Milken raised $160 million in junk bonds for Wynn, all with Tubby Burnham’s approval. A few years later, Wynn sold his casino in Atlantic City, the Golden Nugget, at a

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companies so high that when interest rates rose sharply in 1981 under Fed chairman Paul Volcker, followed by the severe recession of 1982, issuers of junk bonds were especially vulnerable. Some of Milken’s companies did not survive. But Milken demonstrated his power by getting investors in the risky companies to convert

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the junk bonds, which pay interest, into new stock that does not. Thus, Milken eliminated much or all of the interest payments on the debt, enabling the

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. Fred Carr, a money manager in the 1960s who now ran an insurance company, First Executive, had been investing in Milken’s array of junk bonds since the late 1970s and by the early 1980s had a total investment of several billion dollars in them. S&Ls became favorite customers of

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Milken’s when the Garn-St. Germain bill was passed allowing them to buy junk bonds liberally. Thomas Spiegel had built his company, Columbia Savings & Loan Association, into a giant, investing heavily in Milken’s bonds. Charles Keating of Lincoln

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for allegedly defrauding his investors, was a key Milken investor. By 1983, Milken had built a juggernaut of enormous financial power. Some $40 billion of junk bonds were floating in financial markets, paying a yield of 13 to 15 percent compared to as little as 10 percent on traditional bonds. And the

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investors were not only his early friends. Soon, a couple of dozen mutual funds specialized in investing in junk bonds. Many pension funds and investment managers put clients’ money into these investments. The majority of these deals passed through Milken’s trading desk. Milken and

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Co., resulted in a $46 million profit for the partners on an $830,000 investment. LBOs were an obvious opportunity for Milken. He realized that junk bonds could supply mezzanine financing, which was always difficult to raise, significantly more cheaply than could insurance companies or the occasional bank like Citibank. In 1984

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prices higher. It was shareholders who lost out. In fact, Milken’s near total control of the markets through his domination of buyers of junk bonds was a far bigger concern than such infringements, but not necessarily a violation of the murky financial fraud laws—or very hard to prove criminal

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annual debt service, but in the late 1980s, they were often less than debt service. A Harvard Business School study found that ratings on junk bonds had fallen sharply since the early 1980s, those with the lowest rating tripling in number. Many could not meet their debt payments when the economy

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-off of Storer Broadcasting, announced that it could not service its $1.3 billion of debt, and forced the holders of $500 million in junk bonds to settle for new stocks and bonds worth between 20 and 70 cents on the dollar. Hillsborough Holdings, a subsidiary of Jim Walter, went bankrupt

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bonds) and similar tactics. This tactic artificially held down the actual default rate of his earlier underwritings, which some academics touted as an indication that junk bonds were safer than widely perceived. It was highly unlikely it would have worked this time. By then, the number of indebted companies was too great

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raising alarms, although the banks’ widespread demise was still several years off. The thrifts like Lincoln invested in a wide range of risky assets, including junk bonds, shopping malls, ski resorts, and even uranium mines. Since deregulation, Lincoln, Columbia, Vernon in Texas, Silverado in Florida, and others were offering very high

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markets lurched from financial crisis to crisis under Greenspan’s tenure—a stock market crash in 1987, a thrifts crisis in 1989, the collapse of junk bonds by 1990, a derivatives crisis in 1994, the Mexican peso collapse of 1994, the Asian financial crisis of 1997, the failure of Long-Term

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an inflation fighter had been established. By 1986, however, Volcker was concerned the economy was growing too rapidly again and that debt levels, including Milken junk bonds, had become excessive. As discussed earlier, he was particularly disturbed by the use of the debt to fund ever larger and more aggressive corporate takeovers

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It also allowed them to invest 40 percent of their funds in nonresidential real estate and other investments, from Southwest resorts to golf courses to junk bonds. Soon, the more aggressive thrifts were paying very high rates to attract savers and making billions of dollars of bad investments. It was not the

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highest interest. Now the thrifts were momentarily in clover, or so many thought. But later in the 1980s, when rates rose again and real estate, junk bonds, and other speculative investments turned down, thrift after thrift went out of business or was paralyzed by losses, and the field was left open for

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insurance, on one foolish fantasy after another, including investing in junk bonds that were soon to collapse. In the 1990s, an era of deceit helped promote the speculative bubble in high-technology and telecom stocks that carried

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government spent $150–200 billion. Hundreds of billions of dollars of bad investments had been made by the thrifts in golf resorts, shopping malls, and junk bonds. The money should have been invested more intelligently and productively. The collapse of the thrifts weakened the economy and helped precipitate a credit crisis and

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: Ibid., pp. 181–84. 20 IN 1981, THERE WERE 99 SUCH LBOS: Ibid., p. 37. 21 IN 1984, A KKR BUYOUT: Plath, “Financing Takeovers: Junk Bonds and Leverage Buyouts.” 22 THE KKR PARTNERS WERE STUNNED: Anders, Merchants of Debt, p. 89. 23 TO DEFENDERS OF THE LBOS: A classic defense is

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SSM6.htm. 33 EVEN AFTER FINES: James Stewart, Den of Thieves (New York: Touchstone, 1991), pp. 523–25. 34 RATINGS ON JUNK BONDS HAD FALLEN SHARPLY: John Paul Newport, Jr., “Junk Bonds Face the Big Unknown,” Fortune, May 22, 1989, http://money.cnn.com/magazines/fortune/ fortune_archive/1989/05/22/72000/index.htm

Extreme Money: Masters of the Universe and the Cult of Risk

by Satyajit Das  · 14 Oct 2011  · 741pp  · 179,454 words

imported goods. Low U.S. interest rates also drove American pension funds and investors to seek out more risky investments. This fed the market for junk bonds, securitized debt, private equity, and hedge funds, which promised the higher returns needed to finance retirement income. According to Andy Warhol, such behavior was innate

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financiers themselves. 9. Learning to Love Debt Financial alchemy took the form of more and more borrowing, initially in the form of private equity and junk bonds. Private equity, originally called leveraged buyouts (LBO), was about high levels of leverage—debt. Investors, financial sponsors, committed a small amount of the capital required

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. Kohlberg argued he was entitled to a fee: “I’m an investment banker.”17 Lenders got high interest rates as well as substantial fees. When junk bonds started to be used for financing LBOs, Drexel Burnham Lambert (Drexel) received a fixed fee (0.50–1 percent) of the amount raised, a

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.2 billion Beatrice transaction resulted in fees to financiers and lawyers of $248 million, of which 53 banks shared $44 million. Buyouts turned increasingly to junk bonds, the product of the mercurial Mike Milken and Drexel. Saul Fix, a KKR associate, summed it up: “Drexel’s money became a key element.... If

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Milken had “created his own universe.”23 With great tenacity, an endless appetite for work, and a monomaniac focus, Milken was “an amazing salesman” of junk bonds.24 He disliked the term “junk,” preferring high opportunity bonds. They would eventually become high yield bonds. At the University of Pennsylvania’s Wharton Business

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-rated bonds did better than investors in high-quality bonds. In 1984, New York University Professor Edward Altman confirmed the thesis. Advocates now argued that junk bonds were a sound investment for investors with fiduciary responsibilities, as bond ratings overestimated the risk of noninvestment grade bonds. Numerous papers and books by independent

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analysts, who acted as consultants to, or were retained and paid by investment banks, extolled the case for junk bonds. Analysis of defaulted bonds is tricky because there are few defaults, which are concentrated in specific industries (railways) or at specific times (severe recessions such

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tanks on the street. Altman’s studies compared defaults in one year to the entire universe of junk bonds. The rate of default in Year x was the number of defaults divided by the volume of junk bonds on issue. The rapid increase in the size of the market (from $10 billion outstanding in

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issue. Altman’s studies did not adjust for other games. Issuers routinely overfunded, raising excess cash, which meant borrowers would not default quickly. Financially distressed junk bonds were often exchanged for new securities, sometimes not paying interest in cash, to avoid default. No distinction was drawn between bonds issued by investment grade

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whose ratings had fallen and issuers who started as junk.25 In the late 1980s, as the LBO boom was ending, new research studies on junk bonds corrected the problems of previous studies. Paul Asquith, a professor at Harvard Graduate School of Business, with his colleagues David Mullins and Eric Wolf, found

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that junk bond default rates were higher than previously stated. Around 30 percent of all junk bonds issued in 1977–9 had defaulted or been subject to a distressed exchange. Lipper Analytical Services, an investment firm

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, found that over 10 years junk bonds provided lower returns than government bonds, earning the same as money market funds. Altman published new research reaching similar conclusions.26 As Laurence J. Peter,

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companies that had their ratings downgraded and were trading at deep discounts. Milken’s trading made money but no friends. When Drexel traders who scorned junk bonds tried to shut down Milken, management pointed out that Milken made significant amounts of money using a modest amount of the firm’s capital. Investment

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he could receive. Milken’s success allowed him to expand, creating an autonomous unit with its own traders, sales staff, and research analysts to trade junk bonds. The unit sealed its independence by moving to Beverly Hills on the West Coast. Junk People Milken’s consistent mantra was that the rating of

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junk bonds was incorrect—the potential returns outweighed the risk. Investors in junk bonds received higher interest rates but also potential gains in the value of the bond if the company’s fortunes and

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low returns and some, such as securities issued by the City of New York, defaulted on payment of interest. High returns from purchasing Milken’s junk bonds turned portfolio managers like David Solomon of First Investors Fund for Income into celebrities. In 1974 Fred Carr, a former driveway repairman and manager of

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to the SPDA was the interest rate—the higher the rate, the higher the final payout. Purchasing junk bonds to generate high rates, First Executive became the market leader in annuities, creating a large market for junk bonds. Thrift institutions like saving and loans associations (S&Ls) traditionally made long-term mortgage loans on

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. Congress changed regulations to help attract deposits and to improve profitability, expanding the S&L’s investment powers by allowing purchases of junk bonds. In the 1980s, mutual funds specializing in junk bonds allowed individuals to invest in the market. Attracted by media campaigns promoting high returns, investors flocked to the funds. Buyers of

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insurance products and policies were inadvertently purchasing junk bonds. Repackaged as guaranteed investment contracts (GICs), issued by First Executive, junk bonds were being sold to pension funds. Depositors in S&Ls and the taxpayers guaranteeing the deposits were unwittingly exposed to

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junk bonds. Competitive pressures meant that the debate was not about buying junk bonds but why you weren’t buying them. Milken’s Mobsters But there just wasn’t enough Chinese paper to match

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investor demand—there were far too few fallen angels. When Goldman Sachs and Lehman Brothers issued the first junk bonds in 1977, Milken and Drexel seized the opportunity, starting with a $30 million issue for Texas International. Over time, they found new issuers of

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junk bonds—Milken’s mobsters. Drexel forged relationships with the new robber barons—buyout firms, entrepreneurial outsiders like Turner Broadcasting, MCI, and McCaw Cellular, and aggressive corporate

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: “There are only two kinds of companies—the comers and the goers. We finance the comers.”28 Observers later noted: “Pumped into buyouts, Milken’s junk bonds became a high-octane fuel that transformed the LBO industry from a Volkswagen Beetle into a monstrous drag race belching smoke and fire.”29 Harvard

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, as now, the benchmark for excellence. Lacking clients within the Fortune 500, Drexel’s investment banking franchise was built on the comers where expertise in junk bonds provided a crucial competitive edge. At a planning session, more psychotherapy than business school, Cavas Gobhai, an Indian consultant, saw the strategy as: “Merge with

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’t go hunting without it.” The Sweet Envy of Bankers Nick Brady, CEO of the investment bank Dillon Read, saw Drexel as “junk people buying junk bonds.”32 Michel Bergerac, chairman and CEO of Revlon, subject to a hostile bid from Ronald Perelman, sneered: “Drexel has inserted itself between the pawnbrokers and

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a good table at a New York restaurant.”35 But Drexel rapidly became the most profitable investment bank on the street, using its profits from junk bonds to diversify its clients and businesses. It was on its way to its objective: “to be as big as Salomon [Brothers] so we can

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from “the traditional concept of marriage to one-night stands.”37 Other banks eyed Drexel’s business enviously but feared that a déclassé activity like junk bonds would alienate traditional clients. By 1983/4, major investment banks caved in. Morgan Stanley, the bluest of the blue bloods, advised companies to take on

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the availability of finance. Changes in regulation made it more difficult for S&Ls and insurance companies to hold junk bonds. As they sold, prices fell, forcing other holders to follow and causing the junk bond market to seize up. To compete against Drexel’s highly confident letter, other banks and securities firms had

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to overfund—raise more money than required—with the surplus funds being invested in junk bonds sold by Drexel. The firm financed insurance companies and the purchase of S&Ls that then invested in junk bonds. Drexel financed acquisitions with junk bonds placed with Milken’s clients. After completion of LBOs, the company’s pension

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fund purchased high-yielding GICs from First Executive, creating demand for junk bonds. The higher return allowed the pension fund to reduce required contributions from the sponsor or even allow any overfunding to be returned. The money flowed

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, Milken earned $550 million. Milken organized limited partnerships that allowed him and selected employees to invest in Drexel deals. The partnerships frequently bought and sold junk bonds or ended up with options to buy shares in buyouts that made more money than Drexel on some deals. Milken’s genius was to develop

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, reducing the cost of debt and increasing the ability to borrow to finance acquisitions. Lower rates encouraged investors to invest in higher risk debt and junk bonds for higher returns. Subordinated debt reemerged as mezzanine (mezz) debt. PIK (pay in kind) debt was rebranded toggle loans, allowing interest payments in cash or

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bond obligations) and CLOs (collateralized loan obligations), repackaging corporate debt. Soon, corporate loans, private equity loans, loans secured by commercial real estate, and emerging market junk bonds were all being securitized. A bank making a loan to a company was required by regulators originally to hold capital of 8 percent ($8 for

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theoretical limit on the volume of securitizations that could be completed. Volumes became detached from the underlying loan and debt markets. If private equity and junk bonds increased reliance on leverage and appetite for different instruments, then securitization took the availability of debt to an entirely new level. Regulators loved the theoretical

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, 148-149 Drexel Harriman Ripley, 144 fees, 141, 143 Drexel system, 151-152 high opportunity bonds, 143 hostile bids, 149-150 investment banks, 147-148 junk bonds, 145-146 KKR (Kohlberg, Kravis, and Roberts), 135-137 Michael Jensen, 138-139, 141 Milken’s mobsters, 146-147 percentage of GDP, 45 privatization to

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Tudor, 256 Jong, Erica, 73 Jorgenson, Andrew, 64 Joseph, Fred, 146 JP Morgan, 191, 272, 280, 283, 337, 360 jumbo loans, 182 Jünger, Ernst, 233 junk bonds, 143 leveraged buyouts (LBOs), 145-146 JWM Partners LLC, 257 K Kadlec, Charles W., 97 Kahn, Herman, 35 Kahneman, Daniel, 126 Kaltwasser, Pablo Rovira, 126

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, 148-149 Drexel Harriman Ripley, 144 Drexel system, 151-152 fees, 141-143 high opportunity bonds, 143 hostile bids, 149-150 investment banks, 147-148 junk bonds, 145-146 KKR (Kohlberg, Kravis, and Roberts), 135-137 Michael Jensen, 138-141 Milken’s mobsters, 146-147 recovery of, 153-154 Levin, Gerald, 58

King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone

by David Carey  · 7 Feb 2012  · 421pp  · 128,094 words

the buyout firms. But it was the advent of a new kind of financing that would have the most profound effect on the buyout business. Junk bonds, and Drexel Burnham Lambert, the upstart investment bank that single-handedly invented them and then pitched them as a means to finance takeovers, would soon

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provide undreamed-of amounts of new debt for buyout firms. Drexel’s ability to sell junk bonds also sustained the corporate raiders, a rowdy new cast of takeover artists whose bullying tactics shook loose subsidiaries and frequently drove whole companies into the

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. The brainchild of a young banker there named Michael Milken, the new financing was politely called high-yield debt but was universally known as the junk bond, or junk for short. Until Milken, bonds were the preserve of solid companies—the sort of companies that investors could feel confident would pay off

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, later, CNN) and the start-up long-distance phone company MCI Communications. After a breakout year in 1983, when Drexel sold $4.7 billion of junk bonds for its corporate clients, the bank saw the chance to move into the more lucrative field of advising on and financing mergers and acquisitions. Drexel

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large deals, replaced by cheaper junk from Drexel. At their peak in the mid-1980s, Milken and his group underwrote $20 billion or more of junk bonds annually and commanded 60 percent of the market. The financial firepower they brought to bear in LBOs and takeover contests redefined the M&A game

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on the corporate landscape was being permanently etched. Egged on by the corporate establishment and labor unions, Congress explored ways to combat hostile takeovers and junk bonds. In a series of hearings from 1987 to 1989, buyout industry executives, corporate moguls, and others trooped to Capitol Hill to defend or deride the

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takeover wave. There was serious talk of abolishing the tax deductibility of the interest costs on junk bonds in order to kill off the alleged menace. At a meeting with Kravis and Roberts in 1988, Senator Lloyd Bentsen, who later that year ran

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action to rein in takeovers, but some states did. Apart from the tactics and the pursuit of companies that didn’t want to be bought, junk bonds stirred controversy for another reason: Many feared that Drexel and the LBO firms were piling too much debt on too many companies, putting them at

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into a deep-seated loathing. In op-ed pieces and in interviews, Forstmann fulminated about a culture of unbridled excess and a mounting dependency on junk bonds, arguing that it was ruining the LBO business and threatened to destabilize the broader economy. To his way of thinking, an honorable industry grounded in

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would go on to play as critical a role in the stupendous growth of LBO activity in the 1990s and 2000s as Milken had with junk bonds in the 1980s. Even though Lee would do brisk business with all the major LBO shops, he would work most closely with Blackstone. Beginning with

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later, a nightmare set in. In the intervening months, lenders and bond investors became nervous that the market had overheated, and the trading prices of junk bonds tumbled as investors ran for the hills. As in the financial crisis two decades later, credit suddenly tightened. Leverage wasn’t just out of fashion

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DLJ had provided to finance the deal until CNW could arrange to float new bonds. Bridge financing had been invented to compete with Drexel’s junk bonds. The process of issuing bonds was cumbersome and could take months: Elaborate prospectuses had to be prepared and circulated and buyers had to be lined

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company stumbled between the time the deal was signed up and the marketing of the bonds. The peril was magnified because bridge loans bore high, junk bond–like interest rates, which ratcheted up to punishing levels if borrowers failed to retire the loans on schedule. The ratchets were meant to prod bridge

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in the room,” Schwarzman says. After some heated give-and-take, they reached a middle ground, with Blackstone agreeing to raise the rate on the junk bonds from 14.5 percent, already very high, to 14.75 percent and to award bond buyers a 10 percent equity share in CNW as well

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interest rate on the bonds after a year if the bonds had declined in value. It was known as a reset clause, and as the junk-bond market turned increasingly jittery, investors had begun to insist on resets to limit their risk. DLJ demanded that one be added to the CNW package

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cold feet, it spooked other banks, which, in turn, swore off LBOs. Across the board, investors began to take a new look at risks, and junk bonds were one of the riskiest forms of debt. It became nearly impossible to sell them. The turn in the market sank Drexel. With losses piling

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S&Ls had lent with abandon for new offices and subdevelopments. Many of the S&Ls had also fed at Drexel’s trough, both issuing junk bonds and buying those of other Drexel clients. When they were taken over and their assets sold, there was that much less demand for the bonds

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the CNW bonds in October 1989 to “catching the last helicopter out of Vietnam.” Nearly three years would pass before there would be another sizable junk-bond-financed LBO, a $1.5 billion deal by KKR for the insurer American Re, and then KKR had to invest 20 percent of the price

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state liquidated the company, Black, backed by money from a French bank, swooped in with a winning bid and snared the insurer’s $8 billion junk-bond portfolio at less than 40 cents on the dollar. Black was perfectly situated to evaluate the bonds, for he had advised many of the companies

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after it went under in 1990 and put them to work. But little of the money raised via junk bonds was being used to finance new buyouts. LBO was still a dirty word. It was clear that the freehanded lending practices of the eighties were

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up until that August. From there it was all downhill. The skepticism that had poured cold water on the IPO market that spring spread to junk bonds. New issues were down by three-quarters in the spring of 2000 from their peak two years earlier. Across all the capital markets, worries grew

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survive as a world financial center. As time went by, the slowdown took a growing toll on leveraged companies. By 2002, the default rate on junk bonds had shot to 13 percent. By September 2002 the broad S&P 500 index of U.S. stocks had fallen by almost half from its

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reopened in 2003 and 2004 and quickly matched its peaks in 1997 and 1998, sending interest rates tumbling as money cascaded in. A company issuing junk bonds at the beginning of 2003 had to offer an interest rate 8 percentage points over the rate on U.S. treasury bills. By December 2003

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began to teeter. The floors were creaking and cracks were emerging in the walls, and the markets were spooked. In early June, the spread on junk bonds—the difference between their interest rates and ultrasafe U.S. treasury bonds—fell to its lowest level ever, below 2.5 percentage points, indicating that

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to buyout funds in order to rebalance their accounts. Private equity also faced another enormous problem. More than $800 billion of leveraged bank loans and junk bonds were due for refinancing from 2012 to 2014. Even if the economy turned up by then, many companies might still be worth less than the

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deals—deals big enough to sustain private equity organizations on the scale they had operated at before the crash. The securitization of buyout loans and junk bonds, and other debt like mortgages, created a credit bubble, so when leverage returns, it will not be on the same monumental scale seen in the

The Permanent Portfolio

by Craig Rowland and J. M. Lawson  · 27 Aug 2012

panics. The 2008 to early 2009 period covered in Figure 5.2 shows the performance for the Total Bond Market, Corporate Bond Index, High-Yield (Junk) Bonds, and the popular American Century International Bond Fund during the market crash. Figure 5.2 In 2008 and Early 2009 Low-Quality Bonds Exhibited Stock

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Losses.Other bonds did not move enough to offer solid diversification. Chart courtesy of stockcharts.com. At the bottom of the 2008 crash high-yield junk bonds and corporate bonds suffered losses of 30 percent and 20 percent, respectively. The other funds slightly lagged or remained relatively flat during this period. But

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, the following kinds of bonds are not appropriate for the Permanent Portfolio's bond allocation: Treasury Inflation Protected (TIPS) Bonds Municipal Bonds Mortgages Corporate Bonds Junk Bonds International Bonds Treasury Inflation-Protected Securities Treasury Inflation-Protected Securities (TIPS) are bonds issued by the U.S. Treasury that are designed to provide investors

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avoid U.S. Treasury bonds. A serious economic crisis could see widespread defaults in corporate bonds, including those previously considered very safe. Junk Bonds High-yield bonds (also known as junk bonds) are a type of bond with an enticingly high yield but lots of risk. Don't let the high interest rates convince

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to protect you during an economic crisis you don't want them to be subject to credit or default risk, but that's exactly what junk bonds give you—in spades. In a sense, they are one of the worst investments you can own—you get all of the volatility and risk

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of stocks but little of the upside potential. Junk bonds can also generate very poor tax treatment if not held in a tax-deferred account as they are taxed at all levels. During 2008 in

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the midst of the financial crisis, many junk bond funds lost 30 percent or more in value. Figure 7.3 shows the performance of junk bonds versus long-term U.S. Treasury bonds. Figure 7.3 2008 Performance of Long-Term U.S

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. Treasury Bonds versus Junk Bonds.U.S. Treasury bonds were up over 30 percent and junk bonds sunk by 30 percent providing no diversification benefit and compounding losses. Chart courtesy of stockcharts.com. Imagine owning high-yield bonds

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. Treasury bonds went up nearly 35 percent in value while long-term corporate bonds lost 5 percent (down 20 percent at the low), high-yield (junk) bonds dropped 30 percent in value, long-term tax-exempt bonds sank 10 percent, and TIPS were down 7 percent by the end of the year

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the year. When credit and call risk showed up in the Fall 2008, people were paying premium prices for nominal Treasury bonds over corporate bonds, junk bonds, and municipal bonds. TIPS, which respond only to inflation and not deflation, provided no diversification benefit under this scenario either. When credit and call risk

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showed up in Fall 2008, people were paying premium prices for nominal U.S. Treasury bonds over corporate bonds, junk bonds, and municipal bonds. TIPS, which respond only to inflation and not deflation, provided no diversification benefit under this scenario either. The end result was that

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, in the Fall of 2008, the stock market crashed. Banks were teetering on collapse and any bond with the slightest risk saw losses. People holding junk bonds were skinned alive and even TIPS bonds unexpectedly dipped into negative territory. “As the stock market rolled over, long-term Treasury bonds exploded upward in

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in your Permanent Portfolio. Bonds should be used for safety, not speculation. Do not purchase TIPS, municipal bonds, mortgage bonds, international bonds, corporate bonds, or junk bonds. If you have objections to owning U.S. government bonds, then choose a high-quality, long-term corporate bond index fund (while realizing the vulnerabilities

Stigum's Money Market, 4E

by Marcia Stigum and Anthony Crescenzi  · 9 Feb 2007  · 1,202pp  · 424,886 words

, with prime 3 percentage points above the funds rate, prime is much higher than many other funding options such as commercial paper and even some junk bonds. Moreover, borrowers can go abroad to obtain funding if they feel that dollar-based borrowing rates are too high. Prime is no bargain in today

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a collection of speculative investments: huge GNMA portfolios repoed to the hilt (a bet on future interest rates), franchises, no-money-down real estate loans, junk bonds, and so on. A number of entrepreneurial souls, not all Simon pure, saw the S&L game for precisely what it was: a chance to

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assets. The risk premium reflects the risks that investors assign to holding various types of assets. For example, the risk premium that investors assign to junk bonds is considerably higher than the risk premium they assign to U.S. Treasuries. In the Treasury yield curve investors do not differentiate between the credit

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commercial paper at that time. If thrifts consider buying lower-rated or unrated commercial paper, that paper is compared with instruments such as mortgages and junk bonds. Today, the yields are not there for thrifts to be active buyers of commercial paper, but they used to be major buyers in the late

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end up bust. Normally, an LBO deal would be structured such that management, having put up no money, ends up—assuming the banks and the junk bonds get paid off—with 20% of XYZ, which is now a privately held company. The other 80% of XYZ ends up being owned by the

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made operations more efficient, management’s number one priority is to use the monies thus saved to pay down the company’s bank loans and junk bonds. Then, management may choose to make its bundle by taking its now private company public once again. Bear-Hug LBOs Normally, an LBO firm, like

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the number of CEOs who will be willing to sit down and talk with it in the future. Buyers of Junk Bonds By early 2006, the junk-bond market had swollen to $850 billion outstanding. Junk bonds, which are also commonly known as speculative-grade bonds, are sub-investment-grade bonds and thus pay a high

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groundbreaker in the analysis of yields and default rates on junk bonds.) The thrust of this work is that yields on these bonds are higher than required by their true risk. In April 1989, a controversial, unpublished

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cumulative basis? Many observers consider the issue of the true risk level of junk bonds to be unresolved, although in recent years, low default rates for junk bonds has tilted investor opinion in favor of the junk-bond sector (the default rate for junk bonds was 2.2% in 2005, according to Moody’s). as an asset class

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, high-yield bonds have been embraced increasingly over the year. In any case, insurance companies, pension funds, and especially mutual funds have become big buyers of junk bonds.3 Thrifts, too

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, have been buyers of junk bonds. Low default rates during much of the 1990s and the early 2000s is one of the reasons for this increased acceptance. Originally

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bankers followed suit to provide some or all of the bridge financing on certain deals. The risk in providing bridge financing is that, if the junk bonds fail to sell during a specified period, the short-term bridge loan may convert, depending on how it’s structured, into long-term securities conferring

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often there’s none at all. Thus, the mechanics of such loan sales resemble those we describe earlier with respect to the 3 Purchases of junk bonds by insurance companies and by pension funds are subject to statutory limits. sale of subparticipations in commercial paper backstop loans. A bank that does not

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the lenders who must vote on any changes, amendments, or waivers of those, among other things. The LBO also makes, in the indenture of its junk-bond issue, certain promises to the buyers of its bonds. This bond issue, like any bond issue, has a trustee, one of whose responsibilities is to

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its publicly issued debt. In an LBO deal, the bank debt is generally senior debt; the junk bonds, subordinated debt. The distinction between senior and subordinated debt is a matter of priority of payment. In theory, senior debt holders are supposed to get

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tried to come up with all sorts of gimmicky ways for muni issuers to sell taxable debt: quasi-flaky proposals such as financings linked to junk bonds and taxable munis denominated in yen. “The only thing they [the proposed new issues] had in common,” noted one municipal finance officer, “was that no

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number. JGBs: Japanese government bonds. joint account: An agreement between two or more firms to share risk and financing responsibility in purchasing or underwriting securities. junk bonds: High-risk bonds that have low credit ratings or are in default. Also known as high-yield bonds. leverage: See debt leverage. leveraged lease: The

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dealing with retail defining dirty prices domestic series bonds duration vs. Eurodollars expectations foreign series bonds futurity GO (general obligation) bonds inflation-indexed interest rates junk bonds par bonds premium bonds present value price fluctuations price quotes price risk price volatility rate lid on bonds REA series bonds (see Rural Electrification Administration

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(munis) ISDA (see International Swap Dealers Association) Japan deflation ZIRP jargon FRAs interest-rate swaps judgmental approach, Fed junk bonds buyers LBO loans latent investor demand, MTNs LBO loans bear-hug LBOs fears junk bonds legislation (see also regulation) Bank Holding Company Act Bank of England Act Banking Acts Check law Depository Institutions Deregulation

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) asset-backed paper back-to-back banks/banking bullet commercial paper, backstop lines discount window distribution domestic treasury Eurodollars floating vs. fixed rate history ILCs junk bonds LBO loans loan participations parallel loans securitization short-term, high quality syndicated loans Treasury LOC (letter of credit) paper locked market, Eurodollars London Interbank Bid

Nobody's Perfect: Writings From the New Yorker

by Anthony Lane  · 26 Aug 2002  · 879pp  · 309,222 words

know, sprout into love. So when he sees Diana in a Vegas boutique the wheels of lust start to grind, and before you can say junk bond he’s asking her to kiss his dice and throw a seven. She wins, of course, whereupon he installs her and David—who have just

Barbarians at the Gate: The Fall of RJR Nabisco

by Bryan Burrough and John Helyar  · 1 Jan 1990  · 713pp  · 203,688 words

making interest but not dividends deductible from taxable income, in effect subsidized the trend. That got LBOs off the ground. What made them soar was junk bonds. Of the money raised for any LBO, about 60 percent, the secured debt, comes in the form of loans from commercial banks. Only about

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from a handful of major insurance companies whose commitments sometimes took months to obtain. Then, in the mid-eighties, Drexel Burnham began using high-risk “junk” bonds to replace the insurance company funds. The firm’s bond czar, Michael Milken, had proven his ability to raise enormous amounts of these securities on

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a moment’s notice for hostile takeovers. Pumped into buyouts, Milken’s junk bonds became a high-octane fuel that transformed the LBO industry from a Volkswagen Beetle into a monstrous drag racer belching smoke and fire. Thanks to

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and understanding what was going on.” As the firm grew—by 1983, it had eight deal makers, by 1988, fifteen—tensions rose. Factions developed. Junk bonds produced an ever more complicated stream of Rubik’s Cube financial structures. Kravis and Roberts were so busy Kohlberg could no longer keep abreast of

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later sale of junk bonds. The trend was collectively known as merchant banking, a highfalutin term that basically meant investment banks were putting their money where their mouths had been

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powerful triumvirate with loose control over the spigots through which flowed the billions of dollars in money necessary to fuel Wall Street’s takeover machine. Junk bonds sold by Drexel Burnham and others were important means of supplementary financing, but without the Big Three banks, the takeover world would come to a

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believed junk bonds had perverted not only the LBO industry, but Wall Street itself. Almost alone among major acquirers, Forstmann Little refused to use them. To Forstmann the

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Perelman’s principal asset, a grocery store chain named Pantry Pride, was a fraction of Revlon’s size, but he was armed with Drexel Burnham junk bonds. Its defenses crumbling, Revlon’s management rushed to the open arms of Forstmann Little, saving their jobs, it seemed, and raising the specter of

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don’t ever bring another piece of slime like that in here again.” Forstmann’s alarm grew as other Wall Street brokerages, initially cool to junk bonds, flocked to grab a piece of the burgeoning market. “Imagine ten debutantes sitting in a ballroom,” Forstmann told a gathering of Securities and Exchange

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California defense contractor named Lear Siegler, after the market for junk bonds temporarily dried up following disclosure of the Ivan Boesky insider-trading scandal in November 1986. Again opposed by a Drexel Burnham client, Forstmann took his

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moments. Maybe I’m the one who’s missing the dawn of a new financial age. His younger partners suggested he rethink his opposition to junk bonds. His girlfriend urged him to “forget Kravis,” quit worrying, and enjoy his riches. Forstmann tried to relax, but found his long-held convictions only

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were on the same wavelength. For at least the second time that day, Forstmann launched into The Spiel. First came the denunciations of Kravis. No junk bonds. No bridge loans. Forstmann was gathering steam when he noticed Johnson duck out. No hostile tender offers, he continued. None of that crazy shit.

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conference room had emptied. Only three of the original group remained. As Forstmann scratched his head, a junior Shearson banker began suggesting ways that junk bonds could be wedded to Forstmann Little’s goals without sullying the firm’s moral views. Forstmann was annoyed. Hadn’t this guy heard anything he

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profitable partnership. Nicky Forstmann, eight years his brother’s junior, movie-star handsome, and well tanned year-round, shared his brother’s distaste for junk bonds and Henry Kravis. He was walking toward Nine West’s glass-enclosed lobby when he spotted Kravis and Roberts inside, coming toward him. Kravis saw

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five years Salomon, strong in every other kind of bond, had tried in vain to break into the highly specialized—and highly profitable—field of junk bonds. But its efforts, plagued by internal politics, had resulted in a series of disasters. Drexel’s hammerlock on the market was a source of

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how to value businesses, and he thought $75 a share to be insulting or bungling or both. Bill Anderson of NCR simply didn’t like junk bonds, corporate raiders, or any of the modern folderol that kept business from doing business. At NCR he preached a homespun philosophy of looking after “

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interviews in which he suggested, among other things, that the board would look favorably on the bid that contained the most cash, as opposed to junk bonds and other securities. “Cash is cash,” he said. Adding to the snappish air that morning was a letter from Ronnie Grierson, the British director.

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. At $85 a share, Forstmann was comfortable bidding for RJR Nabisco. The deal could be financed the Forstmann Little way, with cash and no junk bonds. At ninety, it was still doable, though the returns to his investors fell sharply. Institutions put their money with Forstmann Little to get the 35

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younger Forstmann and retreated to Little’s office. The three partners knew their position was bleak. The returns simply weren’t adequate unless they used junk bonds. None of them wanted to do that. But the simple truth was that, even if they had, they couldn’t. Forstmann’s antijunk diatribes

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Their doubts fueled other concerns. Could a deal this size be done safely? Would the banks, already nervous about LBO loans, come through? Would jittery junk-bond buyers want KKR’s bonds? Roberts brought up life-style issues. They all lived quiet, tidy lives. Buying RJR Nabisco would mean a wave of

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biggest business deal of all time. Several factors combined to tamp down the size of deals for several years. The great money machine behind LBOs—junk bonds—sputtered and for a time virtually stopped. Mike Milken went to jail; Drexel Burnham went bankrupt, and, in the early-’90s recession, battered overleveraged

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, Ivan Bogeys Boisi, Geoff consortium proposed by Hill’s conflict with Hill’s suspicions about Bond-offering problem. See Drexel Problem, The Bonds junk. See Junk bonds Kohlberg Kravis Roberts & Co. RJR Nabisco Boren, Orten Boren Clay Products Bott, Paul Bowman Gray School of Medicine Bradley, Pat Brandeis, Louis D. Bridge

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Problem, The Dr Pepper Co. Duke, James B. (“Buck”) Duke University Dunnington, Watt Dun’s Review Duracell Durden, Dennis Eagle Motors Line Economy, U.S. junk bonds and Edelman, Asher Effron, Blair E. F. Hutton Emmett, Martin Employee-protection guarantees Employee stock ownership plan Equitable Life Insurance Society Esmark ESPN Etherington-Smith

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Winston-Salem problems of Johnson, Frederick Johnson, Hobert Johnson, Laurie golf playing of gossip about Hugel’s view of shopping of Johnston, Jim Jordan, Vernon Junk bonds Forstmann’s views on mutant strains of Kalvaria, Leon Kampe, Dick Karan, Donna Katy Industries Katz, Stanley Kaufman, Henry Kekst, Gershon Kekst & Co. Kellogg

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proposal for boom in cost cutting and critics of defined due diligence process and fees for gun-to-the-head strategy in intellectual basis for junk bonds and profits and projections in of RJR Nabisco announcement Shearson’s entry into Spangler’s offer of start of syndicated loans in used car purchase

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett

by Jack (edited By) Guinan  · 27 Jul 2009  · 353pp  · 88,376 words

-year government bond. Corporate and municipal bonds typically go out 3 to 10 years. Related Terms: • Callable Bond • Corporate Bond • Yield to Maturity • Convertible Bond • Junk Bond 26 The Investopedia Guide to Wall Speak Bond Ladder What Does Bond Ladder mean? A strategy for managing fixed-income investments by which the investor

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AA: high credit-quality investment grade; AA and BBB: medium credit-quality investment grade; BB, B, CCC, CC, and C: low creditquality (noninvestment grade), or “junk bonds”; D: bonds in default for nonpayment of principal and/or interest. The Investopedia Guide to Wall Speak 27 Related Terms: • Credit Rating • Interest Rate

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ratings or lower carry a high risk of default; to compensate for this risk, yields typically are very high. Also known as junk bonds. Investopedia explains High-Yield Bond The term “junk bonds” aside, high-yield bonds are widely held by investors worldwide, although most participate through the use of mutual funds or exchange

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-grade bond. Mutual funds provide a good way to gain exposure without the undue risk of investing in only one issuer’s junk bonds. Related Terms: • Basis Point • Interest Rate • Junk Bond • Coupon • Investment Grade Historical Cost What Does Historical Cost Mean? A measure of value used in accounting in which the price of

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investment grade. Credit ratings for bonds below these designations (BB, B, CCC, etc.) are considered low credit quality and thus are referred to commonly as junk bonds. Investopedia explains Investment Grade Investors should note that government bonds, or Treasuries, are not subject to credit quality ratings because they are considered to have

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. This type of bond is considered less than investment grade. Investopedia explains Junk Bond These bonds usually are purchased for speculative purposes. Junk bonds typically offer interest rates three to four percentage points higher than those on safer government issues. The higher interest rate is

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of 90% debt to 10% equity. Because of this high debt/equity ratio, the bonds usually are not investment grade and are referred to as junk bonds. Leveraged buyouts have had a notorious history, especially in the 1980s, when several prominent buyouts led to the eventual bankruptcy of the acquired companies. This

Liar's Poker

by Michael Lewis  · 1 Jan 1989  · 314pp  · 101,452 words

them, how to trade them, and how to sell them. The sole chink in its complete dominance of the bond markets in 1979 was in junk bonds, which we shall return to later and which were the specialty of another firm, similar to us in many ways: Drexel Bumham. But in the

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late 1970s and early 1980s, junk bonds were such a tiny fraction of the market that Salomon effectively dominated the entire bond market. The rest of Wall Street had been content to

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, you had to have buyers as well as sellers, and these, in October 1981, were thin on the ground. Ranieri, along with the guru of junk bonds, Mike Milken of Drexel Burnham, became one of the great bond missionaries of the 1980s. Crisscrossing the country, trying to persuade institutional investors to buy

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trusted him: He looked like them, dressed like them, and sounded like them. As a result, thrift managers who could have bought Mike Milken's junk bonds when they sold their loans stayed heavily concentrated in mortgage bonds. Between 1977 and 1986 the holdings of mortgage bonds by American savings and loans

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as other kinds of bonds. Larry Fink, the head of mortgage trading at First Boston who helped create the first CMO, lists it along with junk bonds as the most important financial innovation of the 1980s. That is only a slight overstatement. The CMO burst the dam between several trillion investable dollars

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. I was able to persuade them to borrow large sums of money and speculate. With all the noise that is made about the danger of junk bonds and the leveraging of American industry, it is a wonder that more attention is not paid to the daily leveraging that occurs within investors' portfolios

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. It had cleared $545.5 million on revenues of $4 billion, more than we had made at our best. Drexel was making its fortune in junk bonds, and that stung. We were supposed to be Wall Street's bond traders. We were in danger of losing that distinction, however, for our managers

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had failed to see how important junk bonds would become. They thought junk was a passing fad. That was easily their single most expensive oversight, for it precipitated not only a revolution in

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Street, but the take-over attempt of my firm, and for that final effect it is worth pausing for a moment to examine. I did. Junk bonds are bonds issued by corporations deemed by the two chief credit-rating agencies, Moody's and Standard & Poor's, to be unlikely to repay their

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the other has a break somewhere in the middle. At some point the bonds of a company cease to be investments and become wild gambles. Junk bonds are easily the most controversial financial tool of the 1980s; they have been much in the news. But they are not, it should be emphasized

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lending to these companies. Michael Milken at Drexel created that market, by persuading investors that junk bonds were a smart bet, in much the same fashion that Lewie Ranieri persuaded investors mortgage bonds were a smart bet. Throughout the late 1970s and

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consequent leverage is the most distinctive feature of our financial era. In her book The Predators' Ball, Connie Bruck traced the rise of Drexel's junk bond department (Milken reportedly tried to pay the author not to publish). The story she tells begins in 1970, when Michael Milken studied bonds at the

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). At Wharton he examined fallen angels, the bonds of one-time blue-chip corporations now in trouble. At the time fallen angels were the only junk bonds around. Milken noticed that they were cheap compared with the bonds of blue-chip corporations even considering the additional risk they carried. The owner of

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the character of management and the fate of their industry. Lending money to a company such as MCI, which funded most of its growth with junk bonds, could be a brilliant risk-if one could foresee the future of competitive long-distance phone services and the quality of MCI's management. Lending

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the system. He ignored large Fortune 100 companies in favor of ones with no credit standing. To compensate the lender for the higher risk, their junk bonds bear a higher rate of interest, sometimes 4 or 5 or 6 percent higher, than the bonds of blue-chip companies. They also tend to

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makes money, its junk soars, in anticipation of the windfall. And when the company loses money, its junk sinks, in anticipation of default. In short, junk bonds behave much more like equity, or shares, than old-fashioned corporate bonds. Therein lies one of the'surprisingly well-kept secrets of Milken's market

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of its close relationship with companies, was privy to raw inside corporate data that somehow never found its way to Salomon Brothers. When Milken trades junk bonds, he has inside information. Now it is quite illegal to trade in stocks on inside information, as former Drexel client Ivan Boesky has ably demonstrated

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access to lenders. The lenders, along with Milken, made money. The gist of Milken's pitch to them was this: Build a huge portfolio of junk bonds, and it does not matter if a few turn out to be lemons, the higher payoff on the winners should more than offset the losses

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, much of it junk. A company that in sweet theory made loans to homeowners was simply taking billions of dollars in savings deposits and buying junk bonds with it. Before 1981 savings and loans did, almost exclusively, lend money to homeowners. Since the deposits were insured by the federal government-giving thrift

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way out of trouble. And though it meant, effectively, gambling with the government's money, they were allowed to buy junk bonds. Spiegel has spent some of the profits from his junk bond portfolio on television advertisements that say what a prudent place the Columbia Savings & Loan really is, in spite of what you

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managers. Other S&L managers thought Spiegel a genius and followed his lead. "Zillions of little S and Ls all over the country now own junk bonds," one of my former training program classmates told me as he rubbed his hands together in glee. He had left Salomon in the middle of

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was, within Salomon, Lewie Ranieri's captive customer. Had Salomon become big dealers in junk bonds, Bill Voute, the head of corporate bonds, would have demanded equal access to savings and loans. Lewie Ranieri feared losing his grip on Salomon Brothers

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I've said, they viewed Lewie as their savior. "There are two things you absolutely should never do," said Ranieri. "And the first is buy junk bonds. Junk bonds are dangerous." Of course, he might have believed it. In the end, however, the thrifts did not, and Ranieri's objection served only to discredit

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getting a great response, but no one was calling up to buy bonds," says one of the Salomon former junk bond specialists. They expected that the orders to buy junk bonds would soon follow their road show. But not one savings and loan manager ever called. "We found out why later, when

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of our corporation. Meanwhile, the new market was exploding. One indication of Mil-ken's success was the number of new junk bonds issued. From virtually zero in the 1970s, new junk bond issuance grew to $839 million in 1981, to $8.5 billion in 1985, and to $12 billion in 1987. By then

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could not find enough worthy small-growth companies and old fallen angels to absorb the cash. He needed to create junk bonds to satisfy the demand for them. His original premise-that junk bonds are cheap because lenders are too chicken to buy them-was shot to hell. Demand now exceeded natural supply. Huge

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of a house, when the property is pledged against a mortgage.) A take-over of a large corporation could generate billions of dollars' worth of junk bonds, for not only would new junk be issued, but the increased leverage transformed the outstanding bonds of a former blue-chip corporation to junk. To

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Goldsmith, Nelson Peltz, Samuel Heyman, Saul Steinberg, and Asher Edelman. "If you don't inherit it, you have to borrow it," says one. Most sold junk bonds through Drexel to raise money to storm such hitherto unassailable fortresses as Revlon, Phillips Petroleum, Unocal, TWA, Disney, AFC, Crown Zellerbach, National Can, and Union

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his desk of who is keen on whom. But he isn't particularly discriminating in issuing invitations. Anyone can buy because anyone can borrow using junk bonds. The papermaker in Oregon is now a target. The next day the papermaker reads about himself in the "Heard on the Street" column of the

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leveraging companies and brought ruin upon us and a few of our clients. (It also didn't help that both he and Henry Kaufman purchased junk bonds for their personal accounts at the same time they were preaching corporate austerity.) In any case, whether Salomon Brothers participated or Salomon Brothers abstained, every

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, how I hope it isn't so. No more than two weeks after Ronald Perelman's take-over bid, I was informed, no, instructed, that junk bonds were the new priority of Salomon Brothers.* Amazingly, we had a deal to sell. The Southland Corporation, owners of 7-Eleven food stores throughout the

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a short-term loan for the purpose, known as a bridge loan. Like all bridge loans, our loan was supposed to be quickly replaced by junk bonds in the name of the Southland Corporation. The junk was to be sold to investors, and the money from that sale would remit to us

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evaluate Southland's bonds on their merits, but since ignorance hadn't stopped me before, it was not expected to stop me now. Salomon's junk bond specialists insisted that Southland was a good investment, but then they would. They had the most to gain if the deal succeeded (thirty million dollars

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in profits to the junk bond department) and the most to lose if it failed (their jobs). If the bonds were dog meat, no one would have said it. Bonus time

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upon us, and honesty about the quality of our merchandise was trading at a discount. My gut feeling was that Salomon Brothers knew nothing about junk bonds and that, as a result, any junk we underwrote deserved its name. Salomon Brothers was, I thought, making a trading mistake typical of a rank

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to lose. Southland was especially tricky because it was Gutfreund's bid to show that Salomon Brothers was a force to be reckoned with in junk bonds. I received telephone calls from several New York managers, whose job it was to pester salesmen and who were galvanized by Gutfreund's interest in

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the one that had made no cuts. Many of us also asked our first questions about the wisdom of entering the junk bond market. With the stock market crash the market in junk bonds, inextricably linked to the asset values of corporations, temporarily ceased to function altogether. The fickle stock market was saying that

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sold him junk.* * Ironically, Southland, I later learned, should have been a smashing success and was eventually revived. But my skepticism of our skills in junk bonds was not unjustified. In the middle of 1988 the first two multibillion-dollar leveraged take-overs in America sponsored by Wall Street went bankrupt. The

The Essays of Warren Buffett: Lessons for Corporate America

by Warren E. Buffett and Lawrence A. Cunningham  · 2 Jan 1997  · 219pp  · 15,438 words

. 63 Mr. Market........................................ 63 Arbitrage.......................................... 66 Debunking Standard Dogma 72 "Value" Investing: A Redundancy................. 82 Intelligent Investing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Cigar Butts and the Institutional Imperative 93 Junk Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Zero-Coupon Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 103 Preferred Stock 110 CORPORATE FINANCE AND INVESTING. . . . . . . . . . . . . . . . A. B. C. D. E. F. G. H. III. Owner-Related Business Principles

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and preferred stock. Challenging both Wall Street and the academy, Buffett again draws on Graham's ideas to reject the "dagger thesis" advanced to defend junk bonds. The dagger thesis, using the metaphor of the intensified care an automobile driver would take facing a dagger mounted on the steering wheel, overemphasizes the

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large numbers of corporations that failed in the early 1990s recession under crushing debt burdens to dispute academic research showing that higher interest rates on junk bonds more than compensated for their higher default rates. He attributes this error to a flawed assumption recognizable to any first-year statistics student: that historical

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conditions prevalent during the study period would be identical in the future. They would not. Further illuminating the folly of junk bonds is an essay in this collection by Charlie Munger that discusses Michael Milken's approach to finance. Wall Street tends to embrace ideas based on

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never been in a big hurry: We enjoy the process far more than the proceeds-though we have learned to live with those also. G. Junk Bonds 24 Lethargy bordering on sloth remains the cornerstone of our investment style: This year we neither bought nor sold a share of five of our

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but that were downgraded when the issuers fell on bad times. . . . A kind of bastardized fallen angel burst onto the investment scene in the 1980s-"junk bonds" that were far below investmentgrade when issued. As the decade progressed, new offerings of manufactured junk became ever junkier and ultimately the predictable outcome occurred

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: Junk bonds lived up to their name. In 1990-even before the recession dealt its blows-the financial sky became dark with the bodies of failing corporations.

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rates received from low-grade bonds had more than compensated for their higher rate of default. Thus, said the friendly salesmen, a diversified portfolio of junk bonds would produce greater net returns than would a portfolio of high~grade bonds. (Beware of past-performance "proofs" in finance: If history books were the

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's logic-one that a first-year student in statistics is taught to recognize. An assumption was being made that the universe of newly-minted junk bonds was identical to the universe of low-grade fallen angels and that, therefore, the default experience of the latter group was meaningful in predicting the

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. As usual, the Street's enthusiasm for an idea was proportional not to its merit, but rather to the revenue it would produce. Mountains of junk bonds were sold by those who didn't care to those who didn't think-and there was no shortage of either

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. Junk bonds remain a mine field, even at prices that today are often a small fraction of issue price. As we said last year, we have never

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(deliberate nondiversification of investments in an attempt to be more skillful per transaction) with an approach promoted for years by Michael Milken to help sell junk bonds. The Milken approach, supported by theories of many finance professors, argued that (1) market prices were efficient in a world where investors get paid extra

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for enduring volatility (wide swings in outcomes); (2) therefore, the prices at which new issues of junk bonds came to market were fair in a probabilistic sense (meaning that the high promised interest rates covered increased statistical expectancy of loss) and also pro

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a savings and loan association (or other institution) arranged diversification, say, by buying, without much examination, a large part of each new Milken issue of junk bonds, the association would work itself into the sure to-get-better-than-averageresults position of a gambling house proprietor with a "house" edge. This type

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it tomorrow" position in respect to principal payments was taken by borrowers and accepted by a new breed of lender, the buyer of original-issue junk bonds. Debt now became something to be refinanced rather than repaid. The change brings to mind a New Yorker cartoon in which the grateful borrower rises

Planet Ponzi

by Mitch Feierstein  · 2 Feb 2012  · 393pp  · 115,263 words

those wartime debt levels, but the road had been steadily trodden nonetheless. And then‌—‌something happened. Wall Street started to innovate. Leveraged buyouts funded by junk bonds became fashionable. The stock market soared. These were the years when the communist system collapsed; peace and prosperity reigned supreme. By all past standards, these

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance

by Ron Chernow  · 1 Jan 1990  · 1,335pp  · 336,772 words

1989, it was still America’s top merger adviser, claiming $60 billion in deals during the year’s first half.) In the 1980s, it gentrified junk bonds and amassed a huge two-billion-dollar war chest for leveraged buyouts, the decade’s riskiest innovation. After shocking Wall Street by siding with corporate

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-four-year Morgan career, he left for Drexel Burnham Lambert, to work with Michael Milken on a special project to repackage Third World debt into junk bonds (the 1920s solution). Some at Morgans thought his career had been derailed by the controversial Brazilian debt rescheduling. Shortly after he left, the bank was

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, Morgan Stanley turned to businesses it once would have rejected haughtily, entering the netherworld of junk bonds. These high-risk high-yield bonds were often issued to support takeovers by companies of questionable solidity. The new junk bond department coincided with Morgan Stanley’s sudden interest in small start-up companies. As Bob Greenhill

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that time, and I said, ‘How can we not be in a business that is so necessary for so many of our growing clients?’ ”31 Junk bonds revolutionized Wall Street by magnifying the money available to corporate raiders. Where conglomerate takeovers in the 1960s used share exchanges, and cash was the method

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of choice in the 1970s, the junk bond market let corporate raiders flout the Wall Street establishment and finance their incursions by selling bonds to investors. The merger frenzy was also fueled by

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would obscure this underlying fragility, the irreversible decline of traditional businesses, the obsolescence of the traditional banker. With considerable hoopla, Morgan Stanley talked about gentrifying junk bonds, but self-congratulation proved premature. In mid-1982, Morgan Stanley joined with Hambrecht and Quist to sponsor the first public offerings of People Express, the

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Morgan client. Between 1983 and 1986, Morgan Stanley underwrote more than $500 million in junk bonds for People. As if still leary of its junk bond departure, the firm overruled custom and let Charles G. Phillips, head of its junk bond department, take a seat on People’s five-member board. From modest beginnings at Newark

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was becoming a more capital-intensive art. Like its Wall Street counterparts, Morgan Grenfell might someday have to provide temporary “mezzanine” financing or even issue junk bonds in takeovers. There were also unspoken reasons for going public. A former corporate finance director explained: “A principal reason was to have publicly quoted shares

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over a liquor company three times his company’s size. Where a comparable bid in the United States would have been financed with cash and junk bonds, Gulliver hoped to pay primarily with shares of his own company, much as American conglomerates did in the 1960s. As it started bidding against Gulliver

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also convinced Pantry Pride to take over Revlon, bringing in $30 million in fees in a Ronald O. Perelman raid financed by a flood of junk bonds. A decade earlier, naive bankers had trembled to ask for a $1-million fee. The portion of corporate America now passing through the merger mills

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true of money changing hands in a takeover. But how was that additional takeover money raised in the first place? Typically by bank loans or junk bonds whose interest payments then siphoned off money from productive investment. This bias in favor of debt was strikingly at odds with the old Morgan Stanley

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the rest. Morgan Stanley pocketed a fast $32.4 million: $11 million for arranging the buyout, $20.4 million for underwriting nearly $700 million in junk bonds to effect the purchase, and a $1-million advisory fee. Such fees recalled investment banks feasting on new trust issues at the turn of the

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new dual role, Morgan Stanley would both manage the fund and invest $225 million of its own capital in it. As with hostile takeovers and junk bonds, Morgan Stanley took an activity of questionable benefit and made it acceptable in elite circles. It enlisted sixty institutions for its fund, including the General

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of that came from Bankers Trust and Equitable Life Assurance. It also earned $80 million in fees, including profits from underwriting almost $2 billion in junk bonds to finance the deal. Did Burlington profit equally with Morgan Stanley from this financial alchemy? Before the buyout, the firm had a clean balance sheet

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. In 1988, Merrill Lynch, once scorned as plebeian, led domestic underwriters for the first time as Morgan Stanley slumped to sixth place. Morgan mostly pursued junk bonds, now the most profitable form of underwriting and an indispensable adjunct to takeover work. When Drexel Burnham lost ground with the investigation into

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and jealously guarded their credit rating. Now, even as the Kravis forces toasted their victory, RJR Nabisco bondholders saw their A-rated bonds deteriorate into junk bonds, with $1 billion in value wiped out overnight. And by the summer of 1989, the company had announced plans to fire 1,640 workers as

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million bond issue for the Savannah Electric and Power Company. There was a disquieting side to all this. Would banks soon underwrite corporate raids with junk bonds? Would they palm off Latin American debt on bondholders, as they had in the 1920s? And how would banks insulate depositors from any future risks

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and Company, J. P. Morgan and Company, Inc., J. P. Morgan Securities, J. P. J. S. Morgan and Company, see Morgan and Company, J. S. Junk bonds, 666, 676, 692, 693, 694, 697, 702, 710, 712 Justice Department, U.S., 309, 427–28, 506–507 lawsuit against Club of Seventeen, 502–506

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, 625 financing of, 387–88 foreign clients, 517, 518 incorporation of, 586, 600 “irreverent group of six” at, 584, 597 Japanese business, 552–54, 557 junk bonds and, 666, 694, 697, 710 Justice Department lawsuit against Club of Seventeen and, 502–506, 507 as leading investment bank, 470, 500, 501, 513, 516

Unconventional Success: A Fundamental Approach to Personal Investment

by David F. Swensen  · 8 Aug 2005  · 490pp  · 117,629 words

flow servicing the debt. investment-grade ratings, assigned to the most creditworthy borrowers, range from triple A (the highest) to triple B. High-yield or “junk” bonds carry ratings of double B and below. Lower-rated bonds embody greater credit risk and exhibit more equity-like characteristics. Moody’s describes triple-A

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ratings. At other times, bondholders face a lengthy, Chinese-water-torture deterioration in credit that results in exile to the “fallen angel” realm of the junk bond world. On occasion, triple-A rated obligations maintain their standing. In no case, however, do triple-A bonds receive upgrades. IBM illustrates the problem confronting

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-yield bonds consist of corporate debt obligations that fail to meet blue chip standards, falling in rating categories below investment grade. The highest category of junk bonds carries a double-B rating, described by Moody’s as having “speculative elements,” leading to a future that “cannot be considered as well assured.” Moving

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real investment standing.”6 High-yield bonds suffer from a concentrated version of the unattractive traits of high-grade corporate debt. Credit risk in the junk-bond market far exceeds risk levels in the investment-grade market. Illiquidity abounds, with the lowest-rated credits trading by appointment only. Callability poses the familiar

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“heads you win, tails I lose” proposition for owners of junk bonds, with an added twist. Holders of both investment-grade and junk bonds face callability concerns in declining-rate environments. Lower rates prompt refunding calls in which the issuer pays a fixed price

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to the bondholders and reissues debt at lower cost. Holders of high-quality paper and junk bonds face interest-rate-induced refunding risks of similar nature. Above and beyond the possibility that junk bondholders lose bonds in a declining-rate environment, callability

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rallying stock prices, investors face better odds by owning unlimited-upside stocks as opposed to constrained-potential bonds. In the case of deteriorating credit fundamentals, junk-bond investors attain little or no edge relative to equity investors. Recall that the PCA 9.625s of April 2009 entered the markets in 1999 at

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rating category, precariously positioned with a “small assurance of maintenance of contract terms.” Credit deterioration would likely damage the investments of bondholders and stockholders alike. Junk-bond investors cannot win. When fundamentals improve, stock returns dominate bond returns. When rates decline, noncallable bonds provide superior risk-adjusted returns. When fundamentals deteriorate

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improve the equity position. Holders of fallen angels find their interests at odds with the interests of corporate management. In the case of new-issue junk bonds, particularly those employed to finance leveraged-buyout deals or leveraged-recapitalization transactions, bondholders confront even more highly motivated, adversarial management groups. Sophisticated, equity-oriented financial

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amounted to 7.9 percent, with the market showing an average maturity of 8.2 years and an average duration of 4.8 years. Summary Junk-bond investors face a concentrated combination of the factors that make high-grade corporate bonds a poor choice for investors. Magnified credit risk, greater illiquidity, and

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owners. As protection against financial accidents or deflationary periods, junk bonds prove even less useful than investment-grade bonds. The factors that promise incremental yield—credit risk, illiquidity, and callability—work against

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junk-bond owners in times of crisis, undermining the ability of junk bonds to provide portfolio protection. The recent historical experience of junk-bond investors confirms the inadvisability of owning debt positions in highly leveraged corporations. For the ten years

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percent for investment-grade corporates. While structural differences in the indices (most notably differences in duration) make the comparison less than perfect, the fact that junk-bond investors took greater risk for less return comes through loud and clear. TAX-EXEMPT BONDS Qualifying governmental entities enjoy the ability to issue tax-exempt

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead

by Alan S. Blinder  · 24 Jan 2013  · 566pp  · 155,428 words

Treasury. The lesson generalizes: Riskier borrowers pay higher interest rates than safer borrowers in order to compensate lenders for the risk they bear. For example, “junk bonds”—the debts of less-than-blue-chip companies—carry higher interest rates than, say, the bonds of IBM or AT&T. And the bonds of

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default swaps (CDS), origin of, 65 as derivatives dealer, 61 TARP funds forced on, 201, 202 Washington Mutual purchase by, 155 Junior tranches, 74–75 Junk bonds, risk of, 41–42 Kashkari, Neel, 156, 178–79, 184 Kelly, Robert, 201 Keynesian economics elements of, 210–12, 350 Republicans against, 211, 235–36

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition

by Kindleberger, Charles P. and Robert Z., Aliber  · 9 Aug 2011

banks and then borrowed from the banks to increase their consumption and their investments. The combination of failed thrift institutions and the rapid growth of junk bonds in the 1980s cost American taxpayers more than $100 billion; some of these thrifts had been acquired by individuals who relied on the

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junk bonds for their financing. Enron, MCIWorldCom, Tyco, Dynegy, and Adelphia were a rogue’s gallery of the 1990s. Many of the large US mutual fund families

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get the cash to pay the interest if they no longer had access to cash from new loans?’ Initially the junk bond market may have been rational, but then the supply of junk bonds surged and the creditworthiness of the borrowers declined more or less continuously. A lot of attention in the US housing

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had been in the speculative finance group move into the Ponzi finance group. Drexel Burnham Lambert, Michael Milken, and ‘junk bonds’ One of the great financial innovations in the 1980s was the development of ‘junk bonds’ – the bonds of firms that had not been ranked by one of the major credit-rating agencies. The

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three to four percentage points higher than interest rates on the bonds that had been ranked in one of the ‘investment grades’. Many of the junk bonds had been ‘fallen angels’ – issued by firms when their economic circumstances were more favorable so they received a credit rating. A series of mishaps would

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insurance companies were required to sell these bonds; the interest rates on these bonds then increased sharply. The sales pitch was that the buyers of junk bonds – say of a diversified portfolio of these bonds – had a ‘free lunch’ because the additional interest income would be more than enough to cover the

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the borrowers went bankrupt. The innovation in the 1970s and 1980s was that Drexel Burnham Lambert, then a third-tier investment bank, began to issue junk bonds, known in more polite circles as high yield bonds; the mastermind of this innovation was Michael Milken. The firms that issued these bonds had to

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pay high interest rates to attract buyers. Many firms issued junk bonds to get the cash to finance leveraged buyouts; often the senior executives of a firm would seek to buy all of its publicly traded shares

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dispute is whether some underwriting transactions by Milken were illegal or unethical. The polite critics note that many of the firms that were buyers of junk bonds were savings and loan associations and other thrift institutions and insurance companies; the managers and the owners of some of these firms had used Drexel

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US government; they offered high interest rates and used the money from the sale of deposits to buy the junk bonds that Drexel had underwritten. About half of the firms that had issued the junk bonds through Drexel Burnham Lambert went bankrupt and as a consequence the thrift institutions incurred large losses19; many of

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it was all legal. In a Cassandra-like book, Henry Kaufman decried the increase of all kinds of debt – consumer, government, mortgage, and corporate, including junk bonds; Kaufman argued that the quality of debt declined as the quantity of debt increased.20 Felix Rohatyn, a distinguished investment banker and the head of

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the US office of Lazard Frères, called the United States ‘a junk-bond casino’. Still, the owners of junk bonds were earning much higher interest rates than the owners of traditional bonds – at least for a while. In the economic slowdown of

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the late 1980s and early 1990s, many of the firms that had issued junk bonds went bankrupt. A new set of studies showed that the owners of junk bonds on average lost one-third of their money and that the additional three to four percentage points of interest

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per year of these bonds was insufficient to compensate for the losses on the defaulted bonds. The large number of failures among the issuers of junk bonds was consistent with Minsky’s taxonomy: many of these bonds would have been in his speculative group when they were initially issued. When the US

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eager to buy any loan or security that offered relatively high interest rates – and so they became one of the ‘natural markets’ for junk bonds. Initially the supply of junk bonds had been limited to those of the ‘fallen angels’; bonds that had lost their investment grade rating because the firms that had issued

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interest rates increased sharply. Michael Milken of Drexel Burnham Lambert developed some market innovations that greatly increased both the demand for and the supply of junk bonds. The decline in interest rates and the increase in the rate of economic growth of the 1980s created an encouraging environment for the growth of

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the junk bond market. The sales pitch was that the excess of the interest rates on the junk bonds over the interest rates on investment grade bonds was much larger than the losses the owners of its

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some of his friends and associates to gain control of thrift institutions and insurance companies and other firms that would be ‘natural’ buyers of the junk bonds. Milken provided ‘comfort letters’ to entrepreneurs contemplating a takeover of an established firm, assuring them that Drexel could raise the money they would need. Once

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his friends had ownership of these industrial companies, the firms would issue junk bonds that would be underwritten by Drexel, and Milken would place these bonds with the thrifts and the insurance companies that were controlled by his friends

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. Drexel established its own mutual funds that would buy the junk bonds that it had underwritten. Milken had a money machine. Drexel earned underwriting fees when its client firms issued new junk bonds, fees for selling the bonds to the mutual funds, sales fees for selling the shares

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, but then they were paying with Sam’s money. Many of the firms were unable to earn enough to pay the interest on the outstanding junk bonds. Not to worry, these firms issued some new securities that relieved them of the obligation to pay the interest on their outstanding bonds and the

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no longer buy these bonds. The liquidity disappeared from the junk bond market; the prices of these bonds declined sharply, and the bondholders

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incurred large losses. Most of the junk bonds that came to the market in the 1980s had been underwritten by Drexel, and about half

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of these junk bond issues went into default. Drexel incurred large losses on its inventories of these bonds and went

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the failed thrifts had been closed in a timely manner resulted from the costs of closing down failed thrifts that had become major buyers of junk bonds. Milken and his family became billionaires and he probably remained one even after paying a fine or penalty of $550 million and spending thirty months

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in a federal ‘country club’ (minimum-security prison). Fact and fiction about junk bonds Corporate takeovers and junk bonds led to an interesting literature. Consider the titles of both the fiction and the non-fiction. Tom Wolfe’s Bonfire of the Vanities is

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of New York’s financial elite. Predator’s Ball by Connie Bruck is a description of an annual party for the buyers and sellers of junk bonds. Barbarians at the Gate is a tale about the would-be takeover of RJR Nabisco; it is hard to decide whether the would-be acquirers

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, and collusion to defraud; among those who served the longest sentences were heads of the thrifts that had been large buyers of junk bonds. The number of those who will have served jail sentences for their transgressions in the 1990s is still expanding and includes five individuals who had

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insiders see outsiders/insiders insider trading 120 installment credit 63, 69 Insull, Samuel 148 interest rates 44, 174, 284 on international loans 35–6 on junk bonds 71 panics and 49–50, 54–5, 82, 106 in Ponzi finance 29 International Bank for Reconstruction and Development (IBRD) see World Bank International Monetary

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. 40, 46 Johnson, Paul 196 Joplin, Thomas 16 Joseph, Arend 152, 196 journalism, as unethical 145–7 Juglar, Clement 155 Juglar cycle of investment 26 junk bonds 2, 20, 70–1, 128–9, 152 Kahn, Herman 104, 128 Kaminsky, Graciela 74 Kauffman Brothers, Hamburg 194 Kaufman, Henry 64 Keating, Charles 174 Kennedy

Principles of Corporate Finance

by Richard A. Brealey, Stewart C. Myers and Franklin Allen  · 15 Feb 2014

BBB and above are called investment grade, while those with a rating of BB or below are referred to as speculative grade, high-yield, or junk bonds. Notice that the bonds in the first four rows of Table 3.7 are all investment-grade bonds; the rest are

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junk bonds. BEYOND THE PAGE ● ● ● ● ● Bond rating definitions brealey.mhhe.com/c03 TABLE 3.7 Key to bond ratings. The highest-quality bonds rated Baa/BBB or

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lower; the yield spread on these bonds has averaged over 2%. At the bottom of the heap are high-yield or “junk” bonds. There is considerable variation in the yield spreads on junk bonds; a typical spread might be about 5% over Treasuries, but, as we saw in the case of the LifeCare bond

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have called their debt, thus depriving their holders of the prospect of a continuing stream of high coupon payments. So while the promised yield on junk bonds has averaged 5% more than yields on Treasuries, the annual return since 1980 has been less than 3% higher. Figure 23.2 also shows that

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other financial institutions are not allowed to invest in bonds unless they are investment-grade.20 Bonds rated below Baa are termed high-yield, or junk, bonds. Most junk bonds used to be fallen angels, that is, bonds of companies that had fallen on hard times. But during the 1980s new issues of

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junk bonds multiplied tenfold as more and more companies issued large quantities of low-grade debt to finance takeovers. The result was that for the first time

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-grade bonds have to be the equivalent of Baa or higher. Bonds that don’t make this cut are called “high-yield” or “junk” bonds. Issuers of these junk bonds often had debt ratios of 90% to 95%. Many worried that this threatened the health of corporate America and, as default rates on corporate

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debt rose to 10% in the early 1990s, the market for new issues of junk bonds dried up. Since then the market for junk debt has had its ups and downs, but, as we write this in early 2012, new issues

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of junk bonds have just enjoyed a record year. Bond ratings are judgments about firms’ financial and business prospects. There is no fixed formula by which ratings are

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even upgraded to A or better. However, the bad news is that after one year over 5% of BBB-rated bonds had moved into the junk bond category of BB or below. If Starbucks debt were to be downgraded to BB, investors would undoubtedly demand a higher yield. For example, in 2012

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investment in the firm and the company retired some of its junk bonds. RJR’s chief financial officer described the move as “one further step in the deleveraging of the company.”3 For RJR, the world’s largest

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LBOs and debt-financed takeovers may have been driven by artificially cheap funding from the junk bond markets. With hindsight, it seems that investors underestimated the risks of default in junk bonds. Default rates climbed painfully, reaching 10.3% in 1991.5 The market also became temporarily much less liquid after the demise in

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1990 of Drexel Burnham, the investment banking firm that was the chief market maker in junk bonds. Leverage and Taxes Borrowing money saves taxes, as we explained in Chapter 18. But taxes were not the main driving force behind LBOs. The value

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valuation, 606–617 convertible securities, 617–618, 620–621 default risk in, 590–602 credit ratings, 65–66, 595–597 government loan guarantees, 594–595 junk bonds, 595–597 duration in, 51–53 inflation in, 59–63 interest rate risk and, 53–59 nominal rate of interest and, 59–63 real rate

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.P. Morgan, 404, 405 JPMorgan Chase, 363, 366, 379, 405, 793 JP Morgan Prime Money Market Fund, 361 Jump risks, 663 Junior debt, 357, 613 Junk bonds, 490, 587, 595–597, 839 Jurek, J., 610n Just-in-time approach, 781 K Kadant Inc., 844 Kahle, K. M., 750n Kahneman, D., 333n Kalay

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Financial leverage operating, 227–228, 253–254 Leveraged buyouts (LBOs), 462, 498, 733, 836–840 characteristics of, 840 examples, 837–839 incentives and, 839, 840 junk bonds and, 839 other stakeholders and, 839 taxes and, 839 Leveraged leases, 605–606, 640, 653 Leveraged restructurings, 840 Leverage ratios, 732–734 Levi, M. D

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, 807, 833–835 dubious motives for, 812–815 economy and, 828–829 estimating gains and costs of, 815–820, 827–828 form of acquisition, 821 junk bonds and, 490, 587, 595–597, 839 mechanics of mergers, 820–823 merger accounting, 821–822 sensible motives for, 807–812 takeover battles and tactics, 826

Americana: A 400-Year History of American Capitalism

by Bhu Srinivasan  · 25 Sep 2017  · 801pp  · 209,348 words

term stuck. But there was an unlikely competitor at the turn of the decade. The bonds of the government itself seemed to bear interest like junk bonds. When Ronald Reagan took office in January 1981, America was in the midst of a recession and a period of severe inflation, a rare combination

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of television stations in America, his first serious foray into the medium. Using little cash, assuming well over $1 billion in debt, and issuing additional junk bonds, Murdoch over the course of twelve months in 1985 bought Twentieth Century Fox in one transaction and followed up by buying seven local television stations

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financing. The best and the brightest among them looked west to Beverly Hills, where Michael Milken could raise billions of dollars when the need arose, junk bonds becoming the pirate ship on which the corporate raiders sailed. • • • IF THERE WAS A COMPETITION to find a real-life equivalent to Larry the Liquidator

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that could afford to buy 5 or 10 percent of a company’s stock could now finance the other 90 or 95 percent by issuing junk bonds and acquire the entire company. The earnings of the company, or a partial sale of its assets, would then be used to pay the interest

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on the bonds. Junk bond financing was the equivalent of taking out a mortgage on a rental property and having the rent cover the mortgage payment, only instead of a

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if left to their own devices. By the end of the 1980s, KKR would successfully complete the largest leveraged buyout in American corporate history. Using junk bonds, it would buy the tobacco and snack maker RJR Nabisco for nearly $25 billion. In most ways the KKR purchase marked the end of an

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financing, 76, 77, 78, 79, 83 Chrysler and, 440 for Civil War financing, 146–47 formation of US Steel and, 248 Jay Cooke & Co., 169 junk bonds, 439–42 U.S. government bond yields in 1981, 440 World War I and, 299 Bonfire of the Vanities, The (Wolfe), 449 bootlegging, 315–19

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sound, addition of, 340–41 studio system and, 338–43 finance, 436–49 Berkshire Hathaway and, 436–37, 442–43 corporate raiders and, 445–49 junk bonds and, 439–42, 446–47 leveraged buyouts and, 448–49 ownership versus management in, 443–45 in popular culture, 449 financial entrepreneurs, 444–45 Finding

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DIE cartoon, 30, 31 joint-stock company, 6–7 Jordan, James, 461 Jordan, Michael, 453–56, 460–62 Jungle, The (Sinclair), 266–67, 269–74 junk bonds, 439–42, 446–47 Kansas-Nebraska Act, 120–21, 135 Kellogg, John Harvey, 259–61 Kendall, Amos, 99 Kennedy, John F., 390 Kennedy, Robert, 409

The Four Pillars of Investing: Lessons for Building a Winning Portfolio

by William J. Bernstein  · 26 Apr 2002  · 407pp  · 114,478 words

ratings carry high yields—these are the modern equivalent of the Greek bottomry loans discussed in the last chapter. At present, such “high yield,” or “junk,” bonds, carry coupons of approximately 12%, compared to only about 5% for Treasury bonds. Are these a worthwhile investment? Many of these companies will default on

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the market value of the surviving bonds may temporarily decrease. For example, during the 1989–1990 junk bond debacle, price declines approaching 20% were common even in the healthiest issues. If you’re going to invest in junk bonds, you have to keep your eye on the yield spread between Treasuries and junk. In

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conventional friends and neighbors. In fact, they may actually express disapproval. (As anyone who has recently bought precious metals and Japanese stocks, or who bought junk bonds in the 1990s, experienced.) Although some people enjoy shocking others, most do not. If you do not like being set apart from your friends by

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the “riskless” part of your portfolio. The wise investor pays attention to the “spread” between high-grade corporate and Treasury yields that we plotted for junk bonds in Figure 2-6. When this gap is small, buy Treasuries. And when the gap is large, favor corporates. Another way of saying this is

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tax-inefficient ones for your retirement accounts. The problem, as we’ve already mentioned, is that certain asset classes are inherently tax-inefficient, such as junk bonds and REITs. Value funds are also relatively tax-inefficient, because if a value stock increases enough in price, it may no longer qualify for the

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get to bargain levels without a great deal of negative sentiment and publicity. Imagine what it felt like to be buying stocks in October 1987, junk bonds in January 1991, or emerging markets stocks in October 1998, and you’ll understand what I mean. Do not underestimate the discipline that is sometimes

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junk bonds falling rapidly in price, but in most cases, market conditions were so bad that they could not even find someone to trade with. In other

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, Edward Crosby, III (“Ned”), 194, 207, 208, 210 Jorion, Phillippe, 30 Journal of Finance, 80, 225 Journalist coverage, 219–225 JTS (junk-treasury spread), 70 Junk bonds, 69–70, 150n1, 260, 263, 283, 288-289 Junk-treasury spread (JTS), 70 Kahneman, Daniel, 166 Karr, Alphonse, 162 Kassen, Michael, 207, 219 Kelly, Walt

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, 10 buying directly, 260, 262–263 Gordon Equation predictions, 72 as government securities, 259–260 historical perspective, 20–23, 28-29 inflation-adjusted, 19 vs. junk bonds, 69-70 as risk-free investment, 70 yield, 257, 259 Treasury Inflation Protected Security (TIPS), 19, 70–71, 110, 235 Trinity withdrawal rate strategy study

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acquired companies were spun back off with the use of debt of varying quality, and the investing public became rapidly acquainted with the meaning of “junk bonds.” These companies, in hock up to their eyeballs, often wound up in Chapter 11, damaging not only individual bondholders but imperiling the banks and insurance

The Price of Time: The Real Story of Interest

by Edward Chancellor  · 15 Aug 2022  · 829pp  · 187,394 words

was not confined to continental Europe. In both the United States and United Kingdom, ultra-low rates forestalled corporate bankruptcies. The default rate on US junk bonds after the Great Recession was just half the average of the two previous downturns. ‘The Fed’s extraordinary intervention,’ credit analyst Martin Fridson suggested, ‘enabled

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market in stocks and bonds. Wall Street’s fortunes recovered. The leverage buyout industry emerged, minting fortunes for the founders of private equity firms and junk bond issuers, such as Michael Milken of Drexel Burnham Lambert. Interest rates continued declining in the 1990s. Over the course of that decade, ‘inequality went up

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proved an extremely lucrative business. In 2015, the Fed earned profits of nearly $100 billion on its securities portfolio, which was financed by printing dollars. JUNK BONDS AND LEVERAGED LOANS One consequence of the return of yield-chasing was a dramatic collapse in underwriting standards. After Lehman’s bankruptcy, US

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trying to revive the economy with zero interest rates for the past seven years.fn3 Like junk bonds, leveraged loans are issued by companies with poor credit ratings and are often issued to finance buyout deals. Unlike junk bonds, they pay floating rather than fixed rates. As underwriting standards declined, the leveraged loan market

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$1 trillion of leveraged loans outstanding, roughly the same amount as was owed in the high-yield bond market. Buyout firms used leverage loans and junk bonds to finance their deals and to extract cash from their portfolio companies (‘dividend deals’) and to flip their companies to competing private equity outfits (the

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Now Danish homeowners were receiving rebates on their mortgages and companies were getting paid to issue bonds with negative yields. The yields on some European junk bonds fell below zero. When Sweden adopted its negative interest rate in the summer of 2009, the Riksbank’s Deputy Governor, Lars Svensson, downplayed the move

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Liquidity Facility, a Main Street Business Lending Program, and so forth. For the first time, the Fed extended its securities’ purchases to bond funds containing junk bonds. ‘The scale of its current bond-buying efforts already dwarfs the purchase programs it undertook in the wake of the last financial crisis,’ Bloomberg reported

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of recovery in default. In April 2014, Martin Fridson, a veteran observer of the high-yield market, predicted that in the following downturn defaults on junk bonds and leveraged loans were likely to exceed $1.5 trillion (James Grant, ‘Cataclysm tomorrow’, Grant’s Interest Rate Observer, 32 (8), 18 April 2014). 17

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John Deere (American company), 167 Johnson, Lyndon B., 109* Joplin, Thomas, 64–5 Jordan, Virgil, 184–5 JP Morgan Chase, 232† Juglar, Clément, 143, 153 junk bonds, 222–3, 305, 306–7 Justinian, Code of, 25 Kane, Edward, 145 Katsenelson, Vitaliy, 177 Kaufman, Dr Henry, 109–10 Kay, John, 121 Keynes, John

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,’ Bloomberg, 10 November 2015). A few months earlier, the OECD warned about the rising share of pension and life insurance assets invested in hedge funds, junk bonds and commodities. This shift to riskier investments, the OECD suggested, could result in the solvency of pensions and insurers being ‘seriously compromised’ (Chris Flood, ‘OECD

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that we were in the ‘ninth innings’ of the high-yield bubble turned out to be mistaken. After wobbling in late 2015 and early 2016, junk bonds over the following months put in one of their best performances on record. fn4 The used car market was bailed out by the arrival of

The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry

by William K. Black  · 31 Mar 2005  · 432pp  · 127,985 words

overfunded the buyer. Keating needed $51 million to purchase Lincoln Savings, but Drexel issued over $125 million in junk bonds out of American Continental Corp. (ACC), the holding company that Keating used to acquire Lincoln Savings. ACC was a failing real estate development company even

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&L’s risks. Lincoln Savings was permitted to grow rapidly using high-risk assets, including direct investments (despite its massive violation of the rule) and junk bonds (because the Bank Board did not understand the authority of California-chartered S&Ls). The Bank Board’s ignorance was understandable because it deliberately excluded

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to point out that the Bank Board had left a gaping loophole through which the S&L would soon drive an enormous increase in junk bonds, just as the junk bond market tanked. It misses the primary point, however, to focus on the Bank Board negotiators’ failures. Dochow and Stewart were in an impossible

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investments, junk bonds, or frauds. The blame for their mistakes belongs with Dochow (or Wall and Martin). Scott was an unfortunate choice. He, like Dochow and Keating, was

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to Lincoln Savings as a liability, so the Bank Board had yet another reason to know that ACC was committing securities fraud by selling worthless junk bonds to widows and stock to the general public. Indeed, now that Dochow knew that ACC was looting Lincoln Savings through tax-sharing payments, he had

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Committee 1989, 4:142). The young man (so polite, so clean cut) explained to her why she should put all her savings in ACC’s junk bonds. The young bond seller earned a very nice bonus, and a “bond for glory” T-shirt. Maybe he had enough decency to refrain from mocking

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ACC were deeply insolvent, that Keating was running an enormous control fraud, and that ACC was targeting widows and using fraud to sell them worthless junk bonds. The Bank Board had clear authority to stop the sales. The CDSL, Barabolak and Meek, and many others in the field recommended that the Bank

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halt or even slow the sales or to warn the widows. The CDSL did what it could, ordering Lincoln Savings not to sell ACC’s junk bonds and desperately seeking a change in state law that would authorize it to place in conservatorship a state-chartered S&L engaged in serious violations

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within weeks because it could not pay its debts. It would default on the junk bonds and over ten thousand widows would lose much of their life savings. ACC would file for bankruptcy protection. The widows would line up outside Lincoln

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. Milken’s guilty plea removed him as the de facto head of Drexel. Without his ability to manipulate the “captives,” the true default risk of junk bonds was revealed, and their value fell sharply. All of the S&L captives failed; their other frauds would have sunk them even without the

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, who lost their jobs and pensions when control frauds destroyed the S&L; innocent stockholders; and the victims of ACC’s worthless junk bond sales. The S&L industry was not a major purchaser of junk bonds, but it provided Milken’s most important group of “captives.” They were critical to the overstating of

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. S&L control frauds were consistently able to defraud uninsured private market actors. ACC/Lincoln Savings was able to sell over $250 million in worthless junk bonds—the worst security in America—primarily from three branches in one state. It is true that Keating targeted widows because they generally lacked financial sophistication

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the “shorts,” and (worthless) ACC stock sold at a substantial share price after five years of continuous fraud. Milken sold $125 million of (worthless) ACC junk bonds to (purportedly ultrasophisticated) investors in 1984. S&L control frauds frequently sold subordinated debt because it could count as regulatory “capital.” Subordinated debt is uninsured

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I noted, $125 million in ACC sub debt at a high interest rate to the usual subjects: if Milken sold one’s junk bonds, it was understood that one bought junk bonds issued by other Milken clients. The key to Milken’s scheme was to reduce the apparent default rate, so it would not

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do to let ACC default on its Drexel-issued junk bonds. The situation was as elegant as it was cynical: ACC would sell junk bonds to widows (at a ludicrously low rate of interest) and use the proceeds to retire the Drexel-issued

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junk bonds sold (at a very high rate of interest) to Milken’s minions.10 This scam simultaneously (1) avoided a default on

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Drexel-issued junk bonds, (2) considerably reduced ACC’s interest expense, and (3) allowed ACC to book a gain from refinancing its debt at a lower interest rate. We

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also should have learned from the debacle that junk bonds actually had fewer debt covenants than less risky debt (which contradicts the theory of private market discipline by creditors). In no case did sub debt

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control frauds such as David Paul and Ivan Boesky) to buy state-chartered S&Ls because they could grow massively, buy large amounts of Drexel junk bonds, and serve as Milken’s “captives” (Akerlof and Romer 1993; Black 1993c). The Bank Board, in a rare victory, blocked Boesky’s acquisition of a

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California-chartered S&L. Keating and Paul, however, became captives. They learned at the end of each day which junk bonds they now owned; they had no involvement in deciding what to buy or sell. Milken got, and exploited, three obvious advantages from his captives. They

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bought huge amounts of Drexel junk bonds. He churned the accounts (engaged in rapid, repeated trades). These tactics maximized Drexel’s fee income. Milken was able to dump his junkiest junk on

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his biggest losers on his captives (Black 1993c). The more subtle advantage was that Milken’s control of the captives ensured that public offerings of junk bonds would succeed and that junk bonds issued by Drexel that were about to default would instead be restructured. Milken could cause the captives to purchase whatever

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junk bonds the market had refused to buy or restructure (Akerlof and Romer 1993). Reducing the reported default rate of a security makes it appear less risky;

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a bond that appears less risky rises in value. This is not a claim that Drexel ran a Ponzi scheme or that junk bonds were worthless. They were, however, materially overvalued. That made Milken a rich man, even after he was released from prison. This explains why Milken made

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lean the right way. He was deeply suspicious of Milken and wanted to pass rules restricting junk bonds. OPER, however, said they could not support the rule. In this era, even the GAO’s economists opined that junk bonds were an excellent investment (Stein 1992, 134–135). According to OPER, Milken was right: a

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diversified pool of junk bonds made a superior investment portfolio. Fortunately, S&Ls never held more than 10 percent of outstanding

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junk bonds (and usually far less), and 90 percent of all those junk bonds were held by a dozen S&Ls, all of which failed (Black

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1993c; NCFIRRE 1993, 4). Many at the agency saw Lincoln’s billion-dollar portfolio of junk bonds as a warning sign, but OPER did not. There were rumors that Drexel had captives, but that fact had not yet been proven. 3. The

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was dealing with a massive fraud but took no effective action against it. In addition to the losses to those who bought ACC’s worthless junk bonds and the enormous new losses to the taxpayers from the new fraudulent investments, the Bank Board gave Keating’s lieutenants time to destroy documents and

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Financial Institution Reform, Recovery and Enforcement. ———. 1993b. “ADC Lending.” Staff Report No. 2 to the National Commission on Financial Institution Reform, Recovery and Enforcement. ———. 1993c. “Junk Bonds.” Staff Report No. 7 to the National Commission on Financial Institution Reform, Recovery and Enforcement. ———. 1993d. “The Incidence and Cost of Fraud and Insider Abuse

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Revenue Service (IRS), 25–26, 75, 101, 265 Interwest Savings, 103 Jackson, Brooks, 106 Japan: recession in, 59, 62, 75 Jones, Day, 187, 243, 254 junk bonds, xv–xvi, 38, 81, 208–209, 230, 243, 248, 250, 255, 265, 289–290n2 Junot, Philippe, 109 Justice Department, xii–xiii, 18, 59, 78, 102

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives

by Satyajit Das  · 15 Nov 2006  · 349pp  · 134,041 words

nevertheless. CBOs were the brainchild of Michael Milliken and Drexel Burnham Lambert (DBL), the creators of junk bonds (bonds issued by non-investment grade companies). CBOs were used to repackage junk bonds. Regulations required insurance companies holding junk bonds to provide a lot of reserves against the investment. To get around the rules, insurance companies repackaged

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the Californian electricity deregulation claimed victims. As the credit cycle turned, the arbitrage CDOs were hard hit. They had been based on US high yield (junk) bonds. The US recession and the unwinding of the technology bubble saw record numbers of default. Contagious crises in Asia, Eastern Europe and Latin America didn

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in the credit market prevailed. Few companies defaulted; people became foolish or brave and lent to companies at ever lower returns; the credit spread on junk bonds reached record lows. Credit standards declined. Bankers talked about ‘drive-by’ bonds; these were issues usually for weak borrowers that were announced and sold within

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Jensen, Michael 117 Jett, Joseph 143 JP Morgan (company) 72, 150, 152, 160, 162, 249–50, 268–9, 284–5, 299; see also Morgan Guaranty junk bonds 231, 279, 282, 291, 296–7 JWM Associates 175 Kahneman, Daniel 136 Kaplanis, Costas 174 Kassouf, Sheen 253 Kaufman, Henry 62 Kerkorian, Kirk 296 Keynes

925 Ideas to Help You Save Money, Get Out of Debt and Retire a Millionaire So You Can Leave Your Mark on the World

by Devin D. Thorpe  · 25 Nov 2012  · 263pp  · 89,368 words

: Funds that invest in large companies viewed to be undervalued Multi-Sector Bond: Funds that invest in government bonds, foreign bonds, and high yield bonds (junk bonds) Long-Term Bond: Funds that invest in long term corporate bonds Intermediate Term Bond: These funds invest in corporate bond maturing in less than ten

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. Choose a long term corporate bond fund. If you are aggressive, you may even want to consider a “high yield” bond fund that invests in junk bonds. Junk bonds are debts owed by companies expected to have difficulty paying. The yields on these bonds are significantly higher, but losses are not unusual. “Investment grade

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, also known as “income funds” are more appropriate for college savings, taking care to avoid—at least for college savings—“high yield,” which invest in “junk bonds” whose issuers are in or are at risk of being in default on their debt. Although returns are modest, “Intermediate Government” (bit.ly/XFZrfB) funds

The Lords of Easy Money: How the Federal Reserve Broke the American Economy

by Christopher Leonard  · 11 Jan 2022  · 416pp  · 124,469 words

yield curve. When this fact was apparent, investors turned around and looked at all the risky junk they’d bought, like leveraged loans and corporate junk bonds. They could now dump those investments and put their money somewhere safer. This was what started happening in late June and early July. And it

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Walmart pays a low rate while smaller companies with a lot of debt pay a high rate. The riskiest corporate bonds are the ones called junk bonds. The other type of corporate debt is called a leveraged loan. This is like a corporate bond in some ways: A leveraged loan is bought

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the outside thanks to the dazzling effects of cheap debt, rising asset prices, and a reach for yield that propped up risky investments like corporate junk bonds. It was true that the unemployment rate was at the lowest level in decades, at an astoundingly small 3.5 percent. But the job boom

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on April 9 that it wouldn’t only buy corporate bonds—it would also buy even riskier bonds, which were rated as junk debt. The junk bond purchases would not be unlimited. The Fed would only buy debt that had been rated as investment-grade before the pandemic. These bonds were called

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’ movement in four years, I don’t even want to think about what it looks like,” she said. It was difficult to argue that buying junk bonds and CLOs would help a Starbucks barista who was out of a job. But the Fed did have one program that it could point to

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nations and, 216–17 Fed’s purchase of, 101, 110, 139, 227, 267, 279, 280, 282 Fed’s sale of, 231–34, 236 junk, see junk bonds negative-interest-rate, 217–18 Operation Twist and, 127 Treasury, see Treasury bonds Boston Market, 284 Bowman, Michelle, 280n Brady, Nicholas F., 156–58, 160

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, Bill “Beep,” 63, 64 jobs, see unemployment; work, workers Johnson, Lyndon, 80 Jones, Kathy A., 218 JPMorgan Chase, 66, 115, 191, 210, 244, 269, 271 junk bonds, 72, 143, 146, 156, 164, 176–78, 259, 271, 272, 281, 286, 299 defined, 347 Kansas, 55, 206 Kansas City Fed, see Federal Reserve Bank

Capital Ideas: The Improbable Origins of Modern Wall Street

by Peter L. Bernstein  · 19 Jun 2005  · 425pp  · 122,223 words

small savers, unregulated brokerage commissions, and discount brokers. There are hundreds of mutual funds specializing in big stocks, small stocks, emerging growth stocks, Treasury bonds, junk bonds, index funds, government-guaranteed mortgages, and international stocks and bonds from all around the world. There is ERISA to regulate corporate pension funds, and there

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of individual securities and the difficulty of predicting the behavior of entire markets—stocks versus bonds, stocks in New York versus stocks in Tokyo, or junk bonds versus obligations of the U.S. government. If investors were for some reason to place too high a value on Bristol Myers or IBM, Samuelson

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to buy up companies in the early 1970s? If the ratio of debt to equity is irrelevant, why was there all the shouting about the junk bonds and concern about debt/equity ratios in the 1980s? If dividends do not matter, why do corporations bother to issue them at all? If the

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leveraged buyouts of the 1980s is still “far from universally accepted among the wider public.”21 But he remains unrepentant. He argues that losses on junk bonds were no proof that over-leveraging had occurred and that increased leveraging by corporations does not imply increased risk for the economy as a whole

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. He points out that the buyers of junk bonds knew they were taking outsize risks. Why else would they have demanded such high interest rates? “For all save the hopelessly gullible,” these investors were

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fully aware that some of the junk bonds would end up in default. Their expectation, consistent with orthodox finance theory, was simply that the return they would earn from taking these risks, after

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newspapers. In addition to hundreds of specialized stock funds, there are funds that invest in every segment of the bond market from Treasury bonds to junk bonds. And there are funds for market timing strategies, options and futures, variable and fixed-rate home mortgages, and bond and stock markets all around the

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junk bonds and the relatively small companies that issued them. The issuers did not want to dilute their ownership by selling more stock, but they needed capital

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seemed to compensate for the risks involved. Many small companies got financing and created new jobs that would have been impossible without the junk bond market. Most of the junk bonds that subsequently defaulted were issued to finance takeovers rather than to finance the expansion of smaller corporations. ••• Although the revolution inspired by the

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Institutional Investor conferences Insurance. See also Portfolio insurance Insurance companies, investments of Intelligent Investor, The (Graham) Interactive Data Corporation (IDC) Interest/interest rates corporate debt junk bonds and payments risk-free stock indexes and stock prices and stock valuations swaps International Flavors and Fragrances Intertemporal capital asset pricing model Institute for Quantitative

Wall Street: How It Works And for Whom

by Doug Henwood  · 30 Aug 1998  · 586pp  · 159,901 words

rate, rating sensitive notes • floating rate tax-exempt notes • foreign-currency-denominated bonds • foreign currency futures and options • forward rate agreements • gold loans • high-yield (junk) bonds • increasing rate notes • indexed currency option notes/ principal exchange linked securities • indexed floating rate preferred stock • indexed sinking fund debentures • interest rate caps/collars/floors

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pass at Chrysler in the spring of 1995, but wasn't taken seriously, because there was no longer any Drexel Burnham Lambert around to float junk bonds in his name. Boone Pickens' firm, Mesa Petroleum, is in terrible shape, and his shareholders booted him out. Alumni of the financing arm of the

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everyone knows by now, included showering money on superfluous shopping centers in the middle of nowhere, windmill farms, prostitutes, speculative housing, speculative office buildings, cocaine, junk bonds, art for the CEO's house, the Nicaraguan contras, and yacht parties on the Potomac. Hot for funds to get into these pursuits, and subsequently

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best to put the most positive spin on their reports, U.S. corporate disclosure requirements are strict by world standards; it's amazing how many junk bonds that went bad during the 1980s contained explicit warnings in their prospectuses of just how risky they really were. Information and understanding are apparently very

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before their ideas took hold, and that was largely through Mike Milken's canny nurturing of the market for less-than-investment-grade [i.e., junk] bonds. Similar arguments, without the skepticism inspired by the sequence of leverage disasters in the summer of 1989, were common in the business lARKET MODELS press

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the century to finance the trustification of whole industries; unsecured debt instruments called debentures ("Chinese paper") used as the currency of conglomeratization in the 1960s; junk bonds used to finance the leveraged recapitalizations in the 1980s. The logic behind this odd and ever-changing flood of paper was explained by an anonymous

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the decade proceeded; (2) bank principal repayment requirements stiffened, leading to less of a cash cushion for interest payments; (3) bank debt was replaced by junk bonds as the source of outside money; (4) management teams and dealmakers took ever-larger fees up front; and (5) deals struck later in the decade

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fear of wage inflation, 134 government and innovation, 54 government debt, 22-24 state and local, 114 U.S. Treasury, 24, 25 international correlations, 107 junk bonds, 28 collapse of, 158 Jensen's celebration of, 271 and tree death, 274 and labor markets, 127, 128 love of sluggishness, 101, 122-123, 128

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turns up heat in 1980s, 268-269 Jews, Keynes on, 213 job loss, LBOs and, 274 Johns-Manville, 265 Johnson, Manuel, 104 Johnson Smick, 104 junk bonds, 28 collapse of, 158 Jensen's celebration of, 271 and tree death, 274 Kaldor, Nicholas, 218, 242 Kalecki, Michal, 242 Kann, Peter, 103 Kaplan, Steven

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds

by Maneet Ahuja, Myron Scholes and Mohamed El-Erian  · 29 May 2012  · 302pp  · 86,614 words

-the-dots game, except the puzzle is never finished and the prize is billions of dollars. “When I got to Goldman, I changed the way junk bonds were traded. It was pretty radical, moving the whole market to trades on sectors. It used to be traded by maturities, which helped perpetuate the

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with his bosses at Deutsche. Highly reluctant to lose Weinstein, they gave him wider authority and responsibility within the bank. By 2006, Weinstein was running junk bonds, corporate bonds, convertible bonds, and credit derivatives globally. At the same time, Deutsche encouraged his entrepreneurial ambitions within the bank structure, and in a significant

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated

by Gautam Baid  · 1 Jun 2020  · 1,239pp  · 163,625 words

) issuance. IPOs are a capital allocation decision that often represents a buildup of capacity in a company or industry. Chancellor says that the surge in junk-bond issuance by U.S. energy companies in 2016 was a sign that investors should have avoided the sector. • Beware of investor frenzy. Early signs include

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile

by Alexander Davidson  · 1 Apr 2008  · 368pp  · 32,950 words

, we will cover credit products, as distinct from the interest rate products covered in Chapter 11. We will focus on corporate bonds, international debt securities, junk bonds, asset-backed securities, zero-coupon bonds and equity convertibles. We will consider credit derivatives. Overview Credit products are integral to financial markets and help to

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is also liquidity risk, which is measured by the size of the bond’s spread (the difference between bid and ask price). ____________________________________________ CREDIT PRODUCTS 91  ‘Junk bonds’ is an unflattering term for those bonds classified by the rating agencies as sub-investment grade. Corporate bonds may have fallen to junk status due

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to a deterioration in the issuer’s financial performance. Junk bonds pay a high yield to compensate lenders for the credit risk of the issuer, just as banks lend on credit cards at a rate reflecting

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default experience. Their promoters call them high-yield bonds. Junk bonds from two companies that have the same yield may perform differently. Various forms of junk bond have been used to finance takeovers, and the product has a poor reputation. Junk bonds are not acceptable as collateral for repo trades (see Chapter 11). Credit

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bonds 90–91 collateralised debt obligations 94–95 collateralised loan obligation 95 covered bonds 93 equity convertibles 93 international debt securities 92–93  304 INDEX ____________________________________________________ junk bonds 91 zero-coupon bonds 93 credit rating agencies 91 Credit Suisse 5, 136, 193 CREST system 141, 142–44 dark liquidity pools 138 Debt Management

Panderer to Power

by Frederick Sheehan  · 21 Oct 2009  · 435pp  · 127,403 words

are authorized to transact, are continually given permission to expand and to enter new lines of business in which they lack experience. Leveraged Buyouts and Junk Bonds The conglomerate form of financing was dead. In the 1970s, privateequity investments, more the province of insurance companies in the past, were being managed by

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residential mortgage market; the growing junkbond appetite of savings and loans, insurance companies, and mutual funds extended the ability of investment banks to underwrite more junk bonds. 26 Wigmore, Securities Markets in the 1980s, pp. 50–51. 27 Ibid. Michael Milken’s group at the investment-banking house of Drexel Burnham (later

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Drexel Burnham Lambert Inc.) educated the world, and then dominated it, in the fertile laboratory of junk bonds.29 (Junk bonds are those that are rated below investment grade by the rating agencies.) Early buyers of Drexel’s junk bonds had acquired valuable experience in the conglomerate years—Carl Lindner of American Financial Corporation and Saul

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Reliance Insurance.30 After his initial success with “fallen angels”—companies that had fallen on hard times and been downgraded—Milken gravitated toward “new-issue” junk bonds. Drexel performed an admirable service by finding investors for some promising companies, with Turner Broadcasting and Humana being early success stories.31 It was not

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long before the weapon (junk bonds) and the strategy (hostile bids) discovered each other. One other component was needed: a willing buyer. The mutual fund industry offered 11 junkbond funds before

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never be resolved.”34 28 Ibid., p. 303. 29 Ibid. 30 Ibid., p. 280. Milken did not invent junk bonds, as is often claimed. There were precedents: railroad and REIT (real estate investment trust) junk bonds. 31 Ibid., p. 282. 32 Ibid., p. 283. 33Ibid. p. 282. Between 1980 and 1982 the ratio of

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money. He needed yield from the securities bought by Lincoln. He needed capital gains from the trading of land and securities. He bought the riskiest junk bonds, land, and takeover stocks.17 Keating’s first big investment was $132 million in the common stock of Gulf Broadcast Company. He bought the stock

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agency created to resolve problems in the S&L industry—he faced a mystery: why was the heaviest financial carnage among the largest holders of junk bonds sold by Michael Milken? These included Lincoln; Centrust Savings Bank of Miami, Florida; and Columbia Savings and Loan of Beverly Hills, California. Among them, the

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three banks held $2.5 billion of junk bonds by the end of 1984—which was equal to 35 percent of the amount held by all mutual funds.22 (William Seidman later wrote that

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topics that Greenspan addressed to Edwin Gray. They are general subjects, not the specific issues of a bank balance sheet filled with risky loans and junk bonds. Greenspan reviewed its “application [for direct investments] and its audited financial statements” (according to his letter to Thomas F. Sharkey).44 By the end of

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1984, Lincoln’s investments included raw land in the boondocks even as it betrayed an insatiable appetite for junk bonds.45 Such carelessness is important, given the fact that by 1989, Greenspan was the country’s leading bank regulator. He had had considerable relevant experience

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Park West, 356–357 Financial activities: in the 1980s, 71–72 and commercial bank bailouts, 78–79 during conglomerate years, 33–36 innovation in, 124 junk bonds, 80–81 leveraged buyouts, 80 profits from, 3 Financial concentration, in banking industry, 100–101 Financial derivatives, description of, 109–112, 130–131, 276, 313

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Jones, Paul Tudor, II, 324 Jordan, Jerry, 170, 171, 175, 176, 193 JP Morgan Chase (see also J.P. Morgan), 274, 346 Juilliard School, 10 Junk bonds, 72, 80–81, 89, 93 Just-in-time inventory management, 159 K Kaufman, Henry, 220–221 Kavesh, Robert, 11, 59 Keating, Charles, 6–7, 85

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Home equity loans) Moskow, Michael, 194, 196 Motorola, 207 Mozilo, Angelo, 275, 279 M3, 135 Mullins, David, 137 Mutual funds: in the 1960s, 33 of junk bonds, 80 in late 1990s, 142 and recession of early 1990s, 127 N Nasdaq: in 1995, 139 in 1997, 166 in 1998, 188, 191 in 1999

Buffett

by Roger Lowenstein  · 24 Jul 2013  · 612pp  · 179,328 words

and through economies fat and lean, from the Eisenhower years to Bill Clinton, from the 1950s to the 1990s, from saddle shoes and Vietnam to junk bonds and the information age. Over the broad sweep of postwar America, as the major stock averages advanced by 11 percent or so a year, Buffett

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are all in strict accord with age-old tradition.20 Graham dissected common stocks, corporate bonds, and speculative senior securities (what Michael Milken would call junk bonds) as the biologist did the frog. At first blush, then, Security Analysis was a textbook for a profession still in the making.* But written during

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, Perelman’s vehicle in the fight, had a net worth of only $145 million, while Revlon was worth over $1 billion. But Perelman, financed with junk bonds, prevailed. Revlon was his, and Bergerac was out of a job. He had been wrong in saying that Revlon was not for sale. Everything was

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somebody else’s dough would pay a lot more than a company was worth. And Wall Street’s soaring appetite for junk bonds was providing a vast supply of easy money. Junk bonds had become a kind of “phony currency” (phony because bond buyers were thoughtlessly, and naïvely, financing borrowers beyond their means). Whoever

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. And he allowed that the new borrowers would repeat this pattern. “I personally think, before it’s all over, junk bonds will live up to their name.” For 1985, this was strong talk. Junk bonds were thriving, and defaults had been rare. Investors were or would soon be lining up for such surefire credits

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, Washington Public Power Supply System. Bankrupt credits often were attractive on a price-to-value basis; Michael Milken, Drexel’s junk-bond impresario, had gotten his start trading just such “fallen angels.” Junk bonds of recent vintage had the crucial distinction of not having yet fallen: they were weak credits issued at par (full

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price), with a long way to fall and little upside. Buffett, continuing in his “pejorative” vein, pointed out that the issuers of those junk bonds were raking in very fat fees, as were the deal promoters. To him, the takeover game resembled an addiction, and Wall Street was pushing

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the average investment banker. Though known for his scalding sarcasm, Gutfreund was conservative in his approach to business. He had refused to let Salomon underwrite junk bonds and had generally avoided hostile raids, despite the lucrative fees associated with each. Instead, the firm had concentrated on trading. To Charlie Munger, Gutfreund evoked

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. At the eleventh hour, KKR sweetened its bid by promising that sometime after the deal had closed, it would “reset” the interest rate on the junk bonds it sold to finance the LBO. The worse that RJR Nabisco fared, the higher the rate that it would pay. (Imagine buying a house with

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his strategy they revealed nothing. Indeed, Buffett was a master dissimulator. At the very moment that his junk-bond critique was rolling off the press, Buffett was scooping up one of the largest bundles of junk bonds ever—$440 million of RJR Nabisco paper. RJR Nabisco’s bonds had collapsed with the general market

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overreacted. (After all, RJR Nabisco was still selling a high-margin product to “addicts.”) His purchase of junk bonds might seem hypocritical, but it was not. Buffett saw a moral hazard in selling a junk bond that would likely never be repaid. Buying a bond was different. To the investor, no financial instrument was

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junk bonds—became the biggest insurance failure in history. Banks, just reborn from the foreign-debt crisis, found they were up to their ears in homegrown deadbeats,

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airline with much-needed capital. These blemishes in Buffett’s portfolio were easily outweighed by the likes of Coca-Cola, Gillette, and the RJR Nabisco junk bonds—on which he turned a fast profit of roughly $200 million.49 Berkshire’s net worth continued to rise, in defiance of Buffett’s prophecy

The Snowball: Warren Buffett and the Business of Life

by Alice Schroeder  · 1 Sep 2008  · 1,336pp  · 415,037 words

to ask the question, Why didn’t they do it [cost-cutting] themselves?”4 In 1984, the burner under managements turned up another notch when “junk bonds” became respectable. More politely called “fallen angels,” these were the bonds of companies like the Penn Central Railroad that were climbing out of the bankruptcy

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teetering on its edge.5 Only occasionally did a company issue junk bonds on purpose, paying a high interest rate because it was considered a dicey credit risk. Junk bonds were sort of shady, a little desperate. The people who worked in the junk-bond departments on Wall Street were junk peddlers or ragpickers—the few

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bankers who scouted for hag-ridden executives willing to issue junk bonds, and “distressed debt” analysts who spent their careers grading papers in the gloomy school of hard knocks, looking over picked-clean balance sheets and scuttlebutting

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upstart investment bank Drexel Burnham Lambert, rose to become the most influential man on Wall Street through a simple proposition: that while individual “fallen angel” junk bonds were risky, buying a bushel of them was not, because on average, the higher interest rate more than compensated for the risk. In other words

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, junk bonds in the aggregate had a margin of safety—like cigar butts. Soon, money managers no longer looked as though they were playing roulette with investors’

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money by putting high-paying junk bonds in their portfolios. Indeed, it quickly became more respectable to issue new junk bonds—quite a different thing. Another short hop and takeovers of strong, well-financed companies could be financed with junk

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, turning formerly sound balance sheets into debt-riddled Swiss cheese. Corporate raiders armed with junk bonds, intent on “hostile takeovers” whose goal was to pluck a company clean, suddenly stalked companies that had been waddling along complacently. Their targets lunged toward

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were and negotiating easier payment terms. He always added a little soliloquy about the perils of too much debt—especially debt from credit cards, the junk bonds of the personal-finance world. His own kids had received little training about how to handle large sums of money, but one thing they had

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” side.48 This expansion of leverage from hedge funds and arbitrage was related to the rise of junk bonds and takeovers occurring at the same time. The models that supported the argument for leveraged buyouts using junk bonds were, like the models used by arbitrageurs, variations of the efficient-market hypothesis. Leverage, however, was

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company like Fechheimer, which made prison-guard uniforms. People like Tom Murphy had to worry about whether they would be targeted by corporate raiders wielding junk bonds, but Berkshire Hathaway was impregnable because Buffett and friends of Buffett owned so much of its stock; his reputation made Berkshire a fortress where others

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Reagan’s handling of geopolitics. However, under Reagan the United States went from being the world’s largest lender to its largest borrower. Just as junk bonds and leverage were ballooning on Wall Street, the government had been running up mountains of debt—which Buffett considered the Wimpy style of economics: I

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was muscling its way into investment banking and had recently caved to market pressure and set up a merchant banking business to finance takeovers using junk bonds, a technique he despised. The firm was late to the highly competitive merger business, still a novice.74 In trying to launch Salomon in these

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Salomon’s expertise in reshaping the bond market appealed to Buffett at a time when good stock ideas had become scarce.76 While he denigrated junk bonds, he didn’t shun the takeovers that were done using them. In fact, he opportunistically arbitraged those deals—shorting the stock of the acquirer and

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Street bank. He routinely railed against the Wall Street of which he was now very much a part. He wrote the Berkshire shareholders excoriating the junk bonds used to finance takeovers—including Salomon’s—which, he said, were “sold by those who didn’t care to those who didn’t think.”1

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for the kind of opportunities that sleeted down upon Kiewit Plaza. Every one of his faculties seemed engaged at once. He bought a group of junk bonds, which had become cigar butts, for Berkshire. He bought the underwear maker Fruit of the Loom, quipping, “We cover the asses of the masses.”19

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a tag to label a person or situation so that other parts of the bathtub could drain. 68. Linda Grant, “The $4-Billion Regular Guy: Junk Bonds, No. Greenmail, Never. Warren Buffett Invests Money the Old-Fashioned Way,” Los Angeles Times, April 7, 1991. 69. Interview with Louis Blumkin. 70. Harold W

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. Buffett, speaking at the 1994 Berkshire annual shareholder meeting. Munger made the “twaddle and bullshit” comment at the 2001 shareholder meeting. 50. The model with junk bonds was based on average credit history, not the behavior of the stock or bond market. The two models are not only related, but have the

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St. Warren,” New Republic, February 17, 1992. 2. At the University of Notre Dame, spring 1991. Cited in Linda Grant, “The $4-Billion Regular Guy: Junk Bonds, No. Greenmail, Never. Warren Buffett Invests Money the Old-Fashioned Way,” Los Angeles Times, April 7, 1991. 3. In “How to Tame the Casino Economy

Money and Power: How Goldman Sachs Came to Rule the World

by William D. Cohan  · 11 Apr 2011  · 1,073pp  · 302,361 words

265 made their appearance during the course of the year. As in any period of financial frenzy where salesmen are hawking the latest innovation—say, junk bonds, Internet IPOs, or mortgage-backed securities—some of the peddlers were honest and reputable—J. P. Morgan & Co. for example—and some were not. But

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at picking up a pioneer’s market share without having to pay a pioneer’s research and development costs. We were late in mortgages, swaps, junk bonds and emerging markets in the last ten years, but we watched others make mistakes and we recovered very quickly.” He noted that Goldman remained behind

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advice of compliant, crooked counsel. This is enabling. All of them did it.” Of course, as with any innovation on Wall Street—the introduction of junk bonds in the 1980s (courtesy of Michael Milken, at Drexel Burnham Lambert), the bridge loan in the 1980s (courtesy of the late Bruce Wasserstein, then at

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, David Herrick, Darryl Hertzberg, Daniel, 11.1, 11.2, 11.3 Hess, Betty Levy Hewlett-Packard high-grade corporate bonds High-Grade Fund high-yield (junk) bonds, 2.1, 10.1, 10.2, 12.1, 15.1 Ho, Greg Hoffman-Zehner, Jacki holding company home-equity loans Homeland Security Department, U.S

The Intelligent Investor (Collins Business Essentials)

by Benjamin Graham and Jason Zweig  · 1 Jan 1949  · 670pp  · 194,502 words

aggressive investors. Here is a list for today. Junkyard Dogs? High-yield bonds—which Graham calls “second-grade” or “lower-grade” and today are called “junk bonds”—get a brisk thumbs-down from Graham. In his day, it was too costly and cumbersome for an individual investor to diversify away the risks

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carelessly even “sophisticated” professional bond investors can buy into one, see the sidebar on p. 146.) Today, however, more than 130 mutual funds specialize in junk bonds. These funds buy junk by the cartload; they hold dozens of different bonds. That mitigates Graham’s complaints about the difficulty of diversifying. (However, his

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no cheap and widely available way to spread their risks.) Since 1978, an annual average of 4.4% of the junk-bond market has gone into default—but, even after those defaults, junk bonds have still produced an annualized return of 10.5%, versus 8.6% for 10-year U.S. Treasury bonds.2

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fund, which tends to outper-forms most other bond funds when interest rates rise, might make sense as a counterweight in your 401(k). A junk-bond fund, though, is only a minor option—not an obligation—for the intelligent investor. A WORLD OF HURT FOR WORLDCOM BONDS Buying a bond only

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charges; the bonds lost more than 80% of their original value. The Vodka-and-Burrito Portfolio Graham considered foreign bonds no better a bet than junk bonds.3Today, however, one variety of foreign bond may have some appeal for investors who can withstand plenty of risk. Roughly a dozen mutual funds specialize

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of annual operating expenses, by fund category: Taxable and municipal bonds: 0.75% U.S. equities (large and mid-sized stocks): 1.0% High-yield (junk) bonds: 1.0% U.S. equities (small stocks): 1.25% Foreign stocks: 1.50%9 Next, evaluate risk. In its prospectus (or buyer’s guide), every

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investors; and half a hedge; and inflation; and investment funds; “related” and “unrelated,” Heine, Max Heinz (H.J.) Hennessy funds herding high-yield bonds. See junk bonds Hoffman, Mark “home bias,” Home Depot Honda Honeywell Corp. Horizon Corp. hostile takeovers Household International Housing and Urban Development (HUD), U.S. Department of Housing

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Johnny-One-Note Co. Johns Manville Corp. Johnson & Johnson Johnson Controls Jones, Charles Jordan, Michael Jos. A. Bank Clothiers junior stock issues. See common stock junk bonds Juno Online Services “just do what works,” Kadlec, Charles Kahneman, Daniel Kaplan, G. E. Karp, Morris Kayos, Inc. Kayser-Roth Co. Keck family Kemper Funds

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; and defensive investors; expenses/costs of; “focused” portfolios of; foreign stocks and bonds in; and formula trading; and growth stocks; and inflation; introduction of; for junk bonds; managers of; and market fluctuations; and new offerings; performance of; precious metals; and public attitude about stocks; registration of; as “regulated investment company” (RIC); return

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, in a bankruptcy, convertible holders do not have priorclaim to the company’s assets. And, while they are not nearly as dicey as high-yield “junk” bonds, many converts are still issued by companies with less than sterling credit ratings. Finally, a large portion of the convertible market is held by hedge

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in the wave of leveraged buyouts and hostile takeovers that swept the United States in the 1980s, as he became a major customer for the junk bonds underwritten by Drexel Burnham Lambert. * The “large dilution factor” would be triggered when NVF employees exercised their warrants to buy common stock. The company would

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objection to high-yield bonds is mitigated today by the widespread availability of mutual funds that spread the risk and do the research of owning “junk bonds.” See the commentary on Chapter 6 for more detail. † † The “New Housing” bonds and “New Community debentures” are no more. New Housing Authority bonds were

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pay high rates of interest in order to borrow money, that is a fundamental signal that it is risky. For more on high-yield or “junk” bonds, see pp. 145–147. † As of early 2003, the equivalent yields are roughly 5.1% on high-grade corporate bonds and 4.7% on 20

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buzz saws, tearing apart anyone who believes in them. * Defaulted railroad bonds do not offer significant opportunities today. However, as already noted, distressed and defaulted junk bonds, as well as convertible bonds issued by high-tech companies, may offer real value in the wake of the 2000–2002 market crash. But diversification

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory

by Kariappa Bheemaiah  · 26 Feb 2017  · 492pp  · 118,882 words

it. Sidebar 1-1 summarizes a series of events that offer some insight into how we got to where we are today. Sidebar 1-1: Junk Bonds and Reaganomics The trend in increasing indebtedness of households and companies can partly be traced to the energy crises of the ’70s. As the oil

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was Michael Milken, the future founder of the Milken Institute. Milken had invented a debt instrument called high-yield bonds (which the established banks called junk bonds ) which he had used as a way to raise vast sums to build casinos in Las Vegas. Casinos were a business most banks avoided, as

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democratized and no longer the property of a small group. An increasing number of new entrepreneurs who invested in junk bonds became wealthy, which brought in new investors who were eager to purchase these junk bonds. In essence it became a tool to challenge the established power on Wall Street as it began to

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and money broad and base money China’s productivity credit economic pressures export-led growth fractional banking See also((Fractional Reserve banking) GDP growth households junk bonds long-lasting effects private and public sectors problems pubilc and private level reaganomics real estate industry ripple effects security and ownership societal level UK DigID

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I Implicit contracts Information and communication technologies (ICTs) Institute for New Economical Thinking (INET) Insurance sector InterLedger Protocol (ILP) Internal Revenue Service (IRS) iSignthis J Junk bonds K Kashkari, Neel Kelton, Stephanie Kim-Markowitz Portfolio Insurers Model Know Your Business (KYB) Know Your Customer (KYC) advantage Atlantic model concept of contextual scenario

All the Devils Are Here

by Bethany McLean  · 19 Oct 2010  · 543pp  · 157,991 words

to Business Week, Ranieri’s mortgage finance group at Salomon Brothers accounted for close to half of Salomon’s $415 million in profits. Along with junk bonds, mortgage-backed bonds became a defining feature of the 1980s financial markets. Tranching, however, was not the only necessary ingredient. A second important factor was

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Business The most cutting-edge firm on Wall Street in the early 1990s was not Drexel Burnham Lambert, which had dominated the 1980s with its junk bonds, or Goldman Sachs, whose sheer moneymaking prowess would first dazzle and then repulse the country during this last decade. No, the firm that everyone on

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quant. Drexel in those days was best known for its most infamous executive, Michael Milken, the man who popularized junk bonds and built a huge business around them. Sosin wasn’t interested in junk bonds; instead, like any good quant, he gravitated toward complex derivatives, becoming one of the pioneers in developing ever more

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complicated forms of swaps. The problem for Sosin was that, at Drexel, derivatives were never going to replace junk bonds as the firm’s bread and butter. Drexel also didn’t have a particularly good credit rating, which meant its borrowing costs were higher than

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the 2000s, were a kind of asset-backed securities on steroids. A CDO is a collection of just about anything that generates yield—bank loans, junk bonds, emerging market debt, you name it. The higher the yield, the better. Just as with a typical mortgage-backed security, the rating agencies would run

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default swaps derivatives lobbying by quants/quantitative analysis risk management special purpose entity (SPE) synthetics trading business entry Value at Risk (VaR) measure Jungman, Michael Junk bonds Kamilla, Rajiv Kapnick, Scott Karaoglan, Alain Kemp, Jack Kendall, Leon Kennedy, Judy Killian, Debbie Killinger, Kerry Kim, Dow Kindleberger, Charles Koch, Richard Kolchinsky, Eric Komansky

The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the JunkBond Raiders

by Connie Bruck  · 1 Jun 1989  · 507pp  · 145,878 words

had come knocking at the door. Drexel would underwrite their bonds, low-rated though they were, for the public marketplace. Michael Milken, a most extraordinary junk-bond trader, could raise $50 million, $100 million or more—the kind of long-term, relatively covenant-free capital that was available to these companies nowhere

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back in the seventies, when he had begun tirelessly preaching an esoteric gospel: that in a diversified portfolio of high-yield bonds, otherwise known as “junk” bonds, the reward outweighs the risk. This was a proven theory, well documented by academician W. Braddock Hickman in his enormous multivolume tome Corporate Bond Quality

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ever more gargantuan and controversial and Tisch began to affect the role of elder statesman. While Tisch would remain personally aloof from Milken and his junk bonds, however, the insurance company Tisch had taken over in a hostile raid in the seventies, CNA, would continue to invest heavily in them. Milken

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is cash flow, in its ability to service debt by making interest payments, that makes a highly leveraged acquisition viable. In his original issuance of junk bonds, Milken had recognized the importance of cash flow, more than earnings, in assessing whether the leveraged companies he was underwriting would be able to meet

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of course, with its wondrous leverage potential, would have suited Peltz’s proclivities. Though it was state-chartered (and therefore much freer to invest in junk bonds than federally chartered thrifts), Beverly Hills Savings at this point had not yet invested in junk. But Thomas Spiegel, just a few blocks down Wilshire

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thrift’s former officers and directors, alleging that they had wasted its assets by making questionable loans and real-estate investments, and by investing in junk bonds. Interestingly, the thrift’s portfolio of junk originated—and spurted to about $300 million, or more than 10 percent of its assets—in 1984,

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essentially, a hostile leveraged buyout. Icahn would pay the debt with Phillips’ own cash flow. Icahn formed a dummy partnership, for which Milken would sell junk bonds, ultimately secured by the assets of Phillips. If the transaction went through, Icahn would pay down his mountain of debt—$11 billion, set atop an

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investment banker, in this transaction—which would be essentially a leveraged buyout, with the financing of about $750 million raised largely from the sale of junk bonds—only Drexel could place the debt. The Drexel investment banker working for Lorenzo was Leon Black. Black and Icahn had become such good friends during

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called “takeover entrepreneurs.” He drew this distinction in testimony before Congress in the spring of 1985, when about thirty bills to curb hostile takeovers or junk bonds or both were being debated. Soundly financed acquisitions by successful operating companies seeking to diversify or expand have been an integral part of this country

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the capital markets, he had averred, is thus destroyed. He had pointed out that arbitrageurs manage enormous pools of money, some of them financed by junk bonds. Raiders also have huge pools, similarly financed. This creates a “symbiotic set of relationships . . . with the appearance, if not the reality, of professional traders

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bonds downgraded, or acquired companies whose bonds were subsequently downgraded—he was often the propulsive force. According to Drexel, in 1985 $4.6 billion of junk bonds moved up into the investment-grade category, while $9.1 billion of investment grade moved down into the netherworld of junk. ONE YEAR AFTER the

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chessboard, however, all that mattered was that his pawns keep moving deeper into corporate America, decimating its ranks further—making bids and acquisitions and issuing junk bonds and doing streams of divestitures and making new acquisitions—until one day the game would be won. PART THREE The Zenith–and the Fall 10

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only natural by the fall of 1986 that Milken should be expanding his scope to cover the world. The home territory, where he was using junk bonds to revolutionize and restructure the American corporate landscape, was in some sense already appropriated. While there were certainly many more battles to be fought,

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, these deals would never have happened. And while other investment banking firms now were eager to play Drexel’s part, the megadeals spawned securities—junk bonds—in amounts that no investment-banking firm but Drexel could sell. Drexel’s monopoly of this market, following the earlier years of monopoly of the

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on his Third World debt project, attempting to find some original approach to the crisis (which, if found, would probably rival the original issuance of junk bonds in its payout). Both these individuals ultimately pleaded guilty. Drexel officials pointed out that all three—Levine, Salsbury and Gebauer—had been at Drexel for

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Department (in its antitrust policies) under Reagan that had fueled the M&A activity of the early eighties. The SEC did do a study of junk bonds in takeover financing, which reached the predictable conclusion: Released in June 1986, it stated that there was no “justification for new regulatory initiatives aimed

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no sooner passed than they become obsolete. In December 1985, the Federal Reserve Board had proposed a measure that would apply its margin regulations to junk bonds issued by shell companies to finance acquisitions. Margin rules restrict the use of borrowed money in buying stock, generally allowing no more than 50 percent

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to interest expense—not, in other words, the junk securities of companies which typically have little financial leeway. Second, Grant reasoned that the holdings of junk bonds were so concentrated in a handful of institutions (Milken’s inner circle)—which issued bonds and bought each other’s paper—as to invalidate the

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Two months later, in November 1984, when Drexel refinanced John Kluge’s leveraged buyout of the Metromedia Broadcasting Corporation and issued $1.3 billion of junk bonds—then the largest junk issue ever—Grant had sounded the alarums. He quoted extensively from the prospectus, which said, in the plain, daunting language that

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Business Week, with Milken on its cover, quoted Harvard Business School professor Samuel Hayes comparing Milken to J. P. Morgan and ran an editorial headed “Junk Bonds Deserve a Little Respect.” For Institutional Investor, the headline said it all: “Milken the Magnificent.” Even The Economist, that sober periodical, gave its imprimatur to

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Executive Life in New York, a smaller subsidiary of the California company) had indicated that he was considering imposing a limit on the amount of junk bonds an insurer could buy. Similarly, Tom Spiegel’s $3 billion pool at Columbia Savings was overseen by increasingly critical regulators at the Federal Home Loan

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whatever oil was needed.” Once the original-issue market started, Sun Chemical became one of Milken’s early issuers, doing a $50 million offering of junk bonds in 1978. Alexander remained a satisfied customer of Milken’s through the years, investing personally in some of the superlever-aged acquisitions when they came

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earlier, after the Drexel Burnham merger, he had created his separate group. By this fall, 1986, his traders in Beverly Hills were trading not only junk bonds (straight and convertible debt) but common stocks, preferred stocks, the securities of bankrupt companies, and mortgage-backed securities. Drexel’s mortgage-backed-securities and common

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speculated) with this kind of inside information. Regan and Thorp were slightly different, insofar as they were not running financial institutions dependent on Milken’s junk bonds but were money managers and Milken’s partners in some of his lucrative investment partnerships. He could conceivably have profited directly from rewarding them. At

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Milken would not yet be enjoined from the scene). For the past several years, while Drexel and its rivals were underwriting billions of dollars of junk bonds to finance scores of superleveraged acquisitions, critics had predicted that this mountainous debt’s test—and failure—would come in the next recession. They pointed

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losing business, Drexel ran ads that listed hundreds of its faithful clients. But by the spring of 1987, the campaign developed a stronger message—that junk bonds (after years of hating and resisting the nomenclature, Drexel officials had decided there were more important battles to fight) were good for America. Inside the

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long “celebration,” open to all employees, of seminars, sports events and films, all devoted to this proposition. Thousands of square green pins were distributed, reading: “Junk Bonds Keep America Fit.” (One music video, along more general morale-boosting lines, showed Drexel employees mouthing the words to a hit song by Billy Ocean

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restructurings—undertaken to fend off Drexel-backed bidders. Sometimes Drexel attacked the problem head on, as in ads stating that a prevalent “misconception” is that junk bonds are “responsible for the recent proliferation of hostile takeover activity.” On the contrary, Drexel asserted, less than 10 percent of successful tender offers (1981–86

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) were funded by junk bonds. True enough, except that the junk-bond-financed hostile takeover had only two preliminary runs (Mesa-Gulf and Reliance-Disney) prior to 1985. And this statistic also omits, of course

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38, 44, 119, 346 discount trading of, 27, 289 downgrading of, 27 face (par) value of, 27, 93 high-coupon, high-premium, 71 junk, see junk bonds, junk-bond takeovers Penn Central, 34, 112 People Express, 249, 287 prices of, interest rates and, 70 rating of, 27, 32 Riklis’ use of, 37–38 shorted

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’s views on, 12 Corporate Bond Quality and Investor Experience (Hickman), 11 corporations: below-investment-grade, 11, 45 investment-grade, defined, 27 mergers of, see junk bonds, junk-bond takeovers; takeovers rating of, 10–11, 27, 45 cosmetics business, 234–35 Coss, Lawrence, 290–92 coupons, on bonds, 73, 82 CPC International, 233

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344 use of term, 101, 106–7 high-yield bond funds, 46–47, 55–56 diversified, 46 high-yield bonds, see Chinese paper; fallen angels; junk bonds, junk-bond takeovers Hilton Hotels, 17, 60 Hilton International Co., 233 HITS (Drexel’s high-yield mutual fund), 79–80 Hoffman, Robert, 325 Home Insurance, 290 Home

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137 National Can deal and, 137 Triangle Industries and, 108–9 International Nickel Company, 96 International Telephone and Telegraph (ITT), 194–95, 239 Investing in Junk Bonds (Altman), 268 investment banking, investment bankers, 63–66 agent mentality of, 64 gambling operations and, 59–60 institutional vs. entrepreneurial 65, 66 problems of medium

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recruitment efforts of, 101, 176, 251, 253, 255 TWA deal and, 170, 171, 176, 182 Volcker and, 264 Joseph, Stephen, 251 “Joseph doctrine,” 170, 171 junk bonds, junk-bond takeovers, 12–15, 17–19, 44–49, 56–60, 90–100 allure of, 28–29, 46, 47 commissions on, 46 competition and, 47–48, 71

Why Wall Street Matters

by William D. Cohan  · 27 Feb 2017  · 113pp  · 37,885 words

, a successor to the Drexel firm in Philadelphia that J. P. Morgan once controlled, set out to create a new supply of these so-called junk bonds by persuading companies that never before had access to the capital markets—where companies go to get capital from public investors as opposed to trying

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corporations that could not get financing from more traditional sources—banks, insurance companies, and the public-equity markets—but it also pioneered the selling of junk bonds to help corporate raiders, like Carl Icahn and T. Boone Pickens, get the capital they needed to take over companies such as TWA and Gulf

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by investment banks other than Drexel, probably wouldn’t exist without the high-yield market that Milken created. It’s not hyperbole to say that junk bonds underwritten by Wall Street firms have created millions of jobs that otherwise might not have existed, along with billions, if not trillions, of dollars in

Rigged Money: Beating Wall Street at Its Own Game

by Lee Munson  · 6 Dec 2011  · 236pp  · 77,735 words

ETF exists doesn’t mean you should invest in it. To add injury to insult, some parts of the market, even well-known areas like junk bonds, can fail to translate into a successful ETF. SPDR Barclays Capital High Yield Bond ETF (JNK) may be the worst bond strategy of all time

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. Now that I have your attention, let’s break down the major issues with junk bonds, and more specifically ETFs that trade baskets of those bonds. Don’t worry, there is a place for these ugly ducklings, but they are not

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are bonds with a poor rating. Most notably, junk bonds have higher credit risk and illiquidity, but also higher interest payments—as long as they keep paying. I want to cover the problem with

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junk bonds within a portfolio, the true cost of owning them, and how investors should approach the junk bond market. As a warning, most investors should simply stay away. That doesn’t mean they don’t

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place, but like many niche markets the application is small compared to the herd of stockbrokers touting them. There is something to be said about junk bonds and those that invest in them. Often my firm encounters clients and potential clients that ask if we invest in

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junk bonds. My first reaction is to question why they are interested. Usually investors see high yields as a magic bullet providing return and no risk. After

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to capital appreciation if properly timed. Unfortunately, not all ugly ducklings will turn into beautiful swans. The best opportunities involve the worst of the worst junk bonds, are illiquid, and end up as the hunting ground of the best hedge fund managers in the world. Not exactly the place for Main Street

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. From a practical level, the cost of trading, minimum size, and research to do it right is highly specialized. Adding to the problem of incorporating junk bonds into a portfolio is the high correlation to equity markets with lower risk-adjusted returns. Over the past five years we can see a correlation

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, you just don’t get a big enough bang for your buck to compensate for the risk. Let me put these simple stats into English. Junk bonds via the basket that is easiest to trade (JNK) have risk similar to equity markets, marginal diversification capabilities, and performance that is at best mediocre

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happened to the not-so-liquid index? There is no such thing as the S&P 500 very liquid index. Remember that many junk bonds started life as decent debt, but turned into dogs over the years. In order to have something that can be bought and sold each day

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! And the tracking error is not because the people at SPDR don’t have a grasp on tracking indexes. If you run the numbers from junk bonds, to investment grade corporates, to highly liquid U.S. Treasuries, you will see an almost linear decline of tracking error. Just look up the errors

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interest than straight stock. This is not for everybody, and each account needs careful attention. The bottom line is that there is a reason for junk bonds, but harnessing their unique qualities requires close monitoring. The Final Audit: We Have a Winner! So far there hasn’t been much hope of finding

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from your CPA’s baseball bat. The other option you have is to seek ETNs that mimic well-regarded indexes of MLPs. Some indexes, like junk bonds, are hard to replicate. MLPs are not only small in size, but some don’t trade much on a daily basis. Until this changes, the

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-deferred investment scenarios investment, sustainability of investor returns investors, types of IOI. See Indications of Interest IRA. See Individual Retirement Account J joint-stock company junk bonds K Kinder, Gary L Lefèvre, Edwin Lehman Black Book liquidity liquidity providers Lo, Andrew London Gold Pool low-latency trading lower-risk environment M Malkiel

Security Analysis

by Benjamin Graham and David Dodd  · 1 Jan 1962  · 1,042pp  · 266,547 words

ROGER LOWENSTEIN Copyright © 2009 by The McGraw-Hill Companies, Inc. Click here for terms of use. If the modern reader were asked, what did the junk bonds of the 1980s, the dot-com stocks of the late 1990s, and, more recently, the various subprime mortgage portfolios of the 2000s all have in

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creditors of Federated Department Stores (which operated Bloomingdale’s and other high-end retailers) during the junk bond mania of the late 1980s. Investment banks had discovered, without any sense of shame, that they could sell junk bonds to a credulous public irrespective of the issuers’ ability to repay them. In 1988, Federated agreed

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a period of time will undoubtedly far exceed the dividend return on similarly priced common stocks.” (p. 327) Others appropriated that idea to help sell junk bonds, especially the low-grade original issue bonds that took Wall Street by storm in the 1980s. But there is little doubt that Graham and Dodd

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Steel, 476n Jones Soda, 58 Jordon, David F., 702n Joseph Dixon Crucible, 92n Jugoslavia, 175 Julian and Kokenge Company, 585n Julius Garfinckel and Company, 637n Junk bonds in 1980s, 43–44 K Kana Communications, 267 Kanawa and Hocking Coal and Coke Company, 208 Kansas City Public Service Company, 238 Kansas City Southern

Den of Thieves

by James B. Stewart  · 14 Oct 1991  · 706pp  · 206,202 words

savings and loans and insurance companies offered, especially now that federal deregulation had opened up so many new opportunities in the savings and loan business. Junk bonds, in and of themselves, were enormously lucrative. But they could be harnessed to an even more potent force. Milken could see clearly what was beginning

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in Beverly Hills, not by Drexel's compliance department in New York. Prior to the National Can dealings. Otter Creek had invested almost exclusively in junk bonds and related securities, such as warrants and convertible debentures, never in common stocks. But the partnership's trading records show a huge stake of 54

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capacity crowd, attended the gathering, held at the Beverly Wilshire. Milken was the official host, the star of every session he attended. He spoke about junk bonds and broader, grander themes: job formation, education, and the scarcity of human capital. They were themes he would repeat in countless speeches for years afterward

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government wanted S&L owners to speculate. To pay such rates, the savings and loans had to generate even higher returns with their own investments. Junk bonds, with their higher rates, seemed ideal. Milken and Drexel had already transformed once-sedate institutions like Centrust, Columbia, Financial Corporation of America, and American Savings

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into huge buyers of its junk bonds. Boesky and Financial Corporation of Santa Barbara could be a similar vehicle. For Boesky, always in search of capital for his arbitrage plunges, an S

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reject Boesky's application for approval to take control, but they never approved it. It simply languished. Meanwhile, Santa Barbara had its huge portfolio of junk bonds. Conway wasted no time in trying to interest Boesky in other acquisitions. He knew Boesky envied Icahn's conquest of TWA and other companies, and

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Joseph had more important matters on his mind. He'd staved oflf congressional outcries over the Unocal attack, and legislation to curb the use of junk bonds was languishing. The press had also discovered Drexel, and largely laudatory accounts of the firm began to proliferate, not only in the financial newspapers and

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conference, the once-critical Wirth was a featured speaker. Drexel executives gave $23,900 to his successful Senate campaign, and Wirth became a defender of junk bonds. His earlier attempt to prohibit greenmail went nowhere, and he didn't reintroduce it. Drexel invited other influential politicians to speak, including Senators Bill Bradley

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. "The force in this country buying high-yield securities has overpowered all regulation," Milken confidently told The Washington Post. The Milken creed on high-yield junk bonds, once an arcane topic of economic analysis, had become the gospel of the 1980s. Companies with conservative balance sheets began to feel foolish. Almost no

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prominently New York University professor of finance Edward Alt-man, issued studies showing that data through 1985 confirmed Milken's thesis that a portfolio of junk bonds yielded substantially higher returns with no greater risk than U.S. Treasuries. Altman became an eager proponent of Milken's views. During the early

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from his lucrative position as Finsbury's manager. Solomon capitulated. Milken and Solomon, to recoup the commissions, simply inflated the price paid by Finsbury for junk bonds, and Milken pocketed the diflference. Sometimes Milken helped generate phony tax losses for Solomon's personal trading account. Solomon evaded paying taxes on about $800

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in comparison to prior years. The glitzy rock-backed videos were replaced by a quasidocumentary entitled "Drexel Helps America," featuring emotional testimonials in praise of junk bonds from employees of big Drexel clients. The film was propaganda. When a Stone Container employee said he'd like to "shake the hand" of whoever

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began to promote his new image as a "national treasure." In his opening remarks, he made no mention of hostile takeovers, concentrating instead on how junk bonds had promoted the growth of midsize companies and kept America competitive. Boone Pickens had planned a rousing defense of takeovers and shareholder democracy for his

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eflforts to replace the word "junk" with "high-yield" in popular parlance. Instead, it decided to embrace "junk." Employees were given pins with the message, junk BONDS KEEP AMERICA FIT. One of the videos featured Joseph and firm chairman Robert Linton lip-synching the lyrics, "When the going gets tough, Drexel gets

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with a living," the ad claimed. A $4 million network television campaign was similarly sentimental, showing an energy plant in Vidalia, Louisiana, built with Drexel junk bonds, that had supposedly lowered unemployment in the impoverished Louisiana town. Many at Drexel were furious when Wall Street Journal reporter Laurie Cohen pointed out that

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economic one. Corporate earnings remained strong. Main Street America continued spending. And even the shaken market itself began an extended rally from its new lows. Junk bonds, after plunging initially in a widespread flight to safer treasury bonds, recovered even faster, in part because of Milken's tireless proselytizing that they remained

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. Warren BufFett, chairman of Berkshire Hathaway in Omaha, who is considered one of the country's most astute investors, warned repeatedly of the perils of junk bonds. "When you insure substandard drivers, you get paid more than when you insure standard drivers," he told The Washington Post. "Some have done very

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ready supply of willing Milken clients at their disposal, the public-relations staflF began churning out think pieces endorsing various pro-Milken themes, such as "junk bonds make America competitive." These would be signed by Milken clients and published under their names. Thus, commentary and letters to the editor purporting to have

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back a hostile takeover for West-Point Pepperell by Milken loyalist William Farley, whose Fruit of the Loom was already heavily leveraged with Drexel-backed junk bonds. In early January 1989, Ackerman brought in a deal proposed by former Boesky investor Me-shulam Riklis, a $175 million buyout of Trans Resources,

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in Farley loans alone—nearly a quarter of Drexel's equity capital. By the end of the summer, the firm had a huge portfolio of junk bonds in companies such as Resorts International, BranifF, Integrated Resources, SCI Holdings, Gillett Holdings, Simplicity Pattern, Consolidated Oil and Gas, Hillsborough, and Southmark—all highly leveraged

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painful but clear: the firm's survival was at stake. As Joseph wrestled with mounting administrative problems, more threatening trends appeared in Milken's vast junk-bond empire. In the past, whenever Drexel's large bond issuers had begun to threaten default on the bonds, Milken had simply arranged an exchange offer

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and the company lurched inevitably toward a cash crisis. In February 1990, Integrated would file for bankruptcy, wiping out the value of all of its junk bonds, including a sizable position held in Drexel's own inventory. Among the victims were thousands of investors, policyholders, and employees—a broad cross section of

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changed to panic in September, when giant retailer Campeau Corporation disclosed a liquidity crisis that meant it couldn't meet obligations on the billions in junk bonds it had issued to acquire first Allied Department Stores and then Federated (with such high-profile names in retailing as Bloomingdale's). The Campeau crisis

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was false. It was the criminals who earned astronomical returns. During the decade ending in 1990, Lipper Analytical Services reported, money invested in the average junk-bond fund grew 145%. That was, in fact, worse than returns on the same amount of money invested in stocks (207%); investment-grade corporate bonds, so

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had paid out $575 million to cover commercial paper alone. Joseph believed the firm still had $1 billion in capital, admittedly in investments like unsaleable junk bonds and equity interests in leveraged buyouts. He began planning some kind of an equity infusion, perhaps through a packaging and sale of the firm's

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marshal raced for help. Epilogue Could it happen again? Perhaps one man and one market will never again dominate the financial world like Milken and junk bonds. Wall Street, suffering from layoffs and recession, has given every sign of being chastened. Securities prosecutions have declined, and the perception, at least, is that

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article enraged the Milken camp, but quickly became the most talked-about survey of Milken's economics. page 430 The statistics on the performance of junk bonds and other investments are from George Anders and Constance Mitchell, "Junk King's Legacy," Wall Street Journal, Nov. 20, 1990. page 430 The quotation

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of, 114-15, 117, 133, 190, 402 high-yield conferences of, see Predators' Ball history of, 40-41 Joseph hired by, 41-43 junk bond minicrash and, 431-32 junk bonds celebrated by, 356 "leak thesis" of, 297 lobbying by, 218-19 media blitz mounted by, 296, 355-57 National Can deal and, 108

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street

by William D. Cohan  · 15 Nov 2009  · 620pp  · 214,639 words

me sick.” Sedacca had witnessed firsthand a few blowups in his day. He worked at the investment bank Drexel Burnham Lambert—the former home of junk-bond king Michael Milken—when it was liquidated in 1990 and lost virtually overnight the stock he had in the firm as it plunged from $110

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase

by Duff McDonald  · 5 Oct 2009  · 419pp  · 130,627 words

months before. But there was also a growing sense that Drexel had helped much of Wall Street lose its way. Sure, the innovative use of junk bonds helped scrappy entrepreneurs like Ted Turner get their start. And although the much-chronicled junk-fueled takeover of RJR Nabisco by the private equity firm

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and Co., 87, 89–90, 98, 125, 135, 138, 162, 164, 178, 202 JPMorgan Chase, ix–xi, 154, 156, 159, 162–63, 167, 171–328 junk bonds, 52, 53, 90, 254–55 Kaplanis, Costas, 108 Katzenberg, Jeffrey, 181 Keynes, John Maynard, 215, 310 Kidder Peabody, 57 Killinger, Kerry, 290, 291, 292 King

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition)

by Burton G. Malkiel  · 5 Jan 2015  · 482pp  · 121,672 words

-Market Junkie? Is the bond market immune to the maxim that investment risk and reward are related? Not at all! During most periods, so-called junk bonds (lower credit quality, higher-yielding bonds) have given investors a net rate of return 2 percentage points higher than the rate that could be earned

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on “investment-grade” bonds with high-quality credit ratings. In 2014 investment-grade bonds yielded about 4½ percent, whereas “junk” bonds often yielded 5 to 6 percent. Thus, even if 1 percent of the lower-grade bonds defaulted on their interest and principal payments and produced

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well-diversified portfolios of high-yield bonds as sensible investments. There is, however, another school of thought that advises investors to “just say no” to junk bonds. Most junk bonds have been issued as a result of a massive wave of corporate mergers, acquisitions, and leveraged (mainly debt-financed) buyouts. The

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junk-bond naysayers point out that lower credit bonds are most likely to be serviced in full only during good times in the economy. But watch out

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income. And they are certainly not for any investors who do not adequately diversify their holdings. However, at least historically, the gross-yield premium from junk bonds has more than compensated for actual default experience. Foreign Bonds There are many foreign countries whose bond yields are higher than those in the United

The Bogleheads' Guide to Investing

by Taylor Larimore, Michael Leboeuf and Mel Lindauer  · 1 Jan 2006  · 335pp  · 94,657 words

rate since there's a greater risk that the issuing companies might not be able to repay investors. These lower-rated bonds are known as junk bonds, high yield bonds, and non-investment-grade bonds. Municipal Bonds State and local governments sell bonds to pay for various government and/or government-approved

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funds to choose from. There are bond funds that invest only in investment-grade bonds (those with higher safety ratings), and there are high-yield (junk) bond funds that invest in bonds that are rated below investment grade. Some bond funds invest in only U.S. Treasury issues, while other funds invest

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selling, these bond professionals almost instantly bring the bond's price back to perceived fair value. High-Yield Bonds High-yield bonds, also known as junk bonds, appeal to many investors because of their higher yields and sometimes higher returns than their more staid bond cousins. We have not included them in

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our portfolios for several reasons: 1. Bonds are primarily for safety. Stocks are primarily for higher return (and risk). Junk bond funds behave somewhere between traditional high-quality bonds and stocks. This tends to muddy the important distinction between bonds and stocks in a portfolio, thereby

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in corporate bonds, and others in municipal bonds. While some bond funds invest in highly rated investment-grade bonds, still others invest in lower-rated junk bonds. For more information on the various types of bonds, see Chapter 3. When investments (like stocks and bonds) don't always move together, they're

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institutions that is allowed to use risky strategies that are not available to mutual funds. High-yield bonds: See junk bonds. International fund: A mutual fund that invests in non-U.S. securities. Junk bonds (also known as high-yield bonds): Bonds with a credit rating of BB or lower, which indicates that the

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bonds are considered to be below investment grade. Companies that issue junk bonds promise to pay higher yields in order to attract buyers who otherwise might purchase safer bonds. Load fund: A mutual fund that levies a sales

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover

by Katrina Vanden Heuvel and William Greider  · 9 Jan 2009  · 278pp  · 82,069 words

they would never be repaid. In the past two years particularly, there was an orgy of bank gambling with leveraged buyouts and takeovers financed by junk bonds, and now the earth is beginning to shake. Indeed, the General Accounting Office has warned that seven of the nation’s ten largest banks plunged

The End of Wall Street

by Roger Lowenstein  · 15 Jan 2010  · 460pp  · 122,556 words

Street crash of 1929; stock speculation on credit helped to make the collapse so devastating. In the 1980s, corporations like Federated Department Stores palmed off junk bonds on which the interest due was far greater than their earnings.25 The utter implausibility of their promises did not deter investors—until Federated and

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he was running its leveraged finance unit. O’Neal was exceptionally smart and coolly—at times brutally—ambitious. He excelled in business lines such as junk bonds, demonstrating his tolerance for risk, and was a perceptive critic of Merrill’s failings, pointing out how it could cut costs. He became CEO in

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-and-loss report from every Goldman business every day; after two weeks of losses they had seen enough. At the same time, issuance of corporate junk bonds was falling fast, suggesting a general retreat from risky credits. Viniar, the heads of Goldman’s mortgage business, and various of its financial operatives, about

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, wasn’t waiting. Having already cleaned the larder of mortgage debts, FPA New Income pared its holdings in the only risk class it had left: junk bonds.14 Whatever the rating agencies were saying in public, in private they were acutely worried by the rising tide of delinquencies, which far outstripped their

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premiums on Wachovia insurers, bond. See also specific insurers interest rates adjustable. See adjustable rate mortgages on auto loans Federal Reserve’s on high-yield (junk bond) debt on investment-grade bonds low. See low interest rates short-term for subprime mortgages Internet bubble. See dot-com bubble investing, low interest rates

Expected Returns: An Investor's Guide to Harvesting Market Rewards

by Antti Ilmanen  · 4 Apr 2011  · 1,088pp  · 228,743 words

illiquidity premia became the preferred ways to boost returns. All these approaches resulted in dramatic losses in 2008. • Just when investors learned to value conservatism, junk bonds and speculative stocks rallied by at least 100% in the year ensuing the crash bottom in March 2009. So where are we now? Current academic

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data only exist since the late 1990s) gave the worst returns. Over long histories, long AA corporates outperformed Treasuries by 0.3% since 1926, while junk bonds outperformed Treasuries by about 1% since 1953. Figure 3.6 assesses the reward for duration extension. For the 20-year sample, average returns rise steeply

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risk. Average returns are modestly better for investment-grade (IG) credits than for Treasuries, and much better for high-yield (HY, non-IG, speculative-grade, junk) bonds than for IG bonds. Interestingly, the BB-rated sector, the first speculative rating notch, gives the highest long-run return over both the 20-year

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original issue HY bonds (9.6 vs. 5.7% in 1997–2009). B-rated bonds still provide quite decent long-run returns but CCC-rated junk bonds have a poor long-run record, partly due to their high volatility and possible lottery ticket status. Table 3.2. Summary statistics of asset classes

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

by William Poundstone  · 18 Sep 2006  · 389pp  · 109,207 words

Milken did with this finding was entirely different from what Thorp was doing with market inefficiencies. Milken was a salesman. He christened these unloved securities “junk bonds.” He began selling them aggressively at his employer, the investment bank Drexel Burnham Lambert. Milken was such a superb salesman that in time he largely

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nullified Hickman’s reason for buying junk bonds. At the height of Milken’s influence, junk bonds had become so popular, and were selling at such elevated prices, that the conclusions of the Hickman and Atkinson studies probably

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no longer applied. Milken had ideas of his own. One was that companies with doubtful credit could issue their own “junk bonds” at high interest rates. The companies would use the capital to buy other companies and sell off their assets to pay the bond interest. This

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buy back most of the stock issued, limiting ownership to the few biggest shareholders. To get the necessary money, Warner Communications would have to issue junk bonds. Ross asked Michael Milken for advice. Milken devised a plan and met with Ross in New York to discuss it. Milken explained that Ross would

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have to give up 40 percent of Warner’s stock as an inducement to get people to buy the junk bonds. This was a standard equity kicker. People would not buy these junk bonds unless they also got stock. Drexel would get another 35 percent cut of the company’s stock as payment

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charge that was built into the buyback price. As part of the arrangement, Princeton-Newport was expected to do trades through Drexel and buy its junk bonds. Hale said that Princeton-Newport had a similar parking arrangement with Merrill Lynch. Hale let it be known that he didn’t want to participate

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bonds with the “risk-free” investment of theory. No one made that mistake in Russia. Russia’s treasury bonds, called GKOs, were the junkiest of junk bonds, paying 40 percent interest and up. About half of Russia’s tax collections went to pay interest on treasury debt. LTCM’s Greg Hawkins devised

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town. Thorp found that LTCM had based some of its models on a mere four years of data. In that short period, the spread between junk bonds and treasuries hovered in the range of 3 to 4 percentage points. The fund essentially bet that the spread would not greatly exceed this range

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

by John C. Bogle  · 1 Jan 2007  · 356pp  · 51,419 words

(rated BBB or better), and holding more in below-investment-grade bonds (BB or lower), or even some so-called junk bonds, rated below CC or even unrated. Heavy reliance on junk bonds to increase the income generated by your portfolio subjects your bond investment to high risks. (Of course!) Investors who seek to

Sabotage: The Financial System's Nasty Business

by Anastasia Nesvetailova and Ronen Palan  · 28 Jan 2020  · 218pp  · 62,889 words

ensure really big money. THE KING OF JUNK In the early 1980s a certain Michael Milken invented what became known as the ‘junk bond’; or, more elegantly, the high-yield bond. Junk bonds are considered among the most important innovations in twentieth-century finance. Their creator, Michael Milken, would be widely celebrated by the

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cent fee charged in established bond markets. Drexel’s bankers also often demanded equity warrants for themselves and their buyers to sweeten the deal.4 Junk bonds would certainly prove lucrative to Drexel. Reportedly the firm gloried in undercutting rivals and in stealing business from under the noses of a Wall Street

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thrived. But Milken was not content to restrict himself to fallen angels. Soon he expanded and began to use junk bonds to finance leveraged buyouts of companies. ‘Leveraged buyouts’ (LBOs) is a polite term for corporate raiding. Junk bonds were used to finance the hugely ambitious corporate raiders and private equity firms.5 Through

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target companies’ funds to repay the debt it incurred to fund the takeover in the first place – ideally to Milken’s bank. Junk bonds became the weapon of choice of hostile raiders churning up and destroying companies in the process. A junk-financed buyout of a company would bring

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he was paid $550m (or more than $1.2bn today).7 But Drexel was feared and even loathed on Wall Street. ‘Junk bonds, junk people,’ was the typical sneer.8 Junk bonds could be used for a variety of purposes. But because of their relative novelty and the monopoly in the markets that Milken

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to benefit one of Drexel’s clients. Similar trades were conducted with the agreement of other traders. Notwithstanding their starring role as tools of sabotage, junk bonds outlived Milken. They remain an important funding instrument and a great source of profits for the industry. Financial institutions still charge a 3 per cent

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fee on junk bonds. Since 2005, the market – for both new and existing issues – has tripled and now totals some $2.2tn. In 2016 nearly $237bn of new high

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across the country, aiming to add liquidity, scale and depth to the market he had been nurturing. Just like in the case of Milken’s junk bonds, the key to Ranieri’s innovation was not only the product, the MBS, but the process of managing the associated risks. It would soon become

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system as a whole, financial derivatives can easily turn into ‘weapons of mass destruction’ because they often amplify the risks and costs in unpredictable ways. Junk bonds, MBSs, securitization and CDSs were adopted so enthusiastically by the ‘market’ because they could be used as instruments of sabotage. Commonly known as the paradox

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creating a market for this practice – financial innovators gain a structural advance over others in the industry, the regulators and society. Indeed, the experience of junk bonds, securitization or credit derivatives suggests that it is never the invention of a specific financial product that endows the innovator with a degree of power

The Bond King: How One Man Made a Market, Built an Empire, and Lost It All

by Mary Childs  · 15 Mar 2022  · 367pp  · 110,161 words

by all those guys who had said they knew what they were doing with their money. Fed policy was rewarding risk takers, people who bought junk bonds and speculative real estate—people like Pimco and Gross, or worse. So, when the “quantitative easing” government-buying-bonds program ended, who would step up

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product in the 1990s, convincing clients to buy corporate bonds rated below investment grade. These were a little tarnished after the market’s inventor and “Junk Bond King,” Mike Milken, got in trouble for fraud, but it was a growing market where real research could lead to higher profits. Trosky was tall

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire

by Sujeet Indap and Max Frumes  · 16 Mar 2021  · 362pp  · 116,497 words

entrepreneurs, builders of businesses, and saviors of pensioners. The distressed debt hedge fund now filled the pirate caricature on Wall Street. The invention of the junk bond had fueled the takeover mania of the 1980s. High yield bonds—or junk—allowed small or risky companies, along with buccaneering raiders, to tap the

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the most famous casino in the world. Ironically, Caesars, when it was independent, found itself in the middle of the Michael Milken criminal proceedings. The junk bond king had been accused by the federal government of insider trading in Caesars bonds where his firm, Drexel Burnham Lambert, was leading a debt restructuring

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interest—that proliferated in the 1980s. S&Ls took those deposits, enabled by deregulation, and often invested in risky commercial real estate or Drexel’s junk bonds, fueling a bubble that popped in 1990. The unsettled period of 1990 might have sent most bankers to hibernate and wait for a brighter day

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a risk-adjusted basis outperformed the high-grade bonds that were typically issued by large-scale, well-known, profitable companies. Milken’s genius as a junk-bond banker and trader was to find both companies who needed capital while also cultivating a coterie of buyers for those bonds who would show up

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reported in the Predator’s Ball that by 1983, Executive Life had participated as a buyer in 100 percent of Drexel junk bond offerings. Executive Life eventually held billions worth of junk bonds, using the yields to pay high returns to its policyholders. But by the 1990s, the value of the Executive Life bond

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losses. Any buyer would conceivably be helping ordinary Americans while having the chance to profit as the junk bonds rebounded. Apollo, partnering with an investor affiliate of Credit Lyonnais called Altus, looked to acquire distressed junk bonds in the Executive Life portfolio at a steep discount, paying roughly $3 billion for a portfolio with

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such rivals, the Apollo investors had a secret weapon that proved decisive. Black and team intimately knew the details and prospects of the companies whose junk bonds were in the Executive Life portfolio; as Drexel bankers in years past, they had marketed and sold them to the insurer. Those bonds, which included

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debt was worthless and which tier could be awarded the potentially valuable equity in a reorganized company. Distressed investing was a natural extension of the junk bond explosion of the 1980s and its subsequent collapse. Loans and bonds were no longer just a passive financing tool that earned steady interest payments; rather

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permanently shortchanged by several billion dollars in their life savings and retirements, while Apollo and its French partners made a windfall buying the temporarily cheap junk bonds. After the fall of Drexel, for Black and team to so quickly jump into more hot water seemed especially shocking. Apollo’s Machiavellian attitude had

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included roughly $6 billion of equity from the sponsors along with $7 billion of bank loans, $6 billion of bridge loans to be refinanced by junk bonds, and $6.5 billion in real estate loans, most of which was provided by JPMorgan through the booming commercial mortgage backed securities—or CMBS—market

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of that going to the half-dozen banks responsible for assembling the debt financing. The loan syndication process, along with refinancing the bridge financing into junk bonds, unloaded the risk off the bank’s books. But the gig only worked if the financial markets did not seize up between signing a deal

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the billions. These so-called “hung bridges,” bridge loans that could not be quickly syndicated to mutual funds and other institutional buyers or refinanced as junk bonds now created an opportunity for a particularly aggressive type of scavenger: the distressed debt investor. DISTRESSED DEBT HEDGE FUNDS AND private equity firms—which included

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, commercial banks and insurance companies were typical corporate creditors who were mostly looking for ways to get paid back. But in the aftermath of the junk bond collapse, more specialized funds were created to buy troubled bonds and loans. Distressed investors in those early years were considered misfits, those who could not

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the 1980s, Paul, Weiss’s legendary partner Arthur Liman had represented Revlon in its fight with corporate raider Ron Perelman, who was using Drexel-issued junk bonds in a take-over. And later when Michael Milken needed a criminal lawyer, he went to Liman and another Paul, Weiss litigator, Martin Flumenbaum, to

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be the same for the trio. Howard Marks, the co-founder of Oaktree, was never a Drexel employee. But as a consistent buyer of Drexel junk bonds in the 1980s while an investment manager at Citigroup, he eventually became like family to Leon Black. And their wives, Nancy Marks and Debra Black

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of his first assignments was a loan syndication deal for an offshore oil drilling contractor, Global Marine. The debt-laden company, which had also issued junk bonds underwritten by Drexel, would quickly be overwhelmed by both its balance sheet and falling oil prices. Millstein, while not yet a Chapter 11 expert, was

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, 1990. Eichenwald, Kurt. “Milken Defends Junk Bonds As He Enters His Guilty Plea.” New York Times, April 25, 1990. Board of Governors of the Federal Reserve. Enforcement Actions against Credit Lyonnais. December

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers

by Lawrence G. Mcdonald and Patrick Robinson  · 21 Jul 2009  · 430pp  · 140,405 words

and reward: the oldest rule in finance. That’s basically what the credit spread is measuring. In the early spring of 2005 the spreads on junk bonds were becoming ever tighter. In the seven days leading up to May 21, they came down another 100 bips, to 400 basis points. A CCC

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export and, thanks to the bodybuilders, were still surging forward. They dwarfed the high-yield corporate bond market, which is a snazzy way of describing junk bonds, those high-risk investments that have such a checkered history but have made vast fortunes for the lucky ones. I hate to use the word

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

by Burton G. Malkiel  · 10 Jan 2011  · 416pp  · 118,592 words

-Market Junkie? Is the bond market immune to the maxim that investment risk and reward are related? Not at all! During most periods, so-called junk bonds (lower credit quality, higher-yielding bonds) have given investors a net rate of return two percentage points higher than the rate that could be earned

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on “investment-grade” bonds with high-quality credit ratings. In 2010 investment-grade bonds yielded about 6 percent, whereas “junk” bonds often yielded 8 percent. Thus, even if 2 percent of the lower-grade bonds defaulted on their interest and principal payments and produced a total

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well-diversified portfolios of high-yield bonds as sensible investments. There is, however, another school of thought that advises investors to “just say no” to junk bonds. Most junk bonds have been issued as a result of a massive wave of corporate mergers, acquisitions, and leveraged (mainly debt-financed) buyouts. The

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junk-bond naysayers point out that lower credit bonds are most likely to be serviced in full only during good times in the economy. But watch out

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income. And they are certainly not for any investors who do not adequately diversify their holdings. However, at least historically, the gross-yield premium from junk bonds has more than compensated for actual default experience. EXERCISE 8: TIPTOE THROUGH THE FIELDS OF GOLD, COLLECTIBLES, AND OTHER INVESTMENTS In previous editions of this

Trillion Dollar Triage: How Jay Powell and the Fed Battled a President and a Pandemic---And Prevented Economic Disaster

by Nick Timiraos  · 1 Mar 2022  · 357pp  · 107,984 words

what was about to hit—which proved to be every bit as bad as they anticipated. Because so many oil companies had issued lots of junk bonds—debt with less-than-investment-grade ratings—the stress on energy companies was never going to stay confined to their industry. Fund managers might be

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still faced “very difficult challenges.”5 Indeed, there was a growing chasm between companies inside the central bank’s lending perimeter and those outside, including junk bonds, leveraged loans, and privately issued mortgage securities. Just five companies had issued junk-rated debt since March 4, including Pizza Hut owner Yum! Brands, Inc

Damsel in Distressed: My Life in the Golden Age of Hedge Funds

by Dominique Mielle  · 6 Sep 2021  · 195pp  · 63,455 words

at a bank window, bless my grandfather. Distressed investing and high-yield bonds used to be called, before we polished the terminology, vulture investing and junk bonds. I resented the ugly bird and garbage analogies as truly lacking any glamour. Besides, the point of distressed investing is not to feast on the

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my job. For one thing, whereas a stock is not a particularly interesting security per se (the underlying corporation is interesting but not the instrument), junk bonds are fascinating creations. A stock is a stock, a slice of equity, a financial construct that doesn’t change much apart from its dividend and

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of me and bought them. The high-yield bonds were clearly superior in my estimation; we needed to swap out of the convertible into the junk bonds. The partners agreed but the analyst dragged his feet to sell. I felt wronged. What started as a civil conversation on merit degenerated into a

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of business and consumer telephone service. The partners were familiar with MCI from their days at Drexel Burnham Lambert, when MCI had been a pioneer junk bond issuer. We doubled down. We bought significantly more bonds at twenty cents. The bankruptcy was long and complicated, starting with a new CEO from Compaq

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eighty, sixty, forty, or twenty cents. It was garbage; it was toxic. Some funds, with strategy and risk parameters that did not permit investing in junk bonds, couldn’t hold on after the ratings downgrades. Some didn’t have the manpower or patience to sustain the labor-intensive research required in a

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the sector en masse, forcefully selling at very uneconomic prices. You don’t improvise switching from trading safe, investment-grade, high-quality bonds to nonperforming junk bonds. Try asking a poet to write comics because there is a market for them. Great opportunity, wrong skill set. Traditional credit analysis was useless at

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to invest and make sound judgments on the market. And the way back up wasn’t easy. There was no market to speak of for junk bonds, leveraged loans, and most of our assets from mid-2008 to spring 2009. For financial securities that do not trade through an electronic stock exchange

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, like many corporate fixed income instruments including junk bonds and distressed securities, a trader must match an actual physical buyer and a seller, much like a real estate broker representing a house. If there

Crisis Economics: A Crash Course in the Future of Finance

by Nouriel Roubini and Stephen Mihm  · 10 May 2010  · 491pp  · 131,769 words

even China and Singapore. By 2006, credit had become so readily available in the United States that the spread between the yield on high-risk junk bonds and low-risk Treasury bonds shrank to historic lows of less than 2.5 percent. A handful of economists raised the alarm, but few listened

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markets that showed signs of trouble and stress. This unprecedented intervention was not as indiscriminate as it might seem. The Federal Reserve did not accept junk bonds or other low-grade debt as collateral; it accepted only what was, in theory, higher-quality debt. These efforts eventually bore some fruit: at the

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borrows a billion dollars from other sources and invests it. One invests in low-risk, supersafe U.S. Treasuries, the other in high-risk corporate junk bonds. Under the Basel I guidelines, the two banks would assign a different risk factor (a percentage) to these different assets. This risk factor would guide

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risks. In practice the bank with the supersafe government debt didn’t need to hold as much capital as the bank with its money in junk bonds. Basel I had a few other stipulations. Banks that operated in multiple countries had to hold capital equivalent to 8 percent of their risk-weighted

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easy money from IMF and Lost Decade of (1991-2000) recovery and savings in stimulus spending in trade surplus of Japan Post Bank JPMorgan Chase junk bonds jurisdictional arbitrage Justice Department, U.S. Keynes, John Maynard on “animal spirits” of capitalism on bancor on decadent capitalism on fiscal policy Keynesians Kindleberger, Charles

Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School

by Andrew Hallam  · 1 Nov 2011  · 274pp  · 60,596 words

that interest. What’s worse, you could even lose your initial investment. Bonds paying high interest rates (because they have shaky financial backing) are called junk bonds. I’ve found that being responsibly conservative is better than stretching over a ravine to pluck a pretty flower. Fast-Growing Markets Can Make Bad

Limitless: The Federal Reserve Takes on a New Age of Crisis

by Jeanna Smialek  · 27 Feb 2023  · 601pp  · 135,202 words

do so. Commercial paper, the short-term debt companies use to fund themselves, was hard to renew. Investment-grade company bonds were difficult to trade, junk bonds all but impossible. Money market mutual funds, where companies and investors park their cash to make tiny returns, were seeing massive outflows. Financial publications reported

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stop the downward spiral.[33] An array of corporations seemed likely to face a credit downgrade and investors were pulling money from funds that track junk bonds, the lowest-rated company debt. Investment trusts holding real estate bonds were tap-dancing on the brink of a meltdown, and though the Fed was

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were facing ratings downgrades at a moment when the market for risky debt was barely functioning, and the Fed’s new programs were ironically making junk bonds look even worse relative to their backstopped investment-grade counterparts. Credit ratings could become the difference between success and failure for companies that had been

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drawdowns left them with less capacity to carry out other kinds of lending and market-making. There was an easy fix. The Fed could buy junk bonds. It would deal with the problem, but very little else about that plan was attractive. In what may have been a testament to the sensitivity

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breach its long-maintained boundaries. The central bank planned to unveil the municipal loan program it had been developing, detail its plans to buy some junk bond funds and recently downgraded corporate bonds, and explain how much of the new CARES money Mnuchin had earmarked for each of the emergency backstop programs

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Include Outdoor Seating on Closed Streets.” Eater New York, April 28. Warner, Bernhard. 2020. “Why the Fed’s Stunning Move to Buy Corporate America’s Junk Bonds Is So Significant.” Fortune, April 9. Warner, Mark. 2020. “Warner Statement on the Economic Response to the Coronavirus.” Mark R. Warner, U.S. Senator, March

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in, 186 Jekyll Island Club meeting (First Name Club), 54–6, 54n, 60–1, 200 Johnson, Lyndon, 80 JP Morgan Chase, 52, 155, 156, 157 junk bonds, 31, 152, 167, 173, 177, 209–11 K Kaplan, Robert, 206n, 243, 285, 295, 349n11 Kashkari, Christine Ong, 38–9, 201 Kashkari, Neel: candidacy for

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism

by Jeff Gramm  · 23 Feb 2016  · 384pp  · 103,658 words

the entire cash portion of Icahn’s tender offer. If called to action, Drexel would raise the money for Icahn by selling a mixture of junk bonds and preferred stock to its network of high-yield investors. This would give Carl Icahn enough cash to buy out Phillips without borrowing a penny

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raiders had something much more powerful at their disposal: ready cash. It came from Michael Milken and the vast market he created for new-issue junk bonds. Milken used his network of high-yield buyers to create a liquidity boom for young takeover artists. Financier Nelson Peltz got a $100 million “blind

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with only a handful of clients to the envy of Wall Street. During that period, Michael Milken’s domination of the rapidly growing market for junk bonds drove a twenty-five-fold increase in the bank’s revenues.34 In 1985, the year Carl Icahn took on Phillips, Milken focused on a

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promising new niche in the market—hostile raids financed by junk bonds. At the company’s annual high-yield conference—the so-called Predators’ Ball—Drexel CEO Fred Joseph said, “For the first time in history, we

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enough to make up for the mistake of buying the airline in the first place. In 1988, Icahn raised $660 million for TWA through Drexel junk bonds and paid himself a large dividend. From there, he sold off whatever decent assets TWA had left. As the airline slid toward bankruptcy, the labor

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peers, Milken augmented his Drexel income via hundreds of investment partnerships he managed from his trading desk. Some of the partnerships even bought and sold junk bonds directly from Drexel.68 According to the General Accounting Office, Milken’s twenty-five largest partnerships distributed $2 billion from 1981 to 1988, with $1

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and win large profits as it grew. But ultimately, this is a competitive business. Why was Milken so successful at defending his lucrative franchise as junk bonds went mainstream? Milken pleaded guilty to charges involving tax avoidance schemes and “stock parking” deals that helped clients avoid SEC filing requirements. Four of the

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centers, in 1978. As the company grew, it began to buy loads of junk bonds from Drexel. This was common for Milken’s issuers: He often overfunded them and then sold them other junk bond issues. Kinder-Care later increased its junk bond capacity by purchasing an insurer and two S&Ls. At one point, the

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company held about $650 million of Drexel junk bonds.72 Presumably as a reward for being such good customers, Milken funneled

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Columbia was one of Milken’s best customers: Between 1982, when the Garn–St. Germain Depository Institutions Act allowed federally insured S&Ls to buy junk bonds, and 1989, Columbia bought $10 billion of Drexel issues. Milken even cut the Spiegels in on one of his lucrative partnerships, which made bonanza investment

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only a handful of purchasers. One insurance company, First Executive, participated in about 90% of Drexel’s new issues, and bought $40 billion worth of junk bonds from 1982 to 1987.75 First Executive, as you probably guessed, also had a very tight relationship with Milken. The company frequently won insurance business

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by the handful of doomed S&Ls loaded up with Milken’s bonds.76 And rather than disappear with Milken, the junk bond market thrived. In the late 1990s, U.S. junk bond issuance skyrocketed to levels many times higher than the peak years of the 1980s. Today, Michael Milken’s reputation is in

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broader economy. Unlike his investment banking peers, he was studious and professorial. He had an encyclopedic knowledge of junk bonds, and figured out that a broad portfolio of them would outperform higher-rated bonds. Junk bonds had higher default rates, true, but interest payments and capital appreciation from surviving companies more than compensated for

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, 132, 133, 134 Dow Jones, 21 Drexel Burnham Lambert, 152–53 highly confident letter of, 70, 81, 220–21 hostile raid financing, 80–81, 84 junk bonds, 70, 71, 79–80, 86, 88, 89–92 liquidation of, 152–53 Milken and, 87–92 in The Predator’s Ball, 71–72 transformation of

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. Merritt, Jr., 131, 132 Jones & Laughlin, 61 Joseph, Fred, 80 J. P. Morgan, 20, 21, 28, 35, 209, 211–14, 231 J. S. Bache, 2 junk bonds, 70, 71, 79–80, 86, 88, 89–92 Kahn, Irving, 4 Karla Scherer Fink Stockholders’ Committee, 135, 227 Kelleher, Herb, 161 Kent, Muhtar, 142 Kestrel

Shutdown: How COVID Shook the World's Economy

by Adam Tooze  · 15 Nov 2021  · 561pp  · 138,158 words

of corporate debt, you ended up holding many poor-quality loans. The higher-risk end of the corporate debt market, so-called high-yield or junk bonds, was where private equity firms made winnings before which the bonuses of Wall Street bankers paled into insignificance. For political and legal reasons, if nothing

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than advanced economies were paying, but it meant that the pain was tolerable. By the summer, in one of the more improbable comebacks imaginable, the junk bonds issued by distressed African sovereigns had become flavor of the month for more adventurous investors.39 In 2020 the emerging markets demonstrated their ability to

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Fed Offers $60 Billion Credit Line,” Bloomberg, April 7, 2020. 38. www.worldgovernmentbonds.com/cds-historical-data/indonesia/5-years/. 39. C. Goko, “Africa’s Junk Bonds Among Hottest Investments with Big Yields,” Bloomberg, June 4, 2020. 40. P. Naidoo, “After More Than 25 Years S. Africa Is Now Junk with Moody

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again

by Nicholas Dunbar  · 11 Jul 2011  · 350pp  · 103,270 words

in part of a $20 million CDO-style investment that Barclays referred to as a first-loss note. Linked to a portfolio of thirty-seven junk bonds, this note was highly risky, something that should have been obvious to a professional investor. As Barclays would later point out, BPI made little effort

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were trying to sell them, because everything had risks attached—high-rated bonds exposed the Japanese or Swiss to interest rate or currency risk, and junk bonds added credit risk. Was there any way to invest in just the highest-quality assets and have the risks stripped away? The next generation of

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

by Simon Johnson and James Kwak  · 29 Mar 2010  · 430pp  · 109,064 words

regulations on the savings and loan industry, allowing them to expand further into new businesses, such as commercial lending and investing in corporate bonds (including junk bonds), to compensate for the collapse of the “boring banking” business model.54 In addition, the bill authorized state-chartered banks to offer mortgages with adjustable

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a dominant political force in Washington. This process began in the 1970s, when Michael Milken, a trader at Drexel Burnham Lambert, had the insight that “junk bonds”—bonds that were rated below “investment grade” by the credit rating agencies*—were generally underpriced, either because investors had an irrational aversion to them or

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market in which to trade them. He capitalized on that market inefficiency, building an operation that dominated the trading and sales of junk bonds. By creating a large, liquid market for junk bonds—which grew from $6 billion in 1970 to $210 billion in 198965—he made it easier for companies to raise money

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investment banks to generate profits by underwriting, selling, and trading these formerly neglected bonds. By making it easy to raise large amounts of money quickly, junk bonds also made possible the leveraged buyout craze of the 1980s, in which acquirers would pay for acquisitions by issuing large amounts of new debt. Those

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insider trading, securities manipulation, and fraud. The investigations eventually led to convictions for both Milken and his employer for securities and reporting violations.66 But junk bonds—rebranded as “high-yield” bonds—remained a popular form of financing, with over $600 billion in new bonds issued by U.S. corporations from 2003

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the issuer will default on the IOU. “Investment-grade” bonds are those that are highly rated, meaning that there is a small probability of default. “Junk” bonds are any bonds that do not earn investment-grade ratings. * In financial markets, it is possible to sell assets that you don’t actually have

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scandals of the late 1980s and 1990s were closely linked to recent deregulatory policies or financial innovations: expansion of savings and loans into new businesses; junk bonds and leveraged buyouts; quantitative arbitrage trading; and over-the-counter derivatives. Someone familiar with the history of the financial system might have expected this record

A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History

by Diana B. Henriques  · 18 Sep 2017  · 526pp  · 144,019 words

by, among other things, spending less on market regulation. Bank regulators worried about banks financing risky takeover deals and savings and loans buying deal-linked “junk bonds,” but failed to challenge closely the bank mergers producing a breed of financial giants. Regulators across the board neglected the unregulated swaps that were flooding

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, Bartlett had warned his boss, Gary Bauer, that “Brady is a well-known opponent of virtually every financial innovation of the last ten years, including junk bonds, options, financial futures, mortgage-backed securities, etc. If he had his way we would turn the clock back to the 1950s.” Bartlett reported that Christopher

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Japanese yen Jarrell, Gregg Jas. H. Oliphant and Company Jiji newswire Johns-Manville pension fund Johnson, Philip Johnson, R. Sheldon Jones, Ed J.P. Morgan junk bonds Justice Department Kaiser Aluminum Kansas City Board of Trade Kaufman, Henry Kemper Financial Services Kennedy, John F. Ketchum, Richard G. “Rick” Kidder Peabody Kirkland and

Transaction Man: The Rise of the Deal and the Decline of the American Dream

by Nicholas Lemann  · 9 Sep 2019  · 354pp  · 118,970 words

the province of buy-and-hold trust officers and insurance companies; he created a market for high-risk, high-yield “junk bonds” that in the old days nobody would have wanted. Selling junk bonds to the new breed of fixed-income traders on Wall Street generated much of the capital that fueled the mergers

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, and of course the nature of the financing meant that successful acquirers of companies were heavily in debt. Milken also developed a client base for junk bonds in a group of western savings and loan companies that were looking for a source of capital that they could use to make risky but

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of Milken’s would be both buyers and sellers of his junk bonds: he’d offer them junk-bond financing to pay for their own expansionist schemes, on the condition that they’d purchase other junk-bond issues of Drexel’s. Other people would buy junk bonds issued by Milken on behalf of the savings and loans, and

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the savings and loans would buy junk bonds issued by Milken on behalf of companies that were clients of his, at

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Milken, including the biggest one of the 1980s, the takeover of RJR Nabisco by the buyout firm of Kohlberg Kravis Roberts, financed with Drexel Burnham junk bonds. In that deal, KKR paid Morgan Stanley’s merger team an “advisory fee” of $25 million (Morgan Stanley had asked for $50 million), which people

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Darvish, Tamara Davis Polk Debreu, Gerard Debs, Eugene debt: in auto industry; corporate; derivatives and; foreign; hedge funds and; interest rates and; of investment banks; junk bonds and; in leveraged buyouts; risk magnified by; see also mortgages democracy; threats to Democratic Party: in Chicago; databases of; deregulation by; Silicon Valley and; Wall

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street

by Jonathan A. Knee  · 31 Jul 2006  · 362pp  · 108,359 words

locked in battle with relative upstart Donaldson, Lufkin and Jenrette to claim the mantle of junk bond king, up for grabs since the final implosion of Michael Milken’s Drexel Lambert in 1990. The popularization of junk bonds by Drexel had made the debt markets available to all manner of highly leveraged speculative companies

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parties—rich individuals, mutual funds, insurance companies, pension funds—and can come from the sale of anything from an initial public offering of equity to junk bonds. The process by which an investment bank represents a company in finding investors to whom it can sell a particular securities offering at a particular

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” players in a particular product. Among niche product leaders, two notable examples were First Boston in M&A and Donaldson Lufkin and Jenrette (DLJ) in “junk bonds.” Although already a full-service investment bank, during the buyout boom of the 1980s, the team of Bruce Wasserstein and Joe Perella established First Boston

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. But after the bankruptcy of Michael Milken’s Drexel Burnham in 1990, DLJ would emerge by the mid-1990s to take the mantle of leading junk bond house. Junk bonds are issued by companies that are too small, too young, too leveraged, or otherwise seen as too risky to attract more traditional and less

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expensive forms of financing. Junk bonds are defined as those that receive a rating from Moody’s or S&P that designates them as “speculative” credits as contrasted to the “investment

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grade” ratings earned by larger, less leveraged, more established companies. In addition to carrying a higher interest rate, junk bond issuers pay a higher “spread” to the investment bank that places the bonds, making this the most profitable part of the debt finance business. Lending

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targeted emerging growth companies and industries, emphasizing the highest margin businesses. The result was a wildly profitable freewheeling entrepreneurial culture with the leading share in junk bonds, a strong position in IPOs, and a focus on M&A of midsized companies. DLJ also agreed to move me up an additional year toward

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ended up being with my closest friend at Goldman Sachs at the time. Adrian Kingshot was a sardonic Brit who ran the junk bond origination business. The entrepreneurial personalities looking for junk bonds were not generally a great fit with the typical Goldman IBS type. Adrian’s self-effacing wry sense of humor and

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generation of fees both directly and through their portfolio companies. Investment banks even came up with a more benign sounding name for them—just as “junk bonds” were now referred to as “high yield,” leveraged buyout firms were transformed into “financial sponsors” in investment banking parlance. During the bust, as corporate America

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commitment in a situation like this —although potentially quite lucrative—did carry some risk. First, the participating banks would need to underwrite not just the junk bonds that would be marketed to investors but also would need to provide a bank loan. Although the idea would be to immediately syndicate this loan

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other institutions, there was a risk that this might not go as planned. Second, if it was not possible to get investors to buy the junk bonds at even a very high interest rate, the banks would need to commit to provide a “bridge loan.” This was necessary because Sprint would never

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was a real risk that if the Qwest deal did come first, high yield investors would not be willing to buy any more yellow page junk bonds, almost regardless of the pricing. In this nightmare scenario, in which the market literally ran out of capacity, the underwriters in theory would be left

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the lowest cost of capital hopes for the highest share price in an IPO, he or she prays for a low interest rate on their junk bonds. “Buying” an issue involves an underwriter putting a backstop on the possible interest rate payable by the issuer: the bank will guarantee to absorb whatever

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bread and butter of serving the Fortune 500 companies that investment bankers most long to advise. The only remaining profitable niches are, he points out, “junk bonds, initial public offerings, and other forms of financing that primarily cater to smaller and medium-sized firms without access to the capital markets.”21 In

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bonds perform worst-analyst,” Reuters News, October 11, 2000. Salomon ultimately pulled the report at Morgan Stanley’s request. Jonathan Stempel, “Salomon pulls Morgan Stanley junk bond analysis,” Reuters News, October 13, 2000. 27 Randall Smith and Paul Sherer, “Morgan Stanley Bond Executive Resigns After Recent Management Restructuring,” Wall Street Journal, October

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, 146, 147 from LBOs, 161 from M&A activities, 78, 145–46 from stapled financing, 158 of Weinberg, 45 financial sponsors, 161–62. See also junk bonds Financial Times, 221 First Boston, 22, 92, 198 FirstMark Communications, 135 Fisher, Richard B. background, xiv and “handshake” story, 192 last years at Morgan Stanley

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, 138–39 Harvard University, 226 Hasselhoff, David, 80 Havens, John, 223 hedge funds, xvi Hicks Muse, 11 high yields, 161, 164–70, 212. See also junk bonds Hillsdown Holdings, 1, 5–7, 9–11, 19 homophobia, 128 hostile takeovers, 78. See also leveraged buyouts and LBO firms Houghton Mifflin, 208 Huet, Jean

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Glass Steagall legislation, 23, 42 and Henry Ford, 46 M&A activities, 24 and Morgan Stanley, 42, 110, 111–12 J. P. Morgan Chase, 170 junk bonds. See also high yields competition in, 22, 112, 176–77 defined, 22–23 league tables, 24 profitability of, 228 and SLCs, 211 and telecommunications, 176

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, Steve, 136 Redstone, Sumner, 142 Reed Elsevier, 54, 62–63, 119 regulation in investment banking and internal standards, xvi–xvii and Internet boom, 144 and junk bonds, 177 and Meeker, 142 and research analysts, 141, 146, 149, 216–19 Reich, Cary, 110 relationship banking and boutique investment banks, 221 decline in, 79

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader

by Colin Lancaster  · 3 May 2021  · 245pp  · 75,397 words

to where it was last October, when the outlook for 2020 corporate earnings looked sunshiny. Companies have sold record amounts of debt in recent weeks. Junk bonds, historically dodgy during an economic swoon, have roared back. To end the week, Obama made a virtual appearance. He never mentioned the Big D in

More Money Than God: Hedge Funds and the Making of a New Elite

by Sebastian Mallaby  · 9 Jun 2010  · 584pp  · 187,436 words

year of labor.50 A few years earlier, people had reacted with horrified fascination to the $550 million earned by Michael Milken, the champion of junk bonds; but now Milken had been surpassed. Soros became known as the man who broke the Bank of England, and hedge funds began to displace the

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losses. Now the whole world knew that Long-Term was on deathwatch, and every player on Wall Street started to trade against it.41 Most junk bonds rallied in early September, but the particular bonds that LTCM owned remained dead in the water. Long-Term had a small position in hurricane bonds

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incoming capital. But the vulnerability in Farallon-style funds goes deeper than that. Their returns partly reflect a willingness to buy illiquid investments. If busted junk bonds represent value, it is probably because most investors are frightened to buy them—so if you decide you want to sell later, such assets will

The Quants

by Scott Patterson  · 2 Feb 2010  · 374pp  · 114,600 words

Wall Street, a “flight to liquidity.” Investors, fearful of some kind of financial collapse, piled out of anything perceived as risky—emerging-market stocks, currencies, junk bonds, whatever didn’t pass the smell test—and snatched up the safest, most liquid assets. And the safest, most liquid assets in the world are

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bets based on his burger-fueled gut. Michael Milken of Drexel Burhman for a time ruled the Street, financing ballsy leveraged buyouts with billions in junk bonds. Nothing could be more different from the cerebral, computerized universe of the quants. Those two worlds collided when Aaron Brown strode onto Kidder’s trading

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the future belonged to whoever controlled the supply. Salomon was soon securitizing every kind of loan known to man: credit cards, car purchases, student loans, junk bonds. As profits kept increasing, so did its appetite and capacity for risk. In the 1990s, it started securitizing riskier loans to borderline borrowers who as

The greatest trade ever: the behind-the-scenes story of how John Paulson defied Wall Street and made financial history

by Gregory Zuckerman  · 3 Nov 2009  · 342pp  · 99,390 words

cash to juice its returns. Deutsche would act as the middleman. The slices of the mortgage securities were rated BBB, or one notch above the “"junk bond”" category, the lowest level of the so-called investmentgrade bonds. That seemed safe enough to the pension plan. Burry’'s cost to buy CDS protection

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over the state of the economy and the housing market grew. Giddy investors were buying the BBB-rated mortgage-backed slices and all sorts of junk bonds without demanding much in return—--interest rates of just 1 percentage point above those of supersafe U.S. Treasury bonds. It seemed absurd to Paulson

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trades as Paulson. Even the most successful investors shun negative carry; it is like garlic to vampires. In the 1980s, when junior traders suggested that junk-bond king Michael Milken short especially risky bonds, he scoffed at the notion of paying high interest on the debt while waiting for it to fall

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis

by Tim Lee, Jamie Lee and Kevin Coldiron  · 13 Dec 2019  · 241pp  · 81,805 words

at that time. Global financial markets are extremely complex. Carry trades can be implemented in all the different financial markets and instruments—debt instruments including junk bonds, currencies (currency carry trades as discussed in Chapters 2 to 4), equity markets (selling volatility, including implementing dip-buying strategies as described in the following

All the Money in the World

by Peter W. Bernstein  · 17 Dec 2008  · 538pp  · 147,612 words

Griffin was a godsend, as Trump later admitted to Forbes. Resorts was in bad shape. Griffin’s company financed the deal using $325 million of junk bonds and went bankrupt a year later when it couldn’t handle interest payments. Trump, who had retained36 only the unfinished Taj Mahal hotel casino (along

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pops. The bill for licenses ran into hundreds of millions of dollars. Throughout the 1980s McCaw bought hundreds of thousands of pops, aided by junk bonds issued by junk-bond king Michael Milken. (See Chapter 8, Beyond Wall Street.) McCaw began by building a cellular network on the West Coast; but it soon became

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the first Forbes 400 list appeared in 1982 share the ability to create a new wrinkle in finance—whether it be hedge funds, venture capital, junk bonds, or private equity—and exploit it amid the cutthroat environment of Wall Street. In doing so, they have changed the financial landscape almost as dramatically

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investment banker Felix Rohatyn of Lazard Frères, then one of Wall Street’s celebrated private firms, with outposts in London and Paris. Another new wrinkle17—junk bonds—helped LBO returns soar, though Ted Forstmann, who claimed returns equal to or better than KKR, derided them as “wampum.” The

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and high-flying investors. The appeal was obvious, so long as you could stomach the risk. Junk bond yields were 3 to 5 percent above Treasury and higher-rated corporate bonds. At first Milken underwrote19 new junk bonds for companies too minor or unproven to issue investment-grade bonds,*11 such as the young

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Lindner, the target of an SEC investigation in Cincinnati, and Victor Posner, a conglomerator with an unsavory reputation.†12 Then, in 1984, Milken began using20 junk bonds to finance takeover bids. Until that time, the only way to get the funds for a takeover bid was to borrow. But banks did not

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that lent for them were also slow to sign. Milken realized that he could replace the insurance companies’ slice of funding in an LBO with junk bonds, which he could raise at a moment’s notice from his investors. Much of the 1980s bull market is attributed to the Milken machine that

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bought and sold junk bonds for corporate takeovers. Without the hundreds of billions of dollars in these low-grade bonds that he and Drexel raised, the takeover boom might have

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investor Warren Buffett, were also sounding the alarm about the rising debt in corporate America from LBOs. Undeterred, Kravis and Roberts27, using a mountain of junk bonds, offered $25 billion in 1988 for the Georgia-based food and tobacco giant RJR Nabisco. Wall Street rushed to finance the deal—the biggest in

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near fiasco for KKR. During the fierce bidding war, they didn’t examine RJR’s books and overpaid. In 1990 KKR had to refinance the junk bonds in the LBO, and several years later spun off RJR’s tobacco interest to shareholders. The iconic tale of 1980s greed finally ended in 2000

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in jail. By then, some major LBOs32, like UAL Corporation, the parent company of United Airlines, and West Point–Pepperell, funded with insupportable levels of junk bonds, also failed. The savings and loans industry, the principal buyers of junk, nearly crashed before a federal bailout cost taxpayers billions, and the country headed

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his idea, which he saw as a service to family companies whose owners needed cash, helped drive the roaring 1980s bull market. While LBOs and junk bonds created many of the vast Forbes 400 financial fortunes of the last quarter century, another way of financing companies—venture capital—also flourished. But with

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Helyar, Barbarians at the Gate, p. 515. Most of the information on the LBO frenzy comes from this source. 17. Another new wrinkle: Scott Paltrow, “Junk Bonds Are Now Out and Ted Forstmann Is In,” Los Angeles Times, Aug. 26, 1990. 18. He based his conclusion: [Unsigned,] “Going After the Crooks,” Time

Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence: Revised and Updated for the 21st Century

by Vicki Robin, Joe Dominguez and Monique Tilford  · 31 Aug 1992  · 426pp  · 115,150 words

and premiums are. Then there’s investing. Knowing the difference between a TIPS and savings bond. Buying and selling stocks, and futures, and options, and junk bonds. And we mustn’t forget that rite of passage—the credit card, ticket to the American Dream (whether you live in the United States or

Phishing for Phools: The Economics of Manipulation and Deception

by George A. Akerlof, Robert J. Shiller and Stanley B Resor Professor Of Economics Robert J Shiller  · 21 Sep 2015  · 274pp  · 93,758 words

Good, the Bad, and the Ugly 96 CHAPTER EIGHT Tobacco and Alcohol 103 CHAPTER NINE Bankruptcy for Profit 117 CHAPTER TEN Michael Milken Phishes with Junk Bonds as Bait 124 CHAPTER ELEVEN The Resistance and Its Heroes 136 PART THREE Conclusion and Afterword CONCLUSION: EXAMPLES AND GENERAL LESSONS New Story in America

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threats to our well-being. For many, many people, those threats are realized. Chapter 9: Bankruptcy for Profit, and Chapter 10: Michael Milken Phishes with Junk Bonds as Bait. We will revisit financial markets. We will see, from the US savings and loan crisis of the late 1980s, how seemingly small deviations

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and lobbying campaigns; in sales of drugs by the Pharmaceuticals; in the sale of tobacco and the resistance against it; and in the sale of junk bonds. But, as every one of us knows, our mutual storytelling is far deeper than these examples. It is essential to our humanity. After all, following

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as we will see in chapter 10 that financier Michael Milken realized that the public would have a difficult time differentiating between two types of “junk bonds,” the tobacco industry saw that the public would, likewise, have a hard time differentiating one “scientist” from another. Graham, Wynder, Hill, Doll, Croninger, Auerbach, and

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in the valuations fenced through overrated mortgage-backed securities. The next chapter shows how the looting of the S&Ls metastasized into the market for junk bonds in the beginning of our new age of greed. Soon-to-be-bankrupt S&Ls played a significant role in the expansion of the market

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for junk bonds, which underlay hostile takeovers of even the largest firms—previously deemed impossible. TEN Michael Milken Phishes with Junk Bonds as Bait The work of one man, Michael Milken, in the 1970s and 1980s changed the

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to do this was the leveraged buyout, in which a raider’s company could amass cash by taking on enormous debt (through high-yield, or “junk,” bonds developed by Milken) to acquire, often, a much larger company. The leveraged buyouts massively increased everything related to corporate mergers and acquisitions, notably risks and

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The age of “excess” (Crystal’s word) had begun. Many of the bonds that Milken initiated failed later, resulting in what is known as the junk bond crisis of the 1980s. But the cause of the crisis should not be understood as just due to the crimes of this one man, who

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of John Locke, of “taking words for things.”7 In this case, the mistake could be assuming that junk bonds from one decade are the same as junk bonds from another. They have the same name, junk bonds, and so phoolish investors can be expected to react the same to them, even if this time they

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are underwritten by institutions whose reputations are being mined. Maybe junk bonds would have remained the same thing as they had been before 1943, absent Michael Milken. But that was not the case. The cognitive mistake exploited

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” describes the opportunities for deception from making convenient but unstated assumptions that equate dissimilar things under one name. Milken would equate two different kinds of junk bonds without telling any lies. Apples would be the “fallen angels” issued by once-successful companies down on their luck; those were the kind of

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junk bonds studied by Hickman. The prunes would be the new kind of junk bonds, which Milken would make happen. The fallenangel junk bonds had indeed done surprisingly well up to 1943. The challenge for Milken as phisherman was to

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was big money.9 But that $2 million was just the beginning of the opportunities for the middleman at the hub of the market for junk bonds. Whenever there is a gap between supply and demand at current prices, the middleman can capture some of the difference between the price buyers are

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in the position of being the dominant middleman in a market that could be huge indeed, if marketed right. There was unquestioning demand for those junk bonds, after the Milken sales pitch. The gospel according to Braddock Hickman seemed to say that Milken could deliver higher returns by a full 3.5

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rich great-grandmother who invested in a stock trust fund like this, you would not be poor. The men around Milken who were thinking about junk bonds in the early 1980s saw that there could be very large returns from taking over a corporation by paying off the existing stockholders at the

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existing stock prices, with the proceeds from selling junk bonds. Pick the average firm, and the returns on equities were so high that they were likely to pay off the interest payments on the

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junk bonds. But one could do yet better by taking over a firm where the cost of labor could be much reduced: for example, by reducing wages,

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The Complaint also alleges that on November 30, 1987, Charles Keating’s Lincoln Savings and Loan and a subsidiary bought more than $34 million of junk bonds in the buyout of Beatrice International Food Company; that same day, he purchased 234,383 shares of equity in the takeover company.16 Fred Carr

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thus helped solve two problems in carrying out the raids that would generate the huge supply of junk bonds. But then Milken had yet a third obstacle, this time on the demand side. The new-issue junk bonds and the bonds whose yields and default rates had been evaluated by Hickman might both be

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finance professor Edward Altman and his former student Scott Nammacher had found average default rates of 1.5 percent.21 This figure is misleading since junk bonds have higher default rates as they age, and the market was growing very rapidly. Taking a simple average, like this, of default rates, was thus

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bias was perceived, but at least for a time Milken had a way to distract the dogs that might bark, and keep them silent. When junk bonds were about to default, there was a legal procedure—called an exchange offer (under Section 3(a)(9) of the Securities Act of 1933)—whereby

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a distinguished paper, Paul Asquith of MIT, and David Mullins and Eric Wolff of Harvard Business School, showed that almost 30 percent of the new junk bonds issued in 1977 through 198023 had defaulted by the end of 1988; this included 10 percent that were involved in exchanges, but then had subsequently

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.34 Six Observations Six observations put the Milken fiasco in larger perspective. Observation 1. Milken’s junk-bonds operation demonstrates two types of information phish already seen in previous chapters. He combined distorted ratings (his junk bonds were insufficiently differentiated from Hickman’s fallen angels) with wrong-minded accounting from the S&Ls, which

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.” Regarding Milken, one story said he was a genius who had discovered new ways, all but literally, to mint money. Another story said that his junk bonds would have the same low default rates as Hickman’s fallen angels. Observation 3. Milken jump-started the new inequality. The 1980s saw sharp rises

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that takeovers like Milken’s would almost surely have happened in his absence. But he was there—prominently—at the creation. Observation 4. Milken’s junk bonds illustrate another principle regarding phishing for phools in financial markets. Two previous chapters have demonstrated daisy chains between the phish and the financial markets. With

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the Milken junk bonds, as in the Crisis of 2008, the effects of the phish also traveled far from its initial site. His junk bonds played a significant role in the takeover wave of the early to mid-1980s: far

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of a paper with George on “Looting: The Economic Underworld of Bankruptcy for Profit.” Chapters 9 and 10 on the S&L crisis and on junk bonds are a rewrite, in the style of this book, of that article. We are grateful to Paul for allowing us to do so. Another theme

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Review: Dallas,” National Real Estate Investor News, June 1985, pp. 98–100. 27. Pizzo, Fricker, and Muolo, Inside Job. Chapter Ten: Michael Milken Phishes with Junk Bonds as Bait 1. Bryan Burrough and John Helyar, Barbarians at the Gate: The Fall of RJR Nabisco (New York: Random House, 2010), Kindle locations 10069

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, 88, 89, 92, 208–9nn18–22, 210n44 Bombardini, Matilde, 205n27 bond ratings, 23–24, 27–28, 125. See also credit ratings agencies bonds, junk. See junk bonds Bonsack, James, 102 Bosworth, Steven, 194–95n3 Bounds, Gwendolyn, 224n15 Boyd, Roddy, 189–90n1, 193n40, 193nn46–47 Brandt, Allan M., 214n20, 215n3, 215n7, 215nn9–10

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: informed vs. uninformed traders, 8, 168; Social Security privatization and, 155; stocks, 127, 134, 168; volatility in, 133–34, 168. See also asset prices; derivatives; junk bonds; securities regulation; stocks First Amendment, 160 First Executive Life Insurance, 128, 129 FitzGerald, Garret A., 88–89, 208n11, 209nn25–26 focus, manipulation of, 32, 149

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Hickman, W. Braddock, Corporate Bond Quality and Investor Experience, 125, 126, 127, 130, 221n4, 222n10 Hidden Persuaders (Packard), 7, 53–54 high-yield bonds. See junk bonds Hill, A. Bradford, 104, 105, 215n11 Hill and Knowlton, 105, 106 Hillary: The Movie, 160 Hindo, Brian, 223n30 Hirschman, Elizabeth C., 201n24 Hochschild, Arlie Russell

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, 32–34, 37, 192nn26–27; reputation mining by, 31–33; reputations of, 27; syndicates of, 27; trustworthiness of, 26–28, 30. See also Goldman Sachs; junk bonds Iowa Senate campaign, xvi, 72–73, 74 irrational exuberance, 134 IRS. See Internal Revenue Service Isidore, Chris, 191n22 Issenberg, Sasha, 198nn42–44 Jensen, Michael C

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, Ross, 124, 221n2 Johnson, Simon, 220n4 Johnson and Johnson, 89 Journal of the American Medical Association, 48, 104 The Jungle (Sinclair), 84, 140, 207nn2–3 junk bonds: default rates of, 130–31; exchange offers, 130–31; fallen angels, 126, 130; market for, 126–27, 131; performance of, 125–26, 127; phishing using

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: accounting, 117, 120, 121; bankruptcies, 117, 119–20; beginning of, 118–19; effects of, 117, 119, 121–22; federal responses to, 81–82, 119–20; junk bonds and, 128, 129, 132; looting and, 118, 120–22; phishing in, 81–82, 117–18, 120–22; similarities to 2008 crisis, 123 Scalia, Antonin, 160

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–59, 192n28; investigations by, 143, 157; Madoff case and, 157–59; regulations of, 132; underfunding of, 82, 157 securities industry. See financial industry; investment banks; junk bonds securities ratings, 23–25, 27–28, 31, 32–35, 36. See also credit ratings agencies securities regulation, 132, 156–59 Senate: Appropriations Committee, 206–7n42

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, 151–53; on health risks of tobacco, 105–6, 109; of house hunters, 64; in human thinking, 10, 45–46, 186–87n26, 194–95n3; on junk bonds, 132–33; mysteries, 58; news, 57–59, 106; New-Story thinking, 152–53, 154–56, 159, 160–62; in phishing, xiii–xiv, 10, 149, 162

I.O.U.: Why Everyone Owes Everyone and No One Can Pay

by John Lanchester  · 14 Dec 2009  · 322pp  · 77,341 words

Crash, a credit bubble is a special category of event: “We are accustomed to thinking of bubbles and crashes in terms of specific markets—like junk bonds, commercial real estate, and tech stocks. Overpriced assets are like poison mushrooms. You eat them, you get sick, you learn to avoid them. A credit

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BBB and above is known as “investment grade”; any below BBB is known as a “junk bond” on the basis that its level of risk is high—but that shouldn’t make it sound as if junk bonds are a marginal or unrespectable form of finance. (You may well feel that the distinction between

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broke and living in a boardinghouse owing to “having squandered all his money in judicious investments.”) Because they have to pay high rates of interest, junk bonds can be very useful for investors; if they didn’t exist, only supersafe companies would be able to raise money, and all sorts of inventions

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invest in anything of lower grade than AAA. In other cases, institutions are legally prevented from investing in anything below BBB-grade debt, so-called junk bonds. The ratings agencies’ verdicts are so taken as holy writ that they are incorporated into the Basel rules on bank reserves. When governments lose AAA

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street

by Justin Fox  · 29 May 2009  · 461pp  · 128,421 words

than bonds that hadn’t, so investors should reap a reward for buying them. While still in college, Milken began investing in these so-called junk bonds. When he went to work at the struggling brokerage firm Drexel Harriman Ripley after finishing his MBA at Wharton, he began building a business out

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the Reagan administration, which came to power in 1981. While hundreds of bills were introduced in Congress in the 1980s to rein in takeovers or junk bonds, none became law. When Reagan’s SEC chairman began worrying loudly in 1984 about the dangers of takeovers, Treasury Secretary Donald Regan, the former CEO

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” junk bonds; Lehman Brothers was, in 1977. But Drexel soon came to dominate the business. 34. Years later, after a federal judge had thrown Milken in jail

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, 194 and Fama, 104, 207–8, 248–49 foundations of, 359–60n. 34 and Jensen, 141, 346–47n. 30 and the joint hypothesis, 105 and junk bonds, 167–68 and market anomalies, 205 and Markowitz, 85, 86–88, 104 and Miller, 88 and Mills, 320 and Modigliani, 88 and options, 144, 148

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, 200–201, 205 Journal of Political Economy, 93, 145–46, 166, 189, 252 Journal of Portfolio Management, 130 Journal of the Royal Statistical Association, 63 junk bonds, 167–68, 170 Kahneman, Daniel, 175–78, 183, 185–86, 191–92, 201, 289, 291, 316, 324 Kassouf, Sheen, 217–18 Kendall, Maurice, 63–65

Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze  · 31 Jul 2018  · 1,066pp  · 273,703 words

fixed-income securities—as opposed to equities—became ever more important. Drexel Burnham Lambert pioneered the market in high-yield corporate bonds, also known as junk bonds. Meanwhile, Salomon Brothers helped the GSEs devise the securitization model and launch each new batch of mortgage-backed securities. For other clients, the investment bankers

The Greed Merchants: How the Investment Banks Exploited the System

by Philip Augar  · 20 Apr 2005  · 290pp  · 83,248 words

trail led. Boesky turned state’s evidence and named Michael Milken as an insider dealer. Milken was the high profile investment banker who had transformed junk bonds – high risk, high yielding securities – from a backwater of the capital markets into a mainstream financial instrument. Under the leadership of Milken and the firm

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he worked for, Drexel Burnham Lambert, junk bonds were used to underpin the leveraged buy-outs – demergers funded largely by debt – that refinanced corporate America in the eighties. Using the draconian Racketeer-Influenced

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-downs.20 Surprising victims included the savings and loans institutions who, following deregulation in 1982, had loaded up with junk bonds with the backing and advice of the investment banks. When the junk bond market crashed, they were left with bucketloads of unmarketable and worthless bonds and US taxpayers were faced with a $500

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, 1990s 129 J. P. Morgan 45, 84 J. P. Morgan Chase 20, 31, 37, 82–3, 178 Jeffrey, Reuben 182 Job, Sir Peter 77, 177 junk bonds 10 Kaufman, Henry 5, 118–19, 153 Kay, John 69 Kelly, Ruth 83 Kessler, Andy 18, 24, 159–60 Kianpoor, Kei 202 Kidder Peabody 34

Too big to fail: the inside story of how Wall Street and Washington fought to save the financial system from crisis--and themselves

by Andrew Ross Sorkin  · 15 Oct 2009  · 351pp  · 102,379 words

department in New York, he was persuaded in 1986 by a former GM treasurer, then at Merrill Lynch, to join the brokerage firm on its junk bond desk. Through hard work and support from powerful mentors, O’Neal rose rapidly through the ranks. He eventually came to oversee the

Toward Rational Exuberance: The Evolution of the Modern Stock Market

by B. Mark Smith  · 1 Jan 2001  · 403pp  · 119,206 words

noted the daring mixed with his shyness and self-effacement and went on to declare that “Mike Milken … is undisputed king of the junk bond market.” Milken’s junk bonds provided a means of raising the money necessary to finance many of the corporate takeovers that were the lifeblood of arbs like Boesky. The

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corporate takeovers. The legislation was designed to put an end to the merger binge of the 1980s, which had been financed with borrowed money (often junk bonds), and had been endorsed by an important congressional committee shortly before the crash. Critics pointed to the fact that stocks involved in mergers were particularly

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, Lyndon B. Johnson & Johnson joint stock companies Journal of Business Journal of Finance Journal of the American Statistical Association Journal of the Royal Statistical Society junk bonds Justice Department, U.S. “just in time” corporate strategies Keene, James R. Kendall, Maurice Kennedy, John F. Kennedy, Joseph P. Kennedy, Robert F. Kentucky Fried

Basic Economics

by Thomas Sowell  · 1 Jan 2000  · 850pp  · 254,117 words

for less than they were paying their suppliers. As these utilities went billions of dollars into debt, their bonds were downgraded to the level of junk bonds. {xxii} Although fatality rates from motor vehicle deaths are highest for drivers 20 to 24 years of age, the declining fatality rates end from 55

All About Asset Allocation, Second Edition

by Richard Ferri  · 11 Jul 2010

. Companies and municipal bond issuers with below investment-grade debt ratings have questionable ability to repay their obligations. These bonds are also referred to as “junk” bonds because of their speculative nature. They are discussed in more detail later in the chapter. Credit risk should be thought of as the amount that

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section looks as these sectors. High-Yield Corporate Bonds High-yield bonds are often referred to as non-investment-grade bonds, speculative-grade bonds, and junk bonds. Unlike investment-grade bonds, high-yield bonds have credit ratings that are in the lowest tier. They have S&P and Fitch ratings of BB

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. AAA to BBB rated bonds are investment grade, and BB to C rated bonds are non-investment-grade, also known as high-yield bonds or junk bonds. As investors move further out in maturity, the premium for credit risk goes up because the uncertainty of interest payments goes up with time. Corporate

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It

by Anat Admati and Martin Hellwig  · 15 Feb 2013  · 726pp  · 172,988 words

used this new freedom to invest in very risky assets, such as highly speculative commercial real estate investments and high-yield securities, also known as “junk bonds.” Junk bonds are corporate bonds with a high risk of default that pay relatively high interest to compensate for the risk. The “zombie banks,” those banks that

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the crisis was due only to liquidity problems in Chapter 13. 50. Savings institutions invested in risky commercial real estate developments and in so-called “junk bonds,” corporate bonds that pay high interest and have a high risk of default. On the recklessness of S&Ls, see White (1991, 2004) and Curry

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, 85; vulnerability of, 83, 86, 87. See also Dimon, Jamie; Zubrow, Barry Junge, Georg, 232n18, 243n27, 310n52 junior debt, 58, 240n5, 247n22, 257n19, 300n52, 306n30 junk bonds, 54–55, 273n50 Kahn, Charles M., 301n56 Kane, Edward, 252nn30–31, 252n35, 263n64, 269n26, 288n10, 319n9, 325n50, 325n54, 336n60 Kareken, John H., 252n35, 291n38 Kaserer

The Money Machine: How the City Works

by Philip Coggan  · 1 Jul 2009  · 253pp  · 79,214 words

result was that the reputation of the agencies undoubtedly suffered; perhaps they should have been more cautious in handing out their highest mark of approval. JUNK BONDS Bonds are generally seen as a conservative investment. They offer more security than equities, but a lower return. For much of the 1980s, however, a

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US phenomenon made the bond market seem positively exciting (in financial terms, at least); this was the enthusiasm for junk bonds. The term initially referred to bonds which had collapsed in price, normally because the company which issued them had become mired in financial difficulties. The

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below BBB. A smart trader called Michael Milken, who worked for a US banking group called Drexel Burnham Lambert, saw the opportunity for profit in junk bonds. Say a bond was issued with a coupon of 10 per cent, but the company gets into difficulty and its price falls to 50 (compared

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advice made large amounts of money. Later on, Milken played a key role in the takeover boom of the 1980s, financing predators with newly created ‘junk bonds’. These would trade at, or near, face value, but would offer much higher yields than other bonds in the market (to reflect the higher risk

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to cover all high-yielding bonds of this type. Milken fell from grace and was eventually jailed, and many investors who bought junk bonds at the peak of the market lost money. As with other financial theories, by attempting to exploit it so heavily, Milken and his followers altered

Retire Before Mom and Dad

by Rob Berger  · 10 Aug 2019  · 239pp  · 60,065 words

funds that invest in corporate bonds issued by companies with shaky financials are called High Yield bond funds. High yield bonds are also called Junk Bonds. To be clear, junk bonds are not junk. They have more risk, but they also have potentially more reward. Interest Rate Risk Most bonds don’t protect you

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Risk 131, 133, 147-149 IRA 18, 64, 167, 170-173, 175, 177-181, 189, 191-193, 195-196, 200, 238, 245 Jeff Rose 119 Junk Bonds 148 Level 7 45, 47-52, 59-60, 63, 65-69, 71-76, 93, 96, 98, 115-116, 123, 125, 142, 153, 156-157, 168

file:///C:/Documents%20and%...

by vpavan

provides an example of what happens when a fund takes outsized risks with investors' money. Three Heartland bond funds invested in high-yield bonds (read: junk bonds) that were issued, but not guaranteed, by state and local governments for such projects as nursing homes and sewer systems. When the fund needed to

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faith and credit of the U.S. Treasury. But that fund portfolio could hold 20 percent of its assets in high-yield bonds, also called junk bonds. One of the collapsed Heartland funds called itself the Heartland Short Duration High-Yield Municipal Bond Fund. Investors may have been fooled by the term

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rating agency, such as Standard & Poor's or Moody's Investor Services. When a corporate bond is below investment-grade, it is often called a junk bond. Bonds issued by the federal government are called Treasurys, while bonds issued by cities or a branch of local government are municipal bonds. broker: Individual

A Generation of Sociopaths: How the Baby Boomers Betrayed America

by Bruce Cannon Gibney  · 7 Mar 2017  · 526pp  · 160,601 words

, and capitalism liberated from the bounds of the state, though always free to replenish itself at the federal trough in the event “sub-prime mortgages,” “junk bonds,” or “collateralized debt obligations” somehow lived up to their names. The heart of the book then details the implementation of the Boomers’ sociopathic agenda and

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cash.43 (Financial firms, dark pools, etc. may add even more, though their iffy accounting makes things hard to pin down.) With the creation of junk bonds in the 1980s and the wave of leveraged buyouts, it’s tempting to think the Reagan years accounted for the great expansion in corporate debt

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was decanted into new and less judgmental bottles. Yesterday’s “borrowing” and “debt” became today’s “credit” and “leverage,” while “speculation” morphed into “investment” and “junk bonds” transitioned into “high-yield securities.” “Second mortgages,” a term synonymous with improvidence, were sanitized in the 1980s into “home equity lines of credit” and became

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ways of doing business, whose consequences would make the S&L crisis seem positively demure. The previously modest market for junk bonds exploded, substantially the creation of Boomer Michael Milken of Drexel Burnham. Junk bonds are debt securities that are not “investment grade,” with greater risks of default than conventional debt. They are speculative

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of securities violations and Drexel went under; repackaged with the more pleasing label of “high-yield debt,” junk bonds soldier on today and in mid-2016 were enjoying a bull run. Wall Street relied heavily on junk bonds to finance leveraged buyouts (LBOs), a process in which companies would be bought, slimmed down, and

Corporate Finance: Theory and Practice

by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann le Fur and Antonio Salvi  · 16 Oct 2017  · 1,544pp  · 391,691 words

engender this type of ratio. When the value of the ratio exceeds 5 or 6, the debt becomes “high-yield”, the politically correct term for “junk bonds”. Naturally, these levels of ratios should be taken for what they are – indications and not absolute references. Bankers are more willing to lend money to

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, Journal of Political Economy, 81(3), 637–654, May–June 1973. J. Bulow, L.H. Summers, V.P. Summers, Distinguishing debt from equity in the junk bond era, in J. Shoven , J. Waldfogel (Eds), Taxes and Corporate Restructurings, Brooking Institution, 1990. M. Fridson, Do high-yield bonds have an equity component?, Financial

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, P. Kleiman, The pricing of high-yield debt IPOs, Journal of Fixed Income, 8(2), 61–68, September 1998. R. Taggart, The growing role of junk bonds in corporate finance, in D. Chew (Ed.), The New Corporate Finance: Where Theory Meets Practice, 3rd edn, McGraw-Hill, 2000. Section III Value Chapter 26

How Money Became Dangerous

by Christopher Varelas  · 15 Oct 2019  · 477pp  · 144,329 words

and, through the 1970s, put into practice, forging an explosively powerful market around these high-yield bonds, commonly called junk bonds. Drexel became a major player on Wall Street, as Milken parlayed his junk bonds into supporting another booming market—mergers and acquisitions. His ability to access capital from the new market he created

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to go after underperforming management. This forcing function—management being held accountable for profits—would make America competitive in the 1990s and beyond. Milken’s junk bonds later provided the financial vehicle for the rise of the telecom industry, the cable industry, and, one could argue, the technology world. Without

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junk bonds, none of these industries would have been created as swiftly and successfully as they were. “Milken is one of the most brilliant people I know,”

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reinvented himself as a philanthropist, and even his once infamous history as the Junk Bond King was now celebrated. Except that nowadays, no one says junk bond. The accepted term is high-yield bond. So Michael Milken is again a hero, junk bonds are high-yield bonds, and corporate raiders have become activist investors. This signals

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. Filter hedge funds, 143–44 Heffernan, Barbara, 131–34 Hemingway, Ernest, 311 Hewlett-Packard, 194–95 high-frequency trading (HFT), 242–43 high-yield bonds (junk bonds), 91, 93, 96, 97, 104 Hilibrand, Larry, 64 Holtz, Lou, 151–53, 181 Homo Faber (Frisch), 216 Horowitz, Dale, 51–52, 57, 63, 64, 327

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, 23–25, 30–31, 34, 35, 38, 42–43, 50 security in, 30 Johnson Wax, 162 Johnston, Ann, 346 Jones, Gary, 337 JPMorgan Chase, 209 junk bonds (high-yield bonds), 91, 93, 96, 97, 104 Justice Department, 291 K2 Sports, 180–81 Kagasoff, Barry, 9–12, 14–16, 23–25, 30–31

Jared Bibler

by Iceland's Secret The Untold Story of the World's Biggest Con-Harriman House (2021)

in trouble and its bonds were trading cheap. Why did the employees do this? What did they know that would make them gamble on these junk bonds? Clearly they didn’t know much. Within a handful of weeks, Kaupþing in Iceland went bust. These employees at KauLux were screwed. They had purchased

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of Kaupþing.) Remember those employees in Luxembourg, the ones who took loans from their employer to buy hundreds of thousands of euros worth of Kaupþing junk bonds in their own names? Their buying seems to have coincided with the beginning of the CLN deal between Kaupþing and Deutsche. Did these employees of

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on was that the traders at Deutsche would take the Icelanders for a ride, and issue very little CDS on the public market. So their junk bonds ended up being worthless. Luckily, they could use stolen money (the €171m Lindsor wire) to bail them out of their failed attempt at insider trading

King Icahn: The Biography of a Renegade Capitalist

by Mark Stevens  · 31 May 1993  · 414pp  · 108,413 words

risks. Based on this finding—which he supported with prodigious research of his own—Milken set out to change the investment community’s perception of “junk bonds” from virtual untouchables to instruments of choice. Blessed with an idea whose time had come, a brilliant financial mind and an instinctive gift for salesmanship

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a powerful network of supporters (wealthy individuals and corporations) who were eager to avail themselves of the junk bonds’ higher yields. Similar to Icahn’s early work in options, Milken created a market in which junk bonds were bought and sold through his increasingly successful Drexel Burnham trading operation (which he relocated from New

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the groundwork for Icahn’s relationship with Drexel, Burnham, Lambert, which refinanced ACF at year-end 1984, taking out the bank loans in exchange for junk bonds and filling Icahn’s coffers with an additional $150 million of takeover capital, known in Drexel parlance as a “blind war chest,” meaning the raider

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money,” says the former Drexel executive. “When Mike Milken said we could do it, we believed it. We figured, ‘What does Morgan Stanley know about junk bonds?’ We were the only guys on Wall Street who knew how to use them.” After Phillips took out newspaper ads portraying Icahn as a paper

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junk bonds, the man didn’t change but the scale of what he could and did accomplish changed dramatically. But every action has an equal and opposite

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the spring of 1985, Icahn attended the power event of the eighties, the annual Los Angeles junk-bond conference hosted by Drexel Burnham. At this ostentatious assemblage of financial Schwarzeneggers, mostly investors in Mike Milken’s junk bonds and the raiders who used them to intimidate corporate America, Carl happened to hear a presentation

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Kansas City and St. Louis facilities and lay off employees, all to his own personal advantage. Moreover, he is going to issue—these dirty words—‘junk bonds,’ to TWA shareholders. TWA employees are standing behind the airline’s ticket counters and walking down the streets of New York exhibiting big buttons saying

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with a special issue of preferred stock (since known as the “Icahn preferred”) valued at $196 million. The privatization was funded by $660 million in junk bonds raised by Drexel. An earlier attempt to accomplish a similar goal had failed when Paine Webber, which had promised to do the deal at a

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who would save them from anything.” Privatization cemented the relationship between Icahn and Leon Black, since the latter served as an intermediary between Drexel’s junk bonds coffers and the takeover king. In part, their relationship was grounded in the common pursuit of profit. Black capitalized on his Icahn ties to promote

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economy and how wrong it is to borrow money. Strange advice from the world’s greatest borrower, whose company is up to its ass in junk bonds. “After his embarrassing speech that no one there could relate to, Carl takes me aside with Kingsley to talk business. He dismisses his wife and

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of his life remarkably unscathed. Although he had a continuing obligation to the PBGC, and although he would be facing a total loss on TWA junk bonds he had purchased several years before for $60 million, he had used the airline’s cash flow to help finance his windfall Texaco investment and

Hedgehogging

by Barton Biggs  · 3 Jan 2005

wrong. His fund is now around $5 billion, and he does the macro overlay. He has maybe seven or eight asset class (like biotech, Asia, junk bonds, Europe, emerging markets, etc.) portfolio managers who each run anywhere from $400 million to $100 million, depending on what Jake’s view of their sector

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Treasury bonds are so meager. As a result, fixed income investors are reaching for yield by buying heavily into high yield, or in the parlance, junk bonds.The spread between the yield on junk and Treasuries is close to an all-time low. Everyone seems to have forgotten that from time to

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis

by Scott Patterson  · 5 Jun 2023  · 289pp  · 95,046 words

on $42 billion in U.S. investment-grade debt, more than $20 billion in an index of European debt, and a $3 billion position in junk bonds. In all, he had insurance tied to $71 billion of corporate debt. It cost Ackman a mere $26 million to make the bet. Like fire

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. He sold his exposure to $4.5 billion worth of the investment-grade bet, $4 billion of the European stuff, and $400 million of the junk bonds. By the time he was done, he’d amassed a $2.6 billion profit that helped offset the losses in the stocks he’d held

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bugaboo, the Federal Reserve, was pumping unprecedented amounts of liquidity into the financial system by purchasing billions of dollars of corporate bonds. It even bought junk bonds. The U.S. Congress rolled out trillions of dollars in financial aid for struggling companies and families. The combined force of the Fed and Congress

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tail-risk fund from Saba Capital, run by former Deutsche Bank trading whiz Boaz Weinstein, gained nearly 100 percent in March alone by betting against junk bonds. A fund managed by LongTail Alpha, the other tail-risk firm CalPERS had given money to, posted a return on invested premium—the amount of

Madoff: The Final Word

by Richard Behar  · 9 Jul 2024

’s failed attempt to stop the New York Times from publishing the damning Pentagon Papers in 1971. The Ivan Boesky insider trading case in 1986. Junk-bond king Michael Milken (1990). Mob boss John Gotti (1992). Omar Abdel Rahman, the “blind sheikh” behind the first terrorist bombing of the World Trade Center

China's Superbank

by Henry Sanderson and Michael Forsythe  · 26 Sep 2012

using it as his cash cow for social spending. After two centuries of sovereign defaults, runaway inflation, and nationalized industries, global ratings agencies give Venezuela junk bond status. (See Table 4.1.) Table 4.1 Venezuela: Years of Default and Rescheduling Period Default/Rescheduling 1978–2008 1983, 1990, 1995, 2004 1875–1899

The Dealmaker: Lessons From a Life in Private Equity

by Guy Hands  · 4 Nov 2021  · 341pp  · 107,933 words

Fraunces Tavern, and because one bright analyst likened what we were doing to finding a pearl in an oyster). Pearl Street took a portfolio of junk bonds, securitised them (i.e. split them into tranches), directed their cash flows in different directions and then had them managed by someone on behalf of

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–4 Euratom trade, 78 Eurobond desk, 76, 177 FFCA and, 86, 91 Global Asset Structuring, 83 Global Equity Opportunities Fund, 188 Japanese trade, 79–80 junk bonds, 79–81 Phoenix deal and, 107 Saks Fifth Avenue trade, 81–3 securitisation, 80–81, 83–6, 91, 98, 104, 120, 240, 313 tax avoidance

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), 79 Jennings, Waylon, 41 Jericho, Oxford, 60 John Hancock, 225 Jones, Davy, 39 Joseph, Keith, 50 Judd School, Tonbridge, 23–5, 28–9, 31–3 junk bonds, 79–81 Kachingwe, Mayamiko, 151, 155, 157 karaoke, 200 Keble College, Oxford, 34, 35 Kent House, Knightsbridge, 185 Keogh, John, 67, 70, 72, 74 KGB

Advanced Stochastic Models, Risk Assessment, and Portfolio Optimization: The Ideal Risk, Uncertainty, and Performance Measures

by Frank J. Fabozzi  · 25 Feb 2008  · 923pp  · 163,556 words

(Aaa to Baa) are considered investment-grade bonds. Bonds with lower ratings are speculative-grade bonds, also commonly referred to as high-yield bonds or junk bonds. TABLE 15.2 Credit Migration Table In 5th Year At Issuance Investment Grade Speculative Grade In Default Investment Grade 94.7% 5% 0.3% Speculative

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point in time. The bonds in the study are all high-yield corporate bonds. A high-yield bond, also called a noninvestment grade bond or junk bond, is one that has a credit rating below Ba (referred to as being minimum investment grade) as assigned by the rating agencies. Within the high

Unreal Estate: Money, Ambition, and the Lust for Land in Los Angeles

by Michael Gross  · 1 Nov 2011  · 613pp  · 200,826 words

was promoted to bond salesman and met Michael Milken, who ran a then backwater department selling high-yield securities considered so risky they were called junk bonds. Their first encounter in 1976 wasn’t a good one, wrote James B. Stewart in his book Den of Thieves. Though Winnick was supposed to

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Royces to business associates who pleased him. Though it had yet to make any profit, Global Crossing was a sensation, raising $800 million by selling junk bonds and signing contracts worth half that to lease space on its cables; it then went public and saw its stock price soar immediately. Winnick continued

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism

by George A. Akerlof and Robert J. Shiller  · 1 Jan 2009  · 471pp  · 97,152 words

through at near-lightning speed by using other people’s money. This money came straight from the S&Ls through their purchase of Milken’s junk bonds. If Milken or a Milken-connected enterprise made a hostile bid for a firm, it very much helped that he could guarantee a large part

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of the purchase through the sale of junk bonds. The S&Ls themselves did not need to be compensated— but their owners would receive “private prerogatives” from the sale, ensuring the smooth continuation of

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.11 Corporate executives discovered that they could take their firms private, floating large quantities of debt (as junk bonds) to pay off the stockholders. If the firms that had been taken private could pay off the junk bonds, these executives would be rewarded enormously. It was not long before the scale for executive pay

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only the first harbinger of a historical shift that was bound to occur one way or another. But the more or less simultaneous advent of junk bonds, hostile takeovers, and massive increases in executive pay does highlight the fragility of capitalism. A very small number of non-arms-length transactions allowed deals

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John Paul, Pope, 54 Johnson, Jean, 192n13 Johnson, Lyndon, 101 JPMorgan Chase, 83, 92, 186n13 Juhn, Chinhui, 102, 188n5 Julliard, Christian, 195n9 Jung, Jeeman, 193n3 junk bonds, 31–32 Kahn, Richard F., 14, 179n4 Kahn, Shulamit, 183n14, 189n3 Kahneman, Daniel, 21, 180n4,6, 191n4 Kaiser, Henry, 138 Kamlani, Kunal S., 189n15 Kaplan

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic

by Leo Gough  · 22 Aug 2010  · 117pp  · 31,221 words

in 1997 after it was discovered that a gold mine it owned in Borneo had been fraudulently ‘salted’ with gold; Michael Milken, father of the junk bond industry, convicted of insider trading in 1989. The list just goes on and on, but you get the idea: yes there are crooks around in

Triumph of the Optimists: 101 Years of Global Investment Returns

by Elroy Dimson, Paul Marsh and Mike Staunton  · 3 Feb 2002  · 353pp  · 148,895 words

Moody’s and Standard & Poor’s. Moody’s ratings range from Aaa to C, with bonds below Baa regarded as below normal investment grade or “junk bonds.” Aaa and Aa 88 Triumph of the Optimists: 101 Years of Global Investment Returns bonds taken together comprise “high grade bonds.” Defaults on bonds currently

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rated as high grade are very rare, but such bonds can be downgraded and later default from a lower rating. Default rates on junk bonds can be very high, and in poor years have exceeded 10 percent. Default can range from having just a minor impact, such as a delayed

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation

by Richard Bookstaber  · 5 Apr 2007  · 289pp  · 113,211 words

. As a result, the corporate bond market started to tank. Not surprisingly, we were hit hardest on the lowest-quality bonds, the high-yield or junk bonds. These bonds fueled the merger mania of the mid-1980s, a market that was absolutely dominated by Drexel Burnham Lambert, but we had put serious

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. In the fixed income markets substantial profits can be made simply through the bid/offer spread. For the higherrisk and less liquid bonds such as junk bonds and emerging market bonds, the spread can be as wide as one or two points. Similarly, while the agency instruments in the mortgage market trade

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, liquidity, 39 Japanese swap spread strategy/profit, 100 Jenkinson, Robert Banks, 89–90 Jett, Joe, 39–41 Jiu Jitsu Academy, 258 Jones, Paul Tudor, 165 Junk bonds, 71 273 bindex.qxd 7/13/07 2:44 PM Page 274 INDEX Market (Continued) failures, safeguards, 239–240 illiquidity, portfolio insurance by-product, 14

When Free Markets Fail: Saving the Market When It Can't Save Itself (Wiley Corporate F&A)

by Scott McCleskey  · 10 Mar 2011

of rumor control and market psychology, since many of its counterparties’ risk management controls prohibit or restrict dealing with a counterparty that has a ‘‘speculative’’ (junk) bond status. They have no choice but to pull away from the failing firm and its debt, given the legal covenants governing their investment practices in

Evil Geniuses: The Unmaking of America: A Recent History

by Kurt Andersen  · 14 Sep 2020  · 486pp  · 150,849 words

! But most important to making the formerly disreputable LBO take off was a new way to finance the takeovers—by means of the formerly disreputable junk bond. Junk bonds had been what happened to good bonds when the issuing corporations got into trouble, causing the big rating firms to downgrade the bonds, which meant

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who bought their bonds. But then in the late 1970s, the young Los Angeles investment banker Mike Milken started creating and issuing risky bonds as junk bonds, from scratch, thereby creating a white-hot new financial subindustry.*3 During just the first half of the 1980s, the market for

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junk bonds grew sixfold, to the equivalent of $94 billion a year, and more than a thousand different junk bonds were issued—half of which wound up defaulting, failing to pay the money due when it was

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due to the bond owners. Junk bonds are like car manufacturers deciding to start making and marketing lines of brand-new designated lemons—cheaper parts, shoddily manufactured, much more liable to break

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down or crash, but so inexpensive. Funded with junk bonds or not, a typical LBO was a conceptually new sort of acquisition, more brazen and shameless in its selfishness and greed—indifferent outsiders offering to

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firm Kohlberg Kravis Roberts got the craze going in 1979 by investing a cash down payment equivalent to $4 million to use $1 billion in junk bonds and other debt to take over an obscure Fortune 500 company. One of the most spectacular early LBOs was undertaken by former treasury secretary William

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pleaded guilty to securities fraud in 1990, he choked up and said his crimes were “not a reflection on the underlying soundness and integrity” of junk bonds. After he snitched, his ten-year prison sentence was reduced to two, and according to Forbes, he’s still worth $3.7 billion. When President

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market

by Steven Drobny  · 31 Mar 2006  · 385pp  · 128,358 words

Jones,Alfred Winslow, 8 Jones, Paul Tudor, 9–10, 12, 33, 163, 171–172, 203, 214, 253 JP Morgan, 246, 253–254, 283, 297, 309 Junk bonds, 188 Junk spreads, 251 Karachi Stock Exchange Index (KSE100), 298 Keynes, John Maynard, xiv, 5–6, 10, 31, 164–165, 277, 333–334 King’s

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge

by Faisal Islam  · 28 Aug 2013  · 475pp  · 155,554 words

the crisis. But across Europe depositors were now being told to treat a large deposit in a peripheral Eurozone bank as if it was a junk bond. Jeroen Dijsselbloem, president of the Eurogroup, made matters even more uncertain by implying that Cyprus was a model for future ‘bail-ins’. European bank shares

The Ascent of Money: A Financial History of the World

by Niall Ferguson  · 13 Nov 2007  · 471pp  · 124,585 words

Some people certainly did. On the one hand, S&Ls could now invest in whatever they liked, not just long-term mortgages. Commercial property, stocks, junk bonds: anything was allowed. They could even issue credit cards. On the other, they could now pay whatever interest rate they liked to depositors. Yet all

Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees

by Patrick Dillon and Carl M. Cannon  · 2 Mar 2010  · 613pp  · 181,605 words

were replaced by staffers from American Continental, and its home loan programs were gutted. Next, Keating—through Lincoln—purchased $2.7 billion in high-risk junk bonds, mostly from Michael Milken’s Drexel Burnham. These were far riskier waters than Lincoln had ever navigated, and the men at the helm had little

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-person company that employed him. Milken’s operation was handling 250,000 transactions a month and controlling as much as $10 billion in funds through junk bonds issued by nearly one thousand companies. Through this market rose a new breed of risk takers—corporate raiders Henry Kravis, Carl Icahn, Ron Perelman, Saul

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$5.46 billion. The growth was driven by risky bets in raw landholdings, unsecured construction loans, and major increases in holdings of Michael Milken’s junk bonds. By then, the media were on to American Continental. The New York Times noted, “Lincoln, with assets of $4.9 billion and 25 branches in

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Keating and for David Paul, the owner of CenTrust Savings and Loan, a failed Florida thrift that had also invested heavily in Michael Milken’s junk bonds. Markey began his questioning of Fischel with a dig at Cox: “I’m not going to ask you how much you made as a consultant

The Age of Turbulence: Adventures in a New World (Hardback) - Common

by Alan Greenspan  · 14 Jun 2007

entrepreneur who was ultimately sent to prison for racketeering and fraud for having misled investors through sham real estate transactions and the sale of worthless junk bonds. Salesmen at Keating's Lincoln Savings were also said to have talked unsophisticated people into shifting their savings from passbook accounts into risky, uninsured ventures

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paid. In practice, corporations try every which way to get around so simple a program because it is the most costly. Corporate equity, real estate, junk bonds, and even AAA corporate bonds yield a greater return than treasuries. But all have risk of default, and in the event of default, the sponsoring

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additional interest income that is pushing them to reach for higher-yielding debt instruments. Spreads over U.S. treasuries of CCC-rated corporate bonds (socalled junk bonds) in mid-2007 were mind-bogglingly low. For example, this spread declined from 23 percentage points amid a plethora of

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Johnson, Karen, 250 Johnson, Lyndon B., 55-56, 60, 235, 246, 504 Johnson, Manley, 105, 107 Jones, Quincy, 202 JPMorgan, 77-80, 100, 257, 371 junk bonds, 115, 485 just-in-time production, 6, 46, 213, 474, 490 Kahn, Alfred, 71 Kaiser, 49 Kansas City Fed, 485 Kaplan, Bess, 74 Kavesh, Robert

Portfolio Design: A Modern Approach to Asset Allocation

by R. Marston  · 29 Mar 2011  · 363pp  · 28,546 words

risk worldwide. Spreads on bonds widened sharply both in the emerging bond markets and in the high-yield U.S. bond market (for so-called junk bonds). The most dramatic effect of this reassessment of risks was the collapse of Long-term Capital Management, which had to be rescued by the major

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to determine how emerging market bonds might fit in the portfolio. They are an odd bond series in that they are highly volatile, more like junk bonds in the United States than either U.S. or European conventional bonds. In Table 6.6, we report correlations between the emerging market bond index

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poor financial performance. It was only in the 1980s that investment banks such as Drexel Burnham saw the potential for issuing non-investment grade (or junk) bonds to provide financing for firms with weaker credit standing. Since then, the high-yield market has become an important part of the overall corporate bond

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio

by Victor A. Canto  · 2 Jan 2005  · 337pp  · 89,075 words

might also recall a lot of the corporate high-yield literature in the 1980s was geared to show the way junk bonds not only paid higher returns, but also had default rates that were historically not much greater than higherrated obligations. The reason these claims could be

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-142, 275-281 qualitative forecast method, 132-137 investor horizons, 115-116, 129 invisible-hand theory, 169 J-K-L Jensen’s alpha. See alpha junk bonds, 75-76 Kennedy, John F., 89 Kerry, John, 84 large-cap stocks active management tested against passive management, 166-168 annual returns, 19 elasticity, 184

A Man for All Markets

by Edward O. Thorp  · 15 Nov 2016  · 505pp  · 142,118 words

from within a stodgy old Wall Street firm, Drexel Burnham Lambert. Milken’s group underwrote issues of low-rated, high-yielding bonds—the so-called junk bonds—some of which were convertible or came with warrants to purchase stock. The higher yield was the extra compensation investors required to offset the perceived

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one time only, at the launch of the fund. Management then invests the money in a stated category of securities, such as high-tech, Korean, junk bonds, green energy, or biotech. To illustrate how such a fund might work, suppose we’re in the midst of a precious metals boom. The promoters

Red-Blooded Risk: The Secret History of Wall Street

by Aaron Brown and Eric Kim  · 10 Oct 2011  · 483pp  · 141,836 words

. If she’s afraid credit is going to get worse, she buys protection on BBB-rated securities—these are the bonds just above junk bonds on the credit rating scale. Junk bonds can default in good times and bad, but a significant increase in BBB default rates tells you there’s a credit crunch

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, violence, and drug use. It took finance 20 years or so to catch up, but when it did, innovators realized you got more headlines jamming “junk” bonds into institutional portfolios than making a market in high-yield securities. You didn’t offer to buy a large block of a company’s shares

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? (Livio) Jackknife, the Bootstrap, and Other Resampling Plans, The (Efron) Jackpot Nation (Hoffer) Jessup, Richard John Bogle on Investing (Bogle) Johnson, Barry Johnson, Simon JPMorgan Junk bonds Kahneman, Daniel Kamensky, Jane Kaplan, Michael Kassouf, Sheen Kelly, John Kelly bets/levels of risk Kelly principles/investors Keynes, John Maynard Key performance indicators (KPIs

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined

by Lasse Heje Pedersen  · 12 Apr 2015  · 504pp  · 139,137 words

being short a number of the Drexel Burnham stocks back in the late eighties was also an interesting situation on the short side, including the junk bond companies Integrated Resources and First Executive. More recently, some of the real estate companies. Our biggest loser was America Online, which we shorted in 1996

Capitalism in America: A History

by Adrian Wooldridge and Alan Greenspan  · 15 Oct 2018  · 585pp  · 151,239 words

elsewhere, and that, when combined with an entrepreneur-friendly president in Washington, produced a business revolution. Financial innovators provided new sources of cash such as junk bonds from Michael Milken and venture capital from Silicon Valley’s well-established venture-capital industry. Great universities provided science parks, technology offices, business incubators, and

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, or LBOs (which used debt to fund reorganizations); management buyouts, or MBOs (which were often used to sell off a proportion of the company); and “junk bonds.” The greatest champions of leverage were Kohlberg Kravis Roberts (KKR) and Drexel Burnham Lambert. In 1976, three young bankers with Bear Stearns, Henry Kravis, Jerome

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this “noninvestment grade” market that allowed companies that were too small or risky to issue regular bonds to get access to the bond market. These “junk bonds,” as they were dubbed, helped to finance America’s entrepreneurial revolution: Milken’s clients included Ted Turner, the founder of Turner Broadcasting; Rupert Murdoch, the

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the acquired companies’ assets to pay off their debts; and many targets of takeover attempts bought back their own shares from raiders at a premium. Junk bonds expanded from a mere 3.5 percent of the bond market in 1977 to a quarter of the market a decade later. Michael Milken became

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the era, with his $550 million salary in a single year and his annual Predators’ Ball. Some of this looked too good to be true. Junk bonds lived up to their name: around a fifth of the bonds issued from 1978 to 1983 had defaulted by 1988. Many of the thrifts that

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bought junk bonds went bankrupt, as did Drexel Burnham itself in February 1990. Michael Milken was indicted on almost a hundred counts of racketeering, ending up in jail

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Jordan, Wilbur, 364 Josephson, Matthew, 170 Joule, James Prescott, 104 Journal of Commerce, 16, 55 J.P. Morgan, 94–95, 105, 230, 231, 238, 243 junk bonds, 341–42 just-in-time manufacturing, 314, 344 Kaiser, Henry, 268, 269–70 Kansas City Board of Trade, 120 Katz, Lawrence, 400 Keating-Owen Child

Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World

by Tom Wright and Bradley Hope  · 17 Sep 2018  · 354pp  · 110,570 words

no oversight. Insiders regularly broke securities laws, as if taking their cues from the excesses of 1980s figures such as Michael Milken, the U.S. junk bond king, and insider trader Ivan Boesky. Malaysians who knew how to play the system became incredibly rich, while minority shareholders lost out. People who worked

The Man Who Knew: The Life and Times of Alan Greenspan

by Sebastian Mallaby  · 10 Oct 2016  · 1,242pp  · 317,903 words

the alarm about housing, the Fed confronted another shock from the financial system. With the growth slowdown that summer, investors had begun to worry about junk bonds, the high-yielding debt used to finance corporate takeovers. On Friday, October 13, 1989, the jitters came to a head with the collapse of one

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assured Berry and his colleagues that the minicrash was behind them. But over the next months, the challenge of financial fragility persisted. Investors’ withdrawal from junk bonds exacerbated a larger problem: creditors of all kinds were scared of lending. Regional Fed presidents swapped stories of small businesses stymied by tightfisted banks; home

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builders were scrambling for funding; in February 1990, Drexel Burnham Lambert, the investment house that had pioneered junk bonds, collapsed, with the Fed resisting entreaties to save it. Amid this drying-up of credit, growth slipped to under 1 percent. The recession predicted by

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank

by John Tamny  · 30 Apr 2016  · 268pp  · 74,724 words

reached full flower around the same time that Trump rocketed to his early fame, high-yield finance. Readers may better know “high-yield bonds” as “junk bonds,” the latter being the pejorative members of the media attached to them long ago. Readers needn’t worry. There’s nothing complicated here. To understand

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by banks, which can then lend the dollars, Milken was sourcing credit for companies that banks traditionally passed over. As of 1988, at which time “junk bonds” had a much better reputation, these high-yielding instruments were but 1 percent of savings and loan assets.16 More than 95 percent of corporate

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sole source of credit in the United States. If they were, our economy would be marked by crushing stagnation. Think back to the chapter on “junk bonds”: Those financed the kinds of companies—telecom, cable, medical services, casinos, and so on13—that banks would not touch. Imagine the U.S. economy without

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Michael Milken found credit for companies that were traditionally ignored by Wall Street and major banks but were willing to pay high rates of interest (“junk bonds”) for the privilege. What this should illustrate is that the Fed can’t change the on-the-ground economic reality. This is a good thing

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. Going back to Michael Milken, while he cleaned the clocks of investment banks that turned their noses up at “junk bonds,” ultimately those same banks learned from their mistakes. Now, they all have junk-bond or “high-yield” bankers who raise money for the riskier business concepts willing to pay higher rates of interest

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The World’s Highest-Paid Actress,” Forbes.com, August 20, 2015. 12. Fischel, Payback, 42. 13. Ibid., 158. 14. Ibid., 25. 15. Andrew Ross Sorkin, “Junk Bonds, Mortgages and Milken,” New York Times, April 29, 2008. 16. Fischel, Payback, 198. 17. Glenn Yago, “Junk”, Library of Economics and Liberty, http://www.econlib

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creation of, 105–6 and easy credit, 2–5, 36–37, 80, 146–48 and excessive power of central banks, 45–46 and high-yield “junk bonds,” 37, 39–40 housing boom and “easy credit,” 113–16, 121–22 inability to create credit, 1–5, 141 on inflation as source of economic

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, 64, 74, 113, 163, 176 Heaven Can Wait (film), 23 hedge-fund managers, 48 Heller, Walter, 54 Hemingway, Ernest, 91 Hendrickson, Mark, 80 high-yield “junk bonds,” 37–40, 126 Hilsenrath, Jon, 147, 148 Hoffman, Dustin, 23 Hoke, Brady, 16, 20–21, 78–79, 103, 115, 127, 128, 148 Hollywood Shuffle (film

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Nikkei index, 152, 159 job creation and robots, 176–80 Jobs, Steve, 30–31 Johnson, Lyndon B., 49, 53 Johnson, Mark, 153 Jones, Jesse, 167 “junk bonds,” 37–40, 126 Kalanick, Travis, 12, 13 Karlgaard, Rich, 160 Kashgar, 138 Kauffman Foundation, 175 Keaton, Diane, 24 Kelly, Jason, 126 Kennedy, John F., 49

Market Sense and Nonsense

by Jack D. Schwager  · 5 Oct 2012  · 297pp  · 91,141 words

strategy of borrowing money at a relatively low interest rate and investing the proceeds in higher-yielding instruments (e.g., junk bonds). If money is borrowed at, say, 4 percent, and the junk bonds bought yield an average of 8 percent, then the hedge fund will earn a profit of 4 percent on borrowed

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are (that is, the greater the leverage), the greater the potential return. If credit spreads (that is, the difference between high yield instruments, such as junk bonds, and U.S. Treasuries) are narrowing, profits will be even greater, as hedge funds will not only return a multiple of the yield difference between

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periods of financial crisis or elevated bankruptcies, credit spreads will widen sharply. During these events, steeply declining values in high-yielding debt securities (e.g., junk bonds, emerging market bonds) can lead to capital losses far greater than the yield differential earned. Note, for example, in Figure 4.4 the sustained negative

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volatility Investment principle Investment size, maximum Investment strategies Investment timing Investor behavior Investor fees Investor requirements IPO price Irrational behavior Irrational choices Jones, Alfred Winslow Junk bonds Kahneman, Daniel Knowledge use Kudlow, Larry Lack, Simon Lagged shifts in supply Leverage about danger from investor performance and and risk Leverage risk Leveraged EFTs

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism

by Kevin Phillips  · 31 Mar 2008  · 422pp  · 113,830 words

federal bailout. Ambitious financiers, some of whom also wound up in jail, explored grander new frontiers of debt issuance. Michael Milken pioneered high-yield or “junk” bonds for lower-rated corporate borrowers until his firm, Drexel Burnham, failed in 1991. Raiders like Henry Kravis, T. Boone Pickens, and Ivan Boesky made a

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to have Achilles’ heels, like the misbehaving index arbitrage of so-called program insurance, the derivative innovation widely blamed for the 1987 crash, and the junk bonds derogated after their inventor went to jail. In 2007, the failures were multiple: besides the CDO and exotic mortage embarrassments, hedge funds’ mathematical vulnerabilities included

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, both household and corporate, that financed overinvestment in residential and commercial real estate. Another large slug of corporate debt, in the form of high-yielding “junk bonds,” was issued to finance leveraged buyouts and recapitalizations.12 These are not dry numbers of distant commerce accumulating well-deserved cobwebs. On the contrary. They

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the urging of the Reagan administration in 1981 and given effective carte blanche to borrow and invest (read: wheel and deal) in commercial real estate, junk bonds, and other temptations. Edwin Gray, the California Republican who headed the Federal Home Loan Bank Board under Reagan, agreed that deregulation was culpable because oversight

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funded the leveraged buyouts that became so notorious. Such bonds also lost cachet as Michael Milken of Drexel Burnham, the architect and promoter of the junk bond concept and distribution system, was indicted on ninety-eight counts in 1989, eventually plea-bargained, went to jail, and paid a fine of $600 million

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York Federal Reserve Bank for an almost insolvent Citibank. Other government support included extraordinary Federal Reserve Board rate cuts between 1990 and 1992 that rescued junk bonds and real estate, and the Clinton administration’s 1994 use of special government funds to rescue the Mexican peso and provide life support for Wall

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banking Islamic finance market Islamic Financial Services Board Israel Israel, Jonathan Italy Jackson, Andrew Japan as economical rival Jefferson, Thomas Johnson, Lyndon B. JPMorgan Chase junk bonds Kaiser Family Foundation Kasriel, Paul Kaufman, Henry Kazakhstan Kehoe, Patrick Kemp, Jack Kennedy, Edward Kennedy, John F. Kennedy, Patrick Kennedy, Paul Kennedy, Robert F. Kerry

Other People's Money: Masters of the Universe or Servants of the People?

by John Kay  · 2 Sep 2015  · 478pp  · 126,416 words

of ‘shareholder value’ exposed managers to the threat of hostile takeovers. In the 1980s this threat intensified when Michael Milken of Drexel Burnham Lambert invented ‘junk bonds’, and found institutional investors to subscribe for them. These securities, which offered high yields and acknowledged high risks, enabled raiders to threaten even the largest

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question ‘But what did it have to do with business?’ The question was pertinent. The era of Milken and junk bonds ended in farce. In early 1990 the Campeau Corporation, which had used junk bonds to acquire many of the USA’s leading department stores – Macy’s, Bloomingdale’s, Jordan Marsh – defaulted on its

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mountain. Robert Campeau, a Canadian property speculator, had no qualifications to run these businesses, only access to the funds of Milken’s clients. Appetite for junk bonds disappeared along with the hopes of the Campeau Corporation: Drexel Burnham Lambert, unable to refinance the bonds, went bankrupt: Milken went to prison. But the

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-security gaol. Even in the early 1990s Charles Keating, the most notorious fraudster in the deregulation of US thrifts, and Michael Milken, the inventor of junk bonds, went to prison. Scapegoats for the new economy bubble were less harshly treated. The SEC devoted little energy or resource to identifying wrongdoing, and such

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J.P. Morgan 14, 25, 35, 113, 120, 123–4, 130, 134, 191, 192, 193, 197, 200, 286, 294–5 J.P. Morgan Chase 231 junk bonds 46, 292 jurisdictional arbitrage 122–3, 223 ‘just culture’ 238 K Kahn, Alfred 238 Kahneman, Daniel 66 Kaupthing bank 294 Kay, John Obliquity 48 The

Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction

by David Enrich  · 18 Feb 2020  · 399pp  · 114,787 words

incentive did the trick. The salesmen worked the phones, cast a wider net for more clients, and managed to sell an impressive $485 million of junk bonds (albeit at a high interest rate that reflected investors’ fears that Trump might default). When the sale was complete, Byrne delivered the good news to

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protection. (“I don’t think it’s a failure; it’s a success,” Trump spun.) Deutsche’s clients, the ones who had recently bought the junk bonds, suffered painful losses. Going forward, Trump would be off-limits for Byrne’s division. The excommunication, however, didn’t apply to the whole bank. Trump

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paired Trump with a senior bank executive like Seth Waugh, who would woo Trump over eighteen holes. The year after Byrne’s team sold the junk bonds for Trump’s casino company, Deutsche dispatched its public relations staff to the course’s clubhouse to conduct video interviews with some of the marquee

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to deal with it.” More than four years had passed since Trump’s casino company had burned Deutsche and its clients by defaulting on the junk bonds. That had spelled the end of the Trump relationship for one wing of Deutsche’s investment banking unit, but the alarm bells hadn’t saved

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personally paying for the project. One of his first phone calls was to Rich Byrne, who years earlier had helped Trump’s casino company sell junk bonds and had been rewarded with the weekend trip to Mar-a-Lago. Trump’s subsequent default on those bonds had ended his relationship with Deutsche

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Bank Loan,” June 21, 2002. Taunting investors: Riva D. Atlas, “After His Gloom Went Over Like a Lead Balloon, Trump Tries to Sell Happiness, in Junk Bonds,” New York Times, May 7, 2002. story after preposterous story about his hijinks: David Enrich, “A Mar-a-Lago Weekend and an Act of God

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: Trump’s History with Deutsche Bank,” New York Times, March 18, 2019. Trump’s default on the junk bonds: Associated Press, “Trump Casinos File for Bankruptcy,” November 22, 2004; Emily Stewart, “The Backstory on Donald Trump’s Four Bankruptcies,” TheStreet.com, September 15, 2015

Company: A Short History of a Revolutionary Idea

by John Micklethwait and Adrian Wooldridge  · 4 Mar 2003  · 196pp  · 57,974 words

, where the company motto had been “Safeway offers security,” 63,000 people lost their jobs.17 LBOs, in turn, relied on another Wall Street invention: “junk bonds.” Wall Street had always traded bonds in distressed companies. The genius of Michael Milken was to create bonds specifically for this “non-investment-grade” market

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issue regular bonds. Milken first began to push his “high-yield” bonds in the 1970s; by the 1980s, his firm, Drexel Burnham Lambert, dominated the junk-bond market, and his annual Predators Ball in Los Angeles had become a fixture for entrepreneurs and politicians. In 1982, President Reagan made Milken’s job

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loan institutions to buy corporate bonds. Between 1975 and 1986, some $71.5 billion of junk bonds were issued, with an average yield of 13.6 percent. In some ways, the merger boom ended in disaster. Junk bonds lived up to their name: around a fifth of the bonds issued from 1978 to 1983

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had defaulted by 1988.18 Many of the thrifts that bought junk bonds went bankrupt, as did Drexel Burnham Lambert itself in February 1990. Milken was indicted on almost one hundred counts of racketeering—and eventually sent to

740 Park: The Story of the World's Richest Apartment Building

by Michael Gross  · 18 Dec 2007  · 601pp  · 193,225 words

always on the hunt for new opportunities. In 1973, Milken had begun touting non-investment-grade bonds, also known as high-yield bonds, and later junk bonds, that paid exorbitant interest on what most investors saw as huge risks. Saul’s holding company, now called Reliance Group, became one of Milken’s

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and Forbes, a publicly traded candy and flavoring company, and repaid the loan that had paid for the purchase with a then-novel financial instrument, junk bonds. With junk in his pocket and MacAndrews and Forbes as his base, the thirty-six-year-old Perelman emerged as a Wall Street player and

Vultures' Picnic: In Pursuit of Petroleum Pigs, Power Pirates, and High-Finance Carnivores

by Greg Palast  · 14 Nov 2011  · 493pp  · 132,290 words

$100 and then sue for $10,000, claiming, “Hey, this car is a wreck!” Singer took Straus under his dark wing. They bought Peru’s junk bonds and sued. A judge ruled “champerty” and threw Singer’s suit in the garbage can, but an appeals court backed Straus and Singer. Legal ping

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the citizen population dead or dying, that Messrs. Straus and Hermann sued the Liberian government in federal court in New York demanding millions for the junk bonds held by their hedge fund, Montreux. Of course, it’s not clear there was a government in Liberia to sue. Straus and Hermann liked it

For Profit: A History of Corporations

by William Magnuson  · 8 Nov 2022  · 356pp  · 116,083 words

his investment bank, Drexel Burnham Lambert. Operating out of his Beverly Hills office, Milken developed a market for so-called junk bonds, risky debt issued by debt-laden or struggling companies. Junk bonds had long been considered off-limits to most mainstream investors. They were considered too risky and too unlikely to pay off

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. But Milken became convinced—and, more importantly, convinced buyers—that if he could package these junk bonds together into a portfolio, they would outperform the bonds of more conservative, stable companies. Milken’s junk bond business was soon helping companies issue billions of dollars in debt every year—in 1983 alone, Drexel

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sold $4.7 billion in junk bonds. But the real supercharger behind junk bonds was the rise of leveraged buyouts. KKR realized that junk bonds could finance their acquisitions, allowing them to raise more debt, for less, and faster. In 1984, KKR accepted

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series of hearings with buyout executives to interrogate them about their practices. Various reform proposals were bandied about, from abolishing tax deductions on interest from junk bonds to creating tax deductions for dividend payments. But all were shot down. The only effective brake on private equity’s acceleration were two unrelated developments

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harder for private equity firms like KKR to load their portfolio companies with bonds. The second development came when Michael Milken, the undisputed champion of junk bonds, was indicted for conspiracy and fraud in connection with his securities work. His investment bank, Drexel Burnham Lambert, pleaded guilty to mail and securities fraud

Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required

by Kristy Shen and Bryce Leung  · 8 Jul 2019  · 389pp  · 81,596 words

of BBB− or higher (using the Standard & Poor’s scale). Anything below that is considered a “high-yield” bond, or less politely, a “junk” bond. I’ve owned junk bonds and they are exceptionally volatile. They pay a juicy yield over government bonds, but man, do they swing in value. They typically include companies

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, 34, 191, 191, 194, 221 JLCollinsNH.com, 93 Jobs, Steve, 27, 270, 271, 274–75 Joe’s story, 59–60 jogging to work, 69, 71 junk bonds vs. corporate bonds, 182–83 Kaguri, Twesigye Jackson, 24 Khalaf, Mario (“the Fixer”), 57–58, 59, 61 kids, 212, 232–46, 249 kindergarten, 46, 47

Servant Economy: Where America's Elite Is Sending the Middle Class

by Jeff Faux  · 16 May 2012  · 364pp  · 99,613 words

against all odds in restaurants, hi-tech start-ups, and initial public offerings that were issued by companies they’d never heard of and labeled “junk bonds.” Optimism nurtured George Washington at Valley Forge and Abraham Lincoln in the darkest days of the Civil War. It was Roosevelt’s trump card against

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junk bonds were the fuel that fired the merger and leverage buyout bubbles in the 1980s. In a leveraged buyout, investors and specialized private equity investment firms

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-run company with little debt and a healthy cash flow. They pay for the company not with their own money but with loans, such as junk bonds, that put up the company’s assets as collateral, burdening the firm with debt. They then typically make the firm more “efficient” in the short

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. The desperate search for higher yield through higher risk has already begun. The North Carolina legislature has authorized its state pension fund to invest in junk bonds, real estate, and commodities. Wisconsin is moving pension funds into derivatives, swaps, and complicated repurchase agreements. The Texas teachers’ pension put money into securities derived

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them

by Nouriel Roubini  · 17 Oct 2022  · 328pp  · 96,678 words

lost their luster at strong companies that would rather exploit tax advantages to boost earnings. In the 1980s, bonds below investment grade, better known as junk bonds, fueled an appetite for hefty debt loads. As borrowers learn, a loan is a contract. Interest must be paid in good times or bad, and

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sharply increased the spread that “high yield” bonds paid relative to safe bonds, thus vastly increasing the borrowing costs of leveraged firms that rely on “junk” bonds. Then, defaults started to increase. Bailing out zombies just delays inevitable bankruptcy, which is good news only for the lawyers charging by the hour. At

Who Stole the American Dream?

by Hedrick Smith  · 10 Sep 2012  · 598pp  · 172,137 words

new mortgage money machine and its voracious appetite for high-interest, high-risk, high-profit mortgage bonds—in reality, “junk mortgages,” like the high-interest junk bonds of the 1980s. Moving into junk mortgages required a radical shift in thinking at WaMu, but the financial calculus was seductive. Instead of the old

The Quiet Coup: Neoliberalism and the Looting of America

by Mehrsa Baradaran  · 7 May 2024  · 470pp  · 158,007 words

, 149–51, 156 judiciary branch, 88, 100, 114, 136, 138, 140, 141, 145, 149, 152, 155, 210, 360 Jung, Carl Man and His Symbols, 31 junk bonds, 245, 272, 292 justice, xvii, xviii, xxiv, xxxiv, xxxvi, 5, 8, 10, 14, 67, 69, 83, 99–100, 102, 121, 129–32, 154, 164, 172

Stolen: How to Save the World From Financialisation

by Grace Blakeley  · 9 Sep 2019  · 263pp  · 80,594 words

ended up taking out debt to do so.47 In what came to be known as the “debt-leveraged buyout”, activist investors would take out “junk bonds” — or expensive debt — to buy out existing shareholders, before selling off chunks of the corporation and using this to repay bondholders. This makes the hierarchy

Wall Street Meat

by Andy Kessler  · 17 Mar 2003  · 270pp  · 75,803 words

and even Morgan Stanley had taken share from Drexel Burnham peddling high-yield bonds to whoever could use them. Technology companies couldn’t use these junk bonds. Research and development to advance technology cost too much, and either you pay interest or you fund R&D. Anyone back on R&D would

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–63 Jarrett, Jim, 18, 32 Jett, Joseph, 81 Jobs, Steve, 16–17 Johnson, Robel, 13, 31, 36, 55–56 Jordan, Michael, 68 JP Morgan, 45 junk bonds, 53, 103–4, 118 Kansas, Dave, 182, 183, 201 Kapoor, Ram, 148 Karlgaard, Rich, 146 Kassan, Alan, 154, 157 Kelleher, John, 13 Kelly, George, 102

Trading and Exchanges: Market Microstructure for Practitioners

by Larry Harris  · 2 Jan 2003  · 1,164pp  · 309,327 words

investors. Investors expect that the issuers of investment grade bonds will make all interest and principal payments on time. The interest and principal payments on junk bonds are less certain. The latter are also called high yield bonds because investors require high yields to compensate for the probability that the issuers will

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, 73, 325, 543 Israel, 52 issuers, 39, 44, 179 issues, 39 Japan, 192 Japanese asset bubble, 570–71 Johnson, Phillip McBride, 63 juice. See vigorish junk bonds, 40 Kansas City Board of Trade (KCBT), 55, 371 KCBT. See Kansas City Board of Trade kickback schemes, 166 Knight Capital Markets, 544, 553 latent

Conspiracy of Fools: A True Story

by Kurt Eichenwald  · 14 Mar 2005  · 992pp  · 292,389 words

when prosecutors came down on the firm, pushing Milken out, his followers committed the sin of doing bad deals. After the marketplace refused some Drexel junk bonds, the firm bought them itself. As the junk market tumbled, so did the debt-laden Drexel—straight into bankruptcy. To Lay, the similarities between Drexel

Boomerang: Travels in the New Third World

by Michael Lewis  · 2 Oct 2011  · 180pp  · 61,340 words

the financial universe seemed to turn on which way the German people jumped. Moody’s was set to downgrade the Portuguese government’s debt to junk bond status, and Standard & Poor’s had hinted darkly that Italy might be next. Ireland was about to be downgraded to junk status, too, and there

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World

by Sandra Navidi  · 24 Jan 2017  · 831pp  · 98,409 words

which had previously not been considered creditworthy. He created a market and channeled billions of dollars into companies by issuing high-yield bonds, also dubbed junk bonds. So great was the boom he created that at some point it exceeded the financing of investment-grade companies. Born into a middle-class family

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’s wedding, 27 women and, 157 JPMorgan, xxv, 9, 11, 23, 56–57, 65, 141, 154, 156, 165, 170, 179, 225 JPMorgan Advisory Council, 170 Junk bonds, 190–191 K Kagame, Paul, 171, 192 Kashkari, Neel, 216 Kay, John, 222 Kazakhstan, 171 Kempe, Fred, 158 Khuzami, Robert, 176 Kidder, Peabody & Co., 198

The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History

by Kirsten Grind  · 11 Jun 2012  · 549pp  · 147,112 words

was that Killinger, who had spent his career as a money manager, tended toward the risky side. He thought about Killinger’s recent foray into junk bonds. Other troubled savings and loan banks had started issuing debt to raise money. The bonds came with a high interest rate because they weren’t

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on the bonds, more than three times the amount of the previous year.14 Earnings suffered. When Killinger brought up the idea of investing in junk bonds, Pepper had seen it as a creative, relatively safe way to raise more money. He appreciated Killinger’s looking for ways to expand the business

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government-assisted deal, 266 WaMu online data room and, 291, 322 and WaMu sale as “government assistance” transaction, 246, 246n WaMu stockholders and, 245–46 junk bonds, 28 Justice Department, U.S., 60, 332 Kashkari, Neel, 315 Kaufman, Ted, 126, 330 Kelly, Edward “Ned,” 289, 298 Keystone Holdings, 42 Kido, Ken, 209

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street

by Sheelah Kolhatkar  · 7 Feb 2017  · 385pp  · 118,901 words

by Milken’s empire at Drexel Burnham Lambert, which had created a new way of financing corporate takeovers through high-yield debt, also known as junk bonds—which were ranked “below investment grade” by ratings agencies because they were riskier than other bonds. With these new instruments, companies that couldn’t borrow

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money could suddenly issue junk bonds, which gave them the financial resources to launch hostile takeovers of their competitors. Every day, rumors of these leveraged buyouts sent companies’ share prices soaring

One Up on Wall Street

by Peter Lynch  · 11 May 2012

companies or divisions are “taken private”—purchased by outsiders or by current management with money that’s borrowed from banks or raised via junk bonds. The phenomenal popularity of these junk bonds, as first invented by Drexel Burnham Lambert and now copied everywhere. The advent of futures and options trading, especially of the stock

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), III, 51, 53, 54, 69 Johnson, Lyndon B., 277 Johnson, Mister, 51–52 Johnson & Johnson, 98, 108 Johnson Chart Service, 76 JP Stevens, 188–89 junk bonds, 280 Kaiser Industries, 259–60 Kaufman, Henry, 148 Kay-Bee Toys, 155 Kellogg, 34, 75, 118, 207, 228 Kelso, 279 Kennedy, John F., 276 Kenner

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk

by William J. Bernstein  · 12 Oct 2000

to bargain levels without a great deal of negative sentiment and publicity. Think of what it felt like to be buying stocks in October 1987, junk bonds in January 1991, or emerging markets stocks in October 1998, and you’ll know what I mean. Do not underestimate the discipline that is sometimes

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fees, overhead costs, and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage commissions, spreads, or market impact costs. High-yield (“junk”) bond: A debt instrument with a Standard & Poor’s rating of BB or less. By definition, such bonds have yields higher than less risky investment grade

Ashes to Ashes: America's Hundred-Year Cigarette War, the Public Health, and the Unabashed Triumph of Philip Morris

by Richard Kluger  · 1 Jan 1996  · 1,157pp  · 379,558 words

revenue to paying down the often grotesquely swollen debt incurred in the buyout. A large piece of the debt was usually in the form of “junk” bonds, high-yielding subordinated instruments backed mostly by the earning power of the business, which became burdened now with incessant pressure to meet the heavy charges

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for a few key players in the takeover group—along with their bankers, brokers, and lawyers—and for investors intrepid enough to buy up the junk bonds that were usually at the heart of the deals. The results sometimes were that the targeted trophy was shorn of its patina, heads rolled, plants

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than the treasuries of whole nations, was nearly $25 billion, almost $19 billion of it represented by a complex package of debt instruments, most notably junk bonds. The last person Kravis needed to make this immense gamble pay off was the airy chief executive officer who came with the prize. Wall Street

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the whole bundle, the largest recap proposed in American corporate annals. Each holder was to receive $84 per share in a cash dividend, $14 in junk bonds, and the rest in the equity “stub,” its value placed at $12 in accordance with an overall debt/equity ratio of 90 percent. In presenting

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work but would “require herculean efforts by our employees.” But Wall Street analysts and traders scrutinized the Kraft package with concern. The value of the junk bonds in it was debatable because they were of the “cram down” variety, not to be sold on the open market but foisted on shareholders with

The Finance Curse: How Global Finance Is Making Us All Poorer

by Nicholas Shaxson  · 10 Oct 2018  · 482pp  · 149,351 words

junk bonds because of their riskiness) to other less clued-up players like insurance companies or dowdy savings and loan organisations, tempting them with high interest rates

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the risk. During the market upswing of the ‘Roaring 1980s’ there seemed to be a near-bottomless pit of optimistic investors willing to buy these junk bonds. LBO deals surged from $3 billion in 1981 to $74 billion by 1989. With fees often adding up to more than 6 per cent of

End This Depression Now!

by Paul Krugman  · 30 Apr 2012  · 267pp  · 71,123 words

were either shut out of borrowing or forced to pay very high interest rates. The figure below shows yields on “high-yield” corporate securities, aka junk bonds, which were paying less than 8 percent before the crisis; this rate shot up to 23 percent after Lehman fell. The Lehman Effect: High-Yield

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Bloomberg, Michael, 64 BNP Paribas, 113 Boehner, John, 28 bond markets: interest rates in, 132–41, 133 investor confidence and, 132, 213 bonds, high-yield (junk bonds), 115, 115 bond vigilantes, 125, 132–34, 138, 139, 140 Bowles, Erskine, 192–93 Brazil, 171 breach of trust, 80 Bretton Woods, N.H., 41

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see also American Recovery and Reinvestment Act; unemployment Jobs, Steve, 78 Journal of Money, Credit and Banking, 26 Journal of the American Statistical Association, 35 junk bonds, 115, 115 Kahn, Lisa, 12 Kalecki, Michal, 94–96, 206 Kenen, Peter, 172 Keynes, John Maynard, 93, 205, 208, 210 depression as defined by, x

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America

by Danielle Dimartino Booth  · 14 Feb 2017  · 479pp  · 113,510 words

the trenches at Bear Stearns; they’d proved to be valuable allies when I was at DLJ. In those days, I traded a lot of junk bonds. Eventually I realized dealers on my own desk were jacking up prices to build in extra profits for themselves. After I became friendly with people

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back: Gregg Robb, “Hoenig Defends String of Dissents in 2016,” Marketwatch.com, January 5, 2011. On February 18, 2011: Aline van Duyn and Nichole Bullock, “‘Junk’ Bonds Hit Record Low,” Financial Times, February 18, 2011. This was backed by: Richard Fry and Jeffrey S. Passel, “In Post-Recession Era, Young Adults Drive

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments

by Charles Goyette  · 29 Oct 2009  · 287pp  · 81,970 words

a certain amount of money at a certain time. There are all kinds of bonds: bail bonds, performance bonds, bearer bonds, convertible bonds, revenue bonds, junk bonds. And U.S. Treasury bonds. If the government’s intent is to pay today’s borrowers back with money of lesser value tomorrow, can it

Why We Can't Afford the Rich

by Andrew Sayer  · 6 Nov 2014  · 504pp  · 143,303 words

of sub-prime mortgages. In the US, tax cuts for the rich in the 1980s and 1990s also fuelled the flow of funds to buy junk bonds from companies that were raising cash to buy out other companies. Deregulation of banks allowed them to shift beyond the traditional ‘retail’ business in which

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market continually; indeed, on average, bonds are held for about a month. In the 1980s the growth of leveraged buyouts funded by bonds – often called ‘junk bonds’ – boosted the market. So too did the spread of capitalisation of streams of income of diverse sorts, as these were used by organisations to finance

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practice so monstrous in its parasitism that it’s a wonder it’s legal. Here, the would-be buyer borrows vast sums, often through issuing junk bonds (with tax deduction on the debt), to buy out a company – and then loads them up with debt to pay for the buyout. In some

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zero – a direct subsidy to parasitic rentiers. The bought-out company then has to cut costs – and often the workforce – in order to fund the junk bonds. This was a prime cause of the ‘downsizing’ of companies in the 1980s and 1990s. So there was a direct link between the rise in

Mastering the Market Cycle: Getting the Odds on Your Side

by Howard Marks  · 30 Sep 2018  · 302pp  · 84,428 words

time I first got involved. The vast majority of investing organizations had a rule against buying bonds rated below investment grade, which were commonly called “junk bonds.” And Moody’s categorically rejected B-rated bonds, saying they “fail to possess the characteristics of a desirable investment.” How could these unpopular bonds not

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,” 189 See also fundamentals; psychology investment indices, 232t, 238t “it’s different this time,” 37, 197–99 J Jain, Ajit, 5, 276 Janjigian, Jahan, 280 junk bonds. See high yield bonds K Karsh, Bruce, 6, 161, 231, 235, 282 Kass, Doug, 5 Kaufman, Henry, 273 Kaufman, Peter, 5, 271 Keele, Larry, 6

Stock Market Wizards: Interviews With America's Top Stock Traders

by Jack D. Schwager  · 1 Jan 2001

respect lor him as a portfolio manager. I'll tell you one story that is a perfect example. During the time I worked for him, junk bonds had become very popular. Henry had a friend at a brokerage firm who offered to give him a large account if he could manage a

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junk bond portfolio. We had no clue. Henry gave us all a book about junk bonds and told us to read it over the weekend. The following Monday we began trading junk bonds; Henry was the manager, and I was the trader. The book

Greed and Glory on Wall Street: The Fall of the House of Lehman

by Ken Auletta  · 28 Sep 2015  · 349pp  · 104,796 words

boutiques like Lazard Frères, which concentrated on banking services, or Drexel Burnham Lambert, which has cornered the market on issuing higher yield and higher risk “junk bonds.” Lehman, Fenster feared, would try to provide full services yet lack the capital to do so. This was the fate of A. G. Becker, which

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of catalysts, including the presidency of Ronald Reagan. Whatever excesses arguably exist on Wall Street—the scramble for mergers, leveraged buyouts, fat fees, arbitrage speculation, junk bonds or greenmail†—the Securities & Exchange Commission wants to regulate by relying on market forces, not on its policing power. This restraint springs from several factors

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it excelled in at least one arena—mergers and acquisitions. Now it excels in others, including underwriting. Drexel Burnham’s phenomenal growth was fueled by junk bonds. Smaller investment banks such as Lazard Frères or Allen & Company continue to thrive. According to one Lazard partner, “Of every dollar we receive at this

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subtle clash between short- and long-range interests. A preoccupation with short-term results—focusing on current rather than long-term shareholders, selling less secure junk bonds, peddling assets to boost earnings, gobbling up smaller companies to inflate revenues, reducing long-term capital investments in order to stretch fourth-quarter earnings—is

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan

by Ben Carlson  · 14 May 2015  · 232pp  · 70,835 words

safety measure. There are a host of yield-producing assets investors have to choose from—high-quality government bonds, corporate bonds, REITs, dividend-paying stocks, junk bonds, or preferred stocks. Take a look at Table 4.11 to see how each of these income-producing assets performed during the crash. Table 4

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.11 Income Investments During a Market Crash (October 2007 to February 2009) Asset Gain/Loss High-Quality Bonds (BND) 6.8% Junk Bonds (JNK) –32.8% Corporate Bonds (LQD) –5.6% Dividend Stocks (SDY) –47.0% Preferred Stocks (PFF) –53.7% REITs (VNG) –64.1% Source: Yahoo! Finance

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control incentives independence index funds inflation institutional investors The Intelligent Investor (Graham) international equity diversification invert investment plan investment policy statement (IPS) Japan JP Morgan junk bonds Kahneman, Daniel Kaplan, Paul Keynes, John Maynard Kinnel, Russ Klarman, Seth Lehman Brothers Les Amants life cycle investing liftoff Livermore, Jesse lollapalooza effects longevity risk

Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits

by Kevin Roose  · 18 Feb 2014  · 269pp  · 83,307 words

firms, and other financial services companies after graduation. Among the celebrity financiers the school has churned out are SAC Capital billionaire Steven A. Cohen, the junk-bond impresario Michael Milken, and real estate megagoon Donald Trump. Wharton’s list of famous alumni, and the fact that its graduates emerge armed with advanced

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest

by Andrew W. Lo and Stephen R. Foerster  · 16 Aug 2021  · 542pp  · 145,022 words

, “The [1974] paper didn’t exactly take the world by storm.”48 He noted that some investment banks used the model for pricing so-called junk bonds until a risk management firm called KMV used the model, altering it to assume that default could occur at any time, not only at maturity

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution

by Gregory Zuckerman  · 5 Nov 2019  · 407pp  · 104,622 words

Street’s gains. Tips about imminent corporate-takeover offers, earnings, and new products were coin of the realm in the twilight of the Reagan era. Junk-bond king Michael Milken pocketed over one billion dollars in compensation between 1983 and 1987 before securities violations related to an insider trading investigation landed him

Two and Twenty: How the Masters of Private Equity Always Win

by Sachin Khajuria  · 13 Jun 2022  · 229pp  · 75,606 words

melting ice cube, and inventories seem to fatten further by the month. With cash flow and profits stagnating, despite a hardcore base of loyalists, the junk bonds that financed a recent refit of the company’s stores and its overseas footprint now look as appealing to credit investors as the junk food

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a deal that involves both the private equity group and the credit group. The private equity fund purchases a controlling stake in the business, the junk bonds are repurchased and refinanced with debt on better terms, and a new cash line from a revolving credit facility is organized. The plan works, and

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portfolios, they feel they understand the proposition. The Wall Street bank running the auction on behalf of European Broadcast, Goldman Sachs, has offered to underwrite junk bonds and loans for the winning bidder to finance the leveraged buyout. The deal will be the first of this kind, the carve-out of infrastructure

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a critical piece of national infrastructure than financed like a leveraged buyout. To put this into numerical perspective: For this kind of deal in 2003, junk bonds required roughly eight percent interest, and sixty percent of the purchase price could be debt-financed. But if the investment were recast as “infrastructure,” the

The Gods of New York: Egotists, Idealists, Opportunists, and the Birth of the Modern City: 1986-1990

by Jonathan Mahler  · 11 Aug 2025  · 559pp  · 164,804 words

that had manufactured goods were replaced by investment firms that manufactured debt: perpetual floating rate notes, yield curve notes, and, above all, the so-called junk bonds fueling America’s unprecedented corporate takeover craze. Profits soared. In 1985, the city’s biggest investment bank, Salomon Brothers, made $760 million (more than $2

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to stimulate more economic activity, the Reagan administration had relaxed its antitrust restrictions at the very same moment that a new innovation in corporate financing—junk bonds—was making cash readily available. The combination of these two forces had transformed “M&A” into the hottest business on Wall Street, bringing the days

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prospective buyers politely approaching potential targets to an abrupt end. Mergers and acquisitions were now the Wild West, with brash corporate raiders loading up on junk bonds as they eyed vulnerable companies for hostile takeovers. In the process, gambling on these takeovers—an arcane field known as risk arbitrage—became a huge

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of the Securities Subcommittee of the Senate Banking Committee, was preparing to preside over hearings on a bill that would have imposed new restrictions on junk bonds, the firm had hosted a thousand-dollar-a-plate fundraiser for him in Beverly Hills. By the time the bill reached the Senate floor, it

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. His success gave him an appreciation for the untapped possibilities of high-risk bonds. He soon started a practice at Drexel issuing high-yield—or “junk”—bonds on behalf of companies that were otherwise struggling to raise capital. The companies liked them because they were a quick and easy way to get

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their hands on a lot of cash; investors liked them because of their high interest rates. By the mid-eighties, junk bonds had become a $100-billion-a-year business. They were the artillery in the corporate takeover wars, replacing traditional bank loans as the preferred source

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latest plan, the New Jersey Casino Control Commission grew nervous. They wanted his assurance that he would do all this maneuvering without the use of junk bonds, whose high-interest rates carried a greater risk of default, which the commission was eager to avoid given the precariousness of Atlantic City’s casino

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. Only months earlier, Trump had assured the state’s casino control commission that he would not resort to junk bonds to finance the Taj, but he no longer had a choice. Merrill Lynch issued junk bonds to him worth $675 million at the staggering interest rate of 14 percent. It would cost Trump roughly

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commission that granted casino licenses was charged with keeping criminal elements out of the industry, but it had failed to prevent a whole other threat: junk bonds. For every dollar in equity that Atlantic City’s casinos held, they were carrying six dollars in high-interest debt, according to David Cay Johnston

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April, it was a foregone conclusion that Trump was never going to be able to keep up with the payments on the $675 million in junk bonds he’d used to underwrite the casino’s purchase and construction. Al Sharpton was unable to attend much of the Central Park Five trial because

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, William A., Jr., 266 Jordan, Kathy, 108 Jordan, Michael, 214 Joseph, Frederick, 308 Joseph, Stephen, 59, 164, 277–78, 352–55, 390 Julian, Michael, 362 junk bonds, 9, 76, 179, 202–4, 254, 326, 400 Just Say No (Kramer), 260, 331 Justice for Jennifer, 222, 248 Juvenile Defense Project, 116 K Karan

The Smartest Guys in the Room

by Bethany McLean  · 25 Nov 2013  · 778pp  · 233,096 words

anything better. (Enron’s argument was not unlike that of Drexel Burnham Lambert, which also had a near monopoly in market-making for and trading junk bonds in the late 1980s.) And it wasn’t just the industry that was lazy: in the glory years, regulators like the FERC and the CFTC

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entity, here’s the unbelievable thing: Azurix actually managed to get more money out of Wall Street. True, the money came in the form of junk bonds and bore an interest rate of over 10 percent. But still, it was $600 million, which was, amazingly, $100 million more than Mark had set

The Prize: The Epic Quest for Oil, Money & Power

by Daniel Yergin  · 23 Dec 2008  · 1,445pp  · 469,426 words

the Gulf board to spin off oil and gas reserves directly to shareholders. The board turned him down flat. Pickens then went to see the junk bond king, Michael Milken, at Drexel Burnham in Beverly Hills to explore raising the additional money through such bonds to make an outright takeover bid. Jimmy

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offer, a leveraged buyout by management using junk bonds, to be arranged by the firm of Kohlberg, Kravis, and Roberts. ARCO would also make an offer. So the Gulf board had three serious suitors

Working the Street: What You Need to Know About Life on Wall Street

by Erik Banks  · 7 Feb 2004

through absolutely tremendous peaks and troughs: the Latin debt crisis, the U.S. savings and loan crisis, the rise and fall (and subsequent resurrection) of junk bonds and corporate takeovers, the decade-long global stock market bull run, the bursting of Japan’s enormous economic bubble, the pulverization of several high-flying

The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything

by Jason Kelly  · 10 Sep 2012  · 274pp  · 81,008 words

Drexel Burnham Lambert Inc., specifically by Michael Milken. It was Milken, a Drexel trader, who pioneered the use of high-yield, noninvestment-grade bonds (aka junk bonds), often in hostile takeovers. Drexel and Milken helped fuel the surge of mergers and acquisitions, including leveraged buyouts, during the 1980s. Milken was indicted for

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more yield (interest) than they’d get from safer bonds issued by investment grade companies or the government. High-yield bonds are more colloquially called junk bonds. During 2005 through 2007, the high-yield debt market was perfectly situated for the purposes of leveraged buyouts. Investors were eager to invest in debt

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like collateralized loan obligations (CLOs), which were assembled by banks by piecing together lots of loans and then dividing them into slices according to risk. Junk bond funds also thrived, so there were willing buyers for both loans and bonds. Banks also used a number of products that helped fuel the boom

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York City Investment Fund New Yorker New York’s Museum of Modern Art New York Times New York University Law Review Nexio Noninvestment-grade bonds (junk bonds) Norris, Steven Norton, Ed Novy-Marx, Robert Nunnelly, Mark Nuttall, Scott Obama Administration Occupy Wall Street movement OMG. See Operations Management Group (OMG) Ontario Teachers

Unfinished Business

by Tamim Bayoumi  · 405pp  · 109,114 words

in mortgage-backed securities was driven by differences in regulation and had few social benefits, in contrast to earlier developments such as the emergence of junk bonds in the 1980s which, for all of the accompanying excesses, allowed small firms to access the bond market. Because it was filling a genuine economic

Paper Promises

by Philip Coggan  · 1 Dec 2011  · 376pp  · 109,092 words

grade status – the kind of bonds suitable for conservative investment institutions. If the rating slips any further, the average company will be classed as a ‘junk bond’, a category that, before 1980, was only deemed suitable for the wildest speculators. The riskiness of corporate debt illustrates that the nature of creditors as

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of defaults in the private sector – at the consumer level, on credit cards and mortgages and at the corporate level, on private-equity loans and junk bonds. Such defaults may ripple through the system, as they did in 2007 and 2008, because of the linkages between banks and debt issuers. As of

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, Thomas Jewish custom Johnson, Lyndon Johnson, Simon Johnson Matthey Bank Joshi, Dhaval J P Morgan Jubilee Debt Campaign jubilees, and writing off debts Julius Caesar junk bonds Kaiser Wilhem II of Germany Kennedy, John Kennedy, Robert Keynes, John Maynard Keynesianism Kim Jong Il Kindleberger, Charles King, Martin Luther King, Mervyn Knightian uncertainty

Straight to Hell: True Tales of Deviance, Debauchery, and Billion-Dollar Deals

by John Lefevre  · 4 Nov 2014  · 243pp  · 77,516 words

geezer just fucked Charlie’s maid in the bed Charlie shares with his wife. The Roadshow Selling a new high-yield bond (also called a junk bond) for a company usually involves conducting a full investor roadshow. It is an integral part of the deal marketing process and can be of pivotal

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated)

by Charles Wheelan  · 18 Apr 2010  · 386pp  · 122,595 words

,000. For $10,000, you can diversify across a wide range of assets: big stocks, small stocks, international stocks, long-term bonds, short-term bonds, junk bonds, real estate. Some of those assets will perform well at the same time others are doing poorly, protecting you from Wall Street’s equivalent of

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences

by Steven G. Mandis  · 9 Sep 2013  · 413pp  · 117,782 words

commit as much as $100 million of the firm’s money toward starting Water Street, a fund that bought controlling blocks of distressed high-yield junk bonds. The fund began soliciting outside investors in April 1990, with the goal of raising $400 million. Within a few months, Goldman had raised almost $700

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room were evenly divided. I was with the group that advocated against representing hostile raiders, whether they were blue chip corporations or individuals financed by junk bonds. We felt that doing so would cause us to lose both our credibility with clients and our perceived moral high ground. We reminded the group

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, one could argue that Goldman made this change simply because it saw a huge financial opportunity. To raise its profile in the industry and in junk bonds, Goldman hosted a lavish conference in Las Vegas, with entertainment by Cirque du Soleil and Jay Leno, which was attended by eight hundred people. As

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from [Donaldson, Lufkin & Jenrette], not Goldman. Marc Rowland, CFO of oil and gas producer Chesapeake Energy of Oklahoma City, had previously issued $730 million in junk bonds through Bear Stearns. Rowland remarked that prior to the conference, he never would have thought of approaching Goldman to handle

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junk bonds.”25 Of course, one could also argue that Goldman was shrewdly capitalizing on a market opportunity and that it was true that the industry’s

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril

by Satyajit Das  · 9 Feb 2016  · 327pp  · 90,542 words

a further write-down of Greek debt, saw interest rates rise to over 15 percent, inflicting large losses on holders. Non-investment grade bonds, or junk bonds, globally increased from US$82 billion in 2000 to US$556 billion in 2013, rising from 4 percent to 18 percent of all corporate bond

How Markets Fail: The Logic of Economic Calamities

by John Cassidy  · 10 Nov 2009  · 545pp  · 137,789 words

the S&L industry, allowing thrifts to offer higher interest rates and to expand their lending to riskier areas, such as commercial real estate and junk bonds. At the same time, the limit on insured deposits at S&Ls was raised from $40,000 to $100,000. In signing the Garn-St

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such as Citigroup or Wells Fargo has a wide variety of assets on its books: consumer loans, corporate loans, Treasury bonds, high-grade corporate bonds, junk bonds, mortgage bonds, stocks, currencies, commodities, and all manner of derivatives. In regular circumstances, the prices of some of these assets will move in opposite directions

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: if investors move out of junk bonds, higher-grade corporate bonds may benefit, whereas mortgage bonds might not be affected at all. In statistical terms, this means that some of the assets

The Atlantic and Its Enemies: A History of the Cold War

by Norman Stone  · 15 Feb 2010  · 851pp  · 247,711 words

doing his own people out of their retirement fund, and died by drowning, probably suicide, in circumstances that were never cleared up. In the USA ‘junk bonds’ created fortunes and led to discredit of the whole system. These involved a real risk, being bonds raised against the possibility of taking over, via

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, in New York, life imitated art, in this case Tom Wolfe’s Bonfire of the Vanities and Oliver Stone’s Wall Street: the makers of ‘junk bonds’ vanished into prison as recession pricked their bubbles. In London the empire of Robert Maxwell collapsed. He (repulsively: the baseball cap making it worse), larger

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Vietnam withdraws from re-election campaign Joliot-Curie, Irène Jones, Aubrey Jones, Jack Jones, Therese Jordan Joseph, Keith, Baron Juglar, Clement June Days uprising (1848) ‘junk bonds’ Kabul Kádár, János Kafka, Franz, Amerika Kahn, Philippe Kaldor, Nicholas, Baron Kaluga Kamchatka Kandahar Kang Sheng Kania, Stanisław Kapitsa, Piotr Kaplan, Karel Kapor, Mitch Karabük

The Asian Financial Crisis 1995–98: Birth of the Age of Debt

by Russell Napier  · 19 Jul 2021  · 511pp  · 151,359 words

. As early as 1983, Michael Milken was helping corporate America supercharge returns through the issuance of a record amount of speculative credit instruments known as junk bonds. The particular beneficiaries of this form of financial engineering were corporate management and incentives were soon put in place, primarily in the form of stock

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the time the band, then including Neil Young, made it onto the stage at Woodstock). When global risk premiums are low and the spread on junk bonds is approaching new lows, this is the ideal time to securitise uncertain future earnings streams. The lower the interest rate which investors are prepared to

Alpha Trader

by Brent Donnelly  · 11 May 2021

trading. Most of the legends of finance had some creative insight that took them to another level. Examples include Milken’s idea for high yield “junk” bonds, Paul Tudor Jones and Peter Borish’s idea to overlay past and present chart patterns to predict the crash of 1987, George Soros’ idea of

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stock 1998 to 2019, 476 July 26, 2000, rally, 473—476 Jones, Eric T., 294 Jones, Paul Tudor, 87, 163 journal, trading. See trading journal junk bonds, 87 Kaelen, Mendel, 382 Kahneman, Daniel, 198, 247, 491 Kaizen, 91 Kelly Criterion, 375, 379 Keynes, John Maynard, 311, 363 knowledge, 35 of specific markets

An Empire of Wealth: Rise of American Economy Power 1607-2000

by John Steele Gordon  · 12 Oct 2009  · 519pp  · 148,131 words

to the first one in the 1890s. Low stock prices in terms of corporate assets, falling interest rates, and new capital-raising techniques such as “junk bonds”—bonds that paid high interest rates and financed risky, often untried ideas, such as CNN, the first all-news cable network—fueled the movement. By

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, Anthony, 19 Johnson, Hiram, 349 Johnson, Lyndon B., 382, 390 joint-stock company, 9–10 Jones, William, 126 Jones, W. M., 248 Jonson, Ben, 27 junk bonds, 397 Kaiser, Henry J., 354 Kay, John, 88 Keats, John, 366 Kellogg-Briand Pact, 311 Kemp, Jack, 390–91 Kemp-Roth tax proposal, 390–91

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe

by Gillian Tett  · 11 May 2009  · 311pp  · 99,699 words

booming. In the late 1980s, the company hired a group of traders who had previously worked for Drexel Burnham Lambert, which had infamously developed the junk bond business under the leadership of Michael Milken in the mid-1980s, before it blew up. They had been tasked by AIG with developing a capital

How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy

by Mehrsa Baradaran  · 5 Oct 2015  · 424pp  · 121,425 words

into Tahrir Square,” “JP Morgan is a Kleptomaniac,” “Jail the Bankers,” “Tear Down this Wall Street,” “Jesus was the 99%,” and “Kick ‘M in the Junk Bonds.”29 (Timothy Geithner dismissed those who were uncomfortable with bailing out banks as demanding “Old Testament Justice,”30 which seems accurate given the admonitions against

Bean Counters: The Triumph of the Accountants and How They Broke Capitalism

by Richard Brooks  · 23 Apr 2018  · 398pp  · 105,917 words

the thrifts to gear up to unprecedented levels, lend to customers on riskier terms and invest in everything from equities to high-yield, high-risk ‘junk bonds’. There followed an orgy of theft and fraud, epitomized by events at Lincoln Savings and Loan in California. Soon after construction tycoon Charles Keating bought

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business, allocating too little of the cost to a portfolio of loans that, when quickly sold, produced an artificial profit. When ill-judged bets on junk bonds put further holes in Lincoln’s finances, Keating filled them with more elaborate frauds. Large tracts of land were bought and then sold for inflated

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Johnson, Lyndon Baines, 63 joint stock companies, 41 Joint Stock Companies Act 1844: 47 1856: 50 Jones, Lewis Davies, 54, 55, 56 Jowell, Tessa, 196 junk bonds, 85 Kanebo, 240 Kapital, Das (Marx), 3 Kattner, Markus, 225 Keating, Charles, 85–6, 91 Kellaway, Lucy, 275 Kershaw, Sue, 199 Kgosana, Moses, 250 Khodorkovsky

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis

by Kevin Mellyn  · 30 Sep 2009  · 225pp  · 11,355 words

contrast, corporations that issue bonds can and do default all the time, especially on the high-yield, high-risk end of the market known as ‘‘junk’’ bonds. However, even in a bankruptcy, bondholders are in line to get paid from the failed company’s assets. Investors rarely lose their principal investment in

In FED We Trust: Ben Bernanke's War on the Great Panic

by David Wessel  · 3 Aug 2009  · 350pp  · 109,220 words

chairman. In 1990, the Fed had stood by when Drexel Burnham Lambert went under after it was accused of illegal shenanigans in the market for junk bonds pioneered by Michael Milken, the creative financier who ended up in jail. But this was a very different time. “It was the whole market environment

Lying for Money: How Fraud Makes the World Go Round

by Daniel Davies  · 14 Jul 2018  · 294pp  · 89,406 words

did not help matters that ACC, his holding company, went ever more extravagantly bust as it got further and further involved with Michael Milken’s junk bond empire, and that he was financing ACC by selling bonds to widows and orphans in a way that was bound to attract the attention of

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions

by Joshua Rosenbaum, Joshua Pearl and Joseph R. Perella  · 18 May 2009  · 444pp  · 86,565 words

. Sondhi, and Dov Fried. The Analysis and Use of Financial Statements. 3rd ed. New York: John Wiley & Sons, 2002. Yago, Glenn, and Susanne Trimbath. Beyond Junk Bonds: Expanding High Yield Markets. New York: Oxford University Press, 2003. Yasuda, Ayako. “Do Bank Relationships Affect the Firm’s Underwriter Choice in the Corporate-Bond

Green Swans: The Coming Boom in Regenerative Capitalism

by John Elkington  · 6 Apr 2020  · 384pp  · 93,754 words

real rate of mortgage default and the extent to which it would be contagious across securities.”52 Assets previously rated as AAA “suddenly looked like junk bonds and were worth a fraction of their previous value, if indeed it was possible to find a price at all in a market where no

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

by Nassim Nicholas Taleb  · 1 Jan 2001  · 111pp  · 1 words

because he was not thoughtful enough to study history). How could John, with his coarse mind, otherwise be making so much money? This business of junk bonds depends on some knowledge of the “odds,” a calculation of the probability of the rare (or random) events. What do such fools know about odds

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, in place of spending their money buying expensive toys and paying for ski trips, bought Lebanese lira denominated Treasury bills (as my grandfather did), or junk bonds from Michael Milken (as many of my colleagues in the 1980s did). Go back in history and imagine the accumulator buying Russian Imperial bonds bearing

Risk Management in Trading

by Davis Edwards  · 10 Jul 2014

+ BB BB− B+ B B− FIGURE 9.5 Beginning of Year Rating Aaa Aa A Baa Ba B Caa-C FIGURE 9.6 High Yield (Junk Bonds) CCC CC C DDD DD D Default Bond Ratings End of Year Rating Aaa Aa 89.899 1.036 0.055 0.045 0.009

Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America

by Greg Farrell  · 2 Nov 2010  · 526pp  · 158,913 words

moments. Financial innovators such as Michael Milken at Drexel Burnham Lambert were already creating a new market for high yield debt, more commonly known as “junk bonds.” Advances in computer technology allowed traders to accelerate and simplify the process of buying and selling stocks and bonds, especially when using the analytic tools

The Best Business Writing 2013

by Dean Starkman  · 1 Jan 2013  · 514pp  · 152,903 words

companies in the index, rather than paying you the same amount for all defaults in that index, and/or • buying protection on high-yield indexes (junk bonds!), which are likely to go bankrupt faster if things get bad It seems very likely that JPMorgan’s CIO did some or all of the

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead

by David Callahan  · 1 Jan 2004  · 452pp  · 110,488 words

2,200-square-foot Manhattan apartment.38 By far the most successful of Milken's former pals is Gary Winnick, who worked closely with the junk bond king at Drexel. Winnick narrowly escaped prosecution for his involvement in Milken's crimes by agreeing to testify against his former boss. Winnick was never

The New Economics: A Bigger Picture

by David Boyle and Andrew Simms  · 14 Jun 2009  · 207pp  · 86,639 words

for the takeover, stripping it of saleable assets and then selling the remains on. That was the role of the junk bonds, which offered high yields because of the high risk involved. The junk bond revolution was led by a California company called Drexel Burnham Lambert, whose senior executive vice president, Michael Milkin, was

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was sentenced to ten years in jail and agreed to pay $600 million in fines. Without his leadership, the junk bonds faltered. It is widely believed that the temporary decline of the junk bond market led to a credit crunch that contributed to the 1990 recession. Milken was released from prison early because he

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, 126 Jaffe, Bernie 126 Japan 26, 50, 91, 113, 119, 128 Jefferson, Thomas 18, 20 Jersey 52, 53 Jones, Allan 103 Jubilee Debt campaign 137 junk bonds 1, 142–3 just-in-time 123–4, 155 Keynes, John Maynard 2, 13–14, 15, 17, 21, 37, 55 on interdependence 19, 109, 110

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World

by Ruchir Sharma  · 5 Jun 2016  · 566pp  · 163,322 words

led to the loss of tens of thousands of jobs in the shale boomtowns of Canada and the American Midwest and sent tremors through the junk bond markets, which had been major supporters of the shale investment boom. But if the value of a binge is measured by what it leaves behind

The Physics of Wall Street: A Brief History of Predicting the Unpredictable

by James Owen Weatherall  · 2 Jan 2013  · 338pp  · 106,936 words

agents stormed into the building, looking for records and audiotapes regarding a series of trades the firm had made with the soon-to-be-indicted junk bond dealer Michael Milken. A former Princeton-Newport employee named William Hale had testified to a grand jury that Regan and Milken were engaged in a

Broke: How to Survive the Middle Class Crisis

by David Boyle  · 15 Jan 2014  · 367pp  · 108,689 words

] Lewis was cutting his financial teeth in London and Wall Street at the height of the junk-bond boom. Bonds are simply agreements to pay a specific sum on a specific date in return for a loan. Junk bonds are those that are rated riskier than investment grade; the risk is that the issuer

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won’t pay. The upside is that junk bonds have a higher yield, and they allowed companies that couldn’t get conventional backing to launch themselves. The downside was that some of them were

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, 68, 287–8 Joseph, Sir Keith, 58, 99, 177, 220 JP Morgan, 143, 152 Judd School, 216–17 Julius II, Pope, 278 Jung, Carl, 95 junk bonds, 148, 154 K Katz, Cindi, 46 Kay, John, 104 Kensington and Chelsea, 211 Kent, 216–19 Keynes, John Maynard, 157, 290 Killik, Paul, 147 King

Tailspin: The People and Forces Behind America's Fifty-Year Fall--And Those Fighting to Reverse It

by Steven Brill  · 28 May 2018  · 519pp  · 155,332 words

buccaneer raiders, including Carl Icahn, Victor Posner, and Boone Pickens, borrow the money to buy them. The interest rates on what came to be called “junk bonds,” which Milken specialized in, would be high because the risk would seem high. However, if the raider took over and made the right expense cuts

Big Debt Crises

by Ray Dalio  · 9 Sep 2018  · 782pp  · 187,875 words

Dealer Credit Facility”: They were willing to lend to investment banks against almost any collateral, including extremely risky instruments—e.g., equities, subprime mortgages, and junk bonds. It should have been seen as an enormous step for a central bank to take, and in a more normal environment, it would have been

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis

by James Rickards  · 15 Nov 2016  · 354pp  · 105,322 words

the Fed to the ECB were still in place. Global leverage had increased. Sovereign-debt-to-GDP ratios were higher. Losses loomed in sovereign debt, junk bonds, and emerging markets. Derivatives passed one quadrillion in notional value—more than ten times global GDP. Global elites gradually realized their monetary ease had simply

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money

by Steven Drobny  · 18 Mar 2010  · 537pp  · 144,318 words

well be construed as a one-way bet. Almost half of the fund is invested in emerging market equities, commodities, real-estate, private equity, and junk bonds. It is as though the rap artist 50 Cent has taken over the advisory board. The fund is going to “get rich or die tryin

The Power of Passive Investing: More Wealth With Less Work

by Richard A. Ferri  · 4 Nov 2010  · 345pp  · 87,745 words

risk free rate on a portfolio to the portfolio’s total risk as measured by the standard deviation in its returns over the measurement period. junk bond A bond with a credit rating of BB or lower. Also known as a high-yield bond because of the potential rewards offered to those

Value Investing: From Graham to Buffett and Beyond

by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin and Michael van Biema  · 26 Jan 2004  · 306pp  · 97,211 words

and get these assets back onto the tax rolls. Investors who had the expertise and made the effort to value these assets, whether real estate, junk bonds, or the savings institutions themselves, were able to purchase them at sale prices. Though opportunities such as these are not everyday events, they happen with

Concentrated Investing

by Allen C. Benello  · 7 Dec 2016

.4 billion under management. Gordon would occasionally throw investment ideas at Rosenfield. In 1990, he suggested one to Rosenfield that he particularly liked. During the junk bond crisis, Gordon had seen RJ Reynolds bonds trading at $53. Gordon told Rosenfield he had done some research on the company and found it “very

Market Wizards: Interviews With Top Traders

by Jack D. Schwager  · 7 Feb 2012  · 499pp  · 148,160 words

continuous reduction in the amount of equities outstanding, coinciding with a more liberal attitude toward debt. As long as banks were comfortable lending money, the junk bond market was good, and corporate managers saw repurchasing their shares as the right thing to do, I felt there would be an unusual upward bias

The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend

by Rob Copeland  · 7 Nov 2023  · 412pp  · 122,655 words

stock picks sent Jones’s fund crashing 35 percent in 1970. As he faded from prominence, so did the industry he inspired. Investment bankers and junk bond financiers took the place of hedge fund managers in the popular imagination. The industry emerged from its two-decade hibernation with a bang largely thanks

The Clash of the Cultures

by John C. Bogle  · 30 Jun 2012  · 339pp  · 109,331 words

to accept the yield environment as it exists (no matter how painful). Most investors should avoid reaching out on the risky limbs of higher-yielding junk bonds and high-dividend stocks. With U.S. Treasury yields so low relative to investment-grade corporates, however, a holder of the total bond market index

How I Became a Quant: Insights From 25 of Wall Street's Elite

by Richard R. Lindsey and Barry Schachter  · 30 Jun 2007

. He was bright, outspoken, cheerful, and aggressive; ready to take on all challenges and win. What followed was a string of cases, mostly related to junk bonds: the U.S. government’s case against Michael Milken et al., the bankruptcy of First Capital Holdings, and various S&L collapses. I analyzed data

Mastering Private Equity

by Zeisberger, Claudia,Prahl, Michael,White, Bowen, Michael Prahl and Bowen White  · 15 Jun 2017

high yield bond market, led by Michael Milken of Drexel Burnham Lambert, made this practically possible on a much wider scale than previously thought. Heretofore, “junk bonds” were formerly high grade bonds of companies that got into trouble and were in or likely to be in default. The idea of a new

Running Money

by Andy Kessler  · 4 Jun 2007  · 323pp  · 92,135 words

firm and its clients tons of money (I assume he did well himself too). Courtesy of Michael Milken and Drexel Burnham and hot money in junk bonds, the late ’80s saw mergers announced almost daily. If a stock was trading at $45 and a deal was announced at $60, the stock might

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, 118, 119, 121, 128 Johns-Manville, 236 Johnson & Johnson, 236 joint-stock companies, 92–93 Jones, Alfred Winslow, 10 JP Morgan, 11, 49, 144, 209 junk bonds, 11 Kapor, Mitch, 121 Karlgaard, Rich, 195 Kay, John, 64 Kaye, William, 9–13, 48, 153 Kessler, Kurt, 245 Kessler, Nancy, 117–18, 193, 194

Lessons from the Titans: What Companies in the New Economy Can Learn from the Great Industrial Giants to Drive Sustainable Success

by Scott Davis, Carter Copeland and Rob Wertheimer  · 13 Jul 2020  · 372pp  · 101,678 words

on Wall Street were still emerging, which brought Danaher into the world of junk bonds. After an introductory meeting with junk bond king Michael Milken, the Danaher team decided that junk bonds would supply the next stage of growth. In the late 1980s, junk bonds fueled both growth successes and debt excesses—and Milken was the gatekeeper. Companies

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was both good and bad. While Danaher insiders credit the company’s shrewd acquisitions and Lean manufacturing for its success today, most also say that junk bonds enabled the company to grow much faster than it otherwise would have at this crucial stage. In the late 1980s industrial assets were for sale

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on the cheap, but banks viewed these acquisitions as very risky. Even though junk bonds had high coupon debt levels, the returns on the deals were proportionally much higher. This new market fit Danaher’s early needs perfectly. In those

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articles here and there, but the Rales brothers are famously shy, burned many years ago by press that fixated on their wealth and use of junk bonds as opposed to the exceptional and sustainable businesses that were being created. Even though we go back with the company nearly 20 years and know

Boom and Bust: A Global History of Financial Bubbles

by William Quinn and John D. Turner  · 5 Aug 2020  · 297pp  · 108,353 words

’, Journal of Financial Economics, 49, 307–43, 1998. Basile, P. F., Kang, S. W., Landon-Lane, J. and Rockoff, H. ‘Towards a history of the junk bond market, 1910–1955’, NBER Working Paper, No. 21559, 2015. Béland, D. ‘Neo-liberalism and social policy: the politics of ownership’, Policy Studies, 28, 91–107

How to Speak Money: What the Money People Say--And What It Really Means

by John Lanchester  · 5 Oct 2014  · 261pp  · 86,905 words

forbidden by law from investing in any debt that has too low a rating. Debts above this threshold are “investment-grade”; debts below it are “junk bonds.” Mistakes in the assessments and mathematical models used by the ratings agencies played a central part in the credit crunch. There’s a dark comedy

The Big Short: Inside the Doomsday Machine

by Michael Lewis  · 1 Nov 2009  · 265pp  · 93,231 words

likes to say. "The problem isn't the tools. It's who is using the tools.") The mezzanine CDO was invented by Michael Milken's junk bond department at Drexel Burnham in 1987. The first mortgage-backed CDO was created at Credit Suisse in 2000 by a trader who had spent his

Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier

by Edward L. Glaeser  · 1 Jan 2011  · 598pp  · 140,612 words

interconnected ideas. Academic knowledge about trading off risk and return made it easier to evaluate and sell riskier assets, like Michael Milken’s high-yield (junk) bonds, which made it possible for Henry Kravis to use those bonds to get value out of underperforming companies through leveraged buyouts. Many of the biggest

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just such an innovation, the ability to quantify the trade-off between risk and return, which made it easier to sell investors riskier assets, from junk bonds to mortgage-backed securities, which in turn enabled riskier, high-return activities, like leveraged buyouts of underperforming companies such as RJR/ Nabisco. Today’s hedge

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painters or composers who live together in dense cities bear a striking resemblance to the far more prosaic chain of urban innovations that gave us junk bonds, leveraged buyouts, and mortgage-backed securities. Pundits and critics have long argued that improvements in information technology will make urban advantages obsolete. Once you can

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Business Patterns 2007, www.census.gov/econ/cbp. 5 Academic knowledge about . . . assets: Bernstein, Against the Gods, 300-302. 5 Michael Milken’s high-yield (junk) bonds: Lewis, Liar’s Poker, 111. 5 Henry Kravis to use those . . . leveraged buyouts: “The Team,” KKR, Kohlberg Kravis Roberts & Co., 2010, www.kkr.com/team

Work Less, Live More: The Way to Semi-Retirement

by Robert Clyatt  · 28 Sep 2007

from their index or benchmark. For instance, the Vanguard High Yield fund consistently varies from the high yield index by holding only the better quality “junk” bonds. During good times, the fund underperforms the index; during bad times, its better-quality bonds hold up better than those in the index. This may

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System

by Henry M. Paulson  · 15 Sep 2010  · 468pp  · 145,998 words

market was about to open, so we needed to move rapidly. We asked ourselves again what would happen if Bear failed. Back in 1990, the junk bond giant Drexel Burnham Lambert had collapsed without taking the markets down, but they had not been as fragile then, nor had institutions been as entwined

How Will Capitalism End?

by Wolfgang Streeck  · 8 Nov 2016  · 424pp  · 115,035 words

the EU Commissioner for Competition who broke up the German state banking system (whereupon it attempted a fruitless restructuring exercise, through the purchase of American junk bonds). When his Brussels tenure came to an end Monti earned his living as an advisor to, among others, Goldman Sachs, the greatest

Devil's Bargain: Steve Bannon, Donald Trump, and the Storming of the Presidency

by Joshua Green  · 17 Jul 2017  · 296pp  · 78,112 words

would go bust, would almost invariably beat a portfolio of blue-chip bonds. Yet most investors shunned them as “junk.” Milken’s insight was that junk bonds were undervalued assets because investors, who feared seeming imprudent, didn’t want to own them. An enormous opportunity awaited someone less constrained by appearances. Milken

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made himself rich by trading junk bonds. Then he made himself vastly richer by becoming the chief evangelist for their cause. Along the way, he upended U.S. corporate finance. By convincing

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other investors that junk bonds were a shrewd bet, Milken almost single-handedly created a market for them. The demand he created meant that two types of businesses considered too

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risky to lend to by commercial bankers—new, smaller businesses and large, struggling corporations—could suddenly gain access to capital by floating junk bonds. Some of them failed. But many junk-fueled corporations, such as MCI and Chrysler, hit it big. And even though he won extraordinary wealth and

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down on and refused by established lenders. By the time Bannon graduated from HBS, Milken’s revolution had generated tens of billions of dollars in junk bonds, enough to fund all the companies shut out of the credit markets. So Milken and his firm, Drexel Burnham Lambert, devised an ingenious new use

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for them: they used junk bonds to finance raids on undervalued blue-chip corporations. Milken and Drexel would fund these hostile takeovers by pledging the assets of the target corporation as

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gave rise to an army of corporate raiders, men such as Ron Perelman, Carl Icahn, T. Boone Pickens, and Nelson Peltz, who became rich selling junk bonds through Drexel Burnham to finance predatory raids on such Fortune 100 companies as TWA, Disney, Revlon, and Phillips Petroleum. So fearsome did Milken’s reputation

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you is, don’t be the first guy through the door, because you’re going to get all the arrows,” said Bannon. “If it’s junk bonds, let Michael Milken lead the way. Goldman would never lead in any product. Find a business partner.” That’s where the Government Accountability Institute came

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John Paul II, Pope, 50, 75 Johnson, Gary, 231 Johnson, Peter, Jr., 174 Johnson, Woody, 197 Jones, Paula, 43, 153, 217 Jordan, Jim, 175–76 junk bonds, 67–68 Kali Yuga, 205, 223 Kaplan, Rob, 65 Kasich, John, 170, 182, 187 Kelly, Megyn, 168–74, 180, 192, 194, 195 Kelly, Michael, 33

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor

by John Kay  · 24 May 2004  · 436pp  · 76 words

., ed. 1997. The Scottish Enlightenment: An Anthology. Edinburgh: Canon gate. Bruck, C. 1989. The Predators, Ball: The Inside Story ofDrexel Burnham and the Rise ofthe Junk Bond Raiders. New York: Penguin. Brunekreeft, G. 1997. Coordination and Competition in the Electricity Pool ofEngland and Wales. Baden-Baden: Nomos-Verlag. Buchan, J. 1997. Frozen

When the Money Runs Out: The End of Western Affluence

by Stephen D. King  · 17 Jun 2013  · 324pp  · 90,253 words

sector boomed thanks to an abundance of credit and a gradual reduction in lending standards. Even as official interest rates were rising, interest rates on junk bonds were coming down. Meanwhile, the US had become dependent on serial bailouts. Alan Greenspan, ‘rescuer-in-chief’, established his bailout credentials when, as the newly

The Levelling: What’s Next After Globalization

by Michael O’sullivan  · 28 May 2019  · 756pp  · 120,818 words

form a basis for more liquid markets in some of the newer securities that would emerge from a post-credit-crisis world, securities such as junk bonds and securitized debt in China. Alternatively, a more Chinacentric approach could form the basis for an entirely different form of capital market formation, one not

Financial Statement Analysis: A Practitioner's Guide

by Martin S. Fridson and Fernando Alvarez  · 31 May 2011

acquisitions. Hostile takeovers became especially prominent in the 1980s, fueled in part by the greatly increased availability of high-yield debt (informally referred to as junk bond) financing. High-yield bonds also financed scores of leveraged buyouts (LBOs), whose sponsors defended these controversial transactions in part by arguing that corporations could improve

Console Wars: Sega, Nintendo, and the Battle That Defined a Generation

by Blake J. Harris  · 12 May 2014

due to the videogame crash, had led Mattel to the brink of bankruptcy. Miraculously, the company managed to survive—with the last-minute help of junk bond guru Michael Milken. He raised enough money to keep Mattel afloat while simultaneously making the company leaner by selling off its recent, unrelated acquisitions. In

Money: The Unauthorized Biography

by Felix Martin  · 5 Jun 2013  · 357pp  · 110,017 words

from his famous Beverly Hills office in the early 1980s, few would have predicted that two decades later issuance of what were then derisively called “junk” bonds would grow to U.S. $150 billion a year, and displace a substantial part of the banking sector’s financing of Main Street U.S

Losing Control: The Emerging Threats to Western Prosperity

by Stephen D. King  · 14 Jun 2010  · 561pp  · 87,892 words

or less continuously from 2003 through to 2007 triggered huge capital inflows from abroad. These were then invested by UK financial institutions in low-quality junk bonds, helping fuel a real-estate boom. While the inflows also pushed up the sterling exchange rate, thereby keeping a lid on inflation, the economy as

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matter for businesses and households. The same applied in the UK where, as noted earlier, rising official interest rates were associated with falling yields on junk bonds. The global housing boom of recent years was partly the result of this distortion in the level of interest rates. Other countries also lost their

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) Jay, Peter (i) Jefferson, Thomas (i) jet airline industry (i) Jewish populations (i), (ii), (iii) Jin Mao Tower (i) Jones, Francis (i) Judt, Tony (i) junk bonds (i), (ii) juntas (i) Kamin, Steven B. (i) Kaplan, Stephen N. (i) keiretsu firms (i), (ii) Kennedy, John F. (i), (ii) Kennedy, Paul (i) Keynesianism

Wired for War: The Robotics Revolution and Conflict in the 21st Century

by P. W. Singer  · 1 Jan 2010  · 797pp  · 227,399 words

peace and war. During World War II, its automobile plants were converted to manufacture tens of thousands of tanks, trucks, and planes. Today, it has junk bond status and had to reduce its U.S. workforce by a third. The reason is not just that GM too long expected to sell ugly

Broken Markets: A User's Guide to the Post-Finance Economy

by Kevin Mellyn  · 18 Jun 2012  · 183pp  · 17,571 words

included takeno-prisoners bond houses, such as the Solomon Brothers, who were immortalized by Michael Lewis in Liar’s Poker (Penguin, 1990). Michael Milken’s junk bonds fueled Drexel Burnham and the leveraged-buyout firms that followed. The entire venture capital industry that funded Silicon Valley and much else was equally new

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe

by Greg Ip  · 12 Oct 2015  · 309pp  · 95,495 words

it wasn’t us.” Individual firms learned lessons, as well. While almost forgotten now, the collapse in 1990 of Drexel Burnham Lambert, home of the junk bond king Michael Milken, was the largest closure of an investment bank in the United States. Drexel had borrowed by issuing commercial paper, essentially a short

The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources

by Javier Blas and Jack Farchy  · 25 Feb 2021  · 565pp  · 134,138 words

the oil market opened up a whole new way of doing business. The hot shots of Wall Street had already revolutionised markets for mortgages and junk bonds, and, in the late 1980s, they were turning their attention to the oil market. With new financial instruments at their disposal, they opened the market

When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle

by Scott Wapner  · 23 Apr 2018  · 302pp  · 80,287 words

F. Boesky, T. Boone Pickens, and Michael Milken, the Drexel Burnham Lambert banker whose infamous “junk bonds” helped finance the buying frenzy of the times. Milken’s high-yielding securities had earned him the nickname “The Junk Bond King” since he had all but invented the market for the securities. The men—coined corporate

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and Loeb, 90–91 retiring from Herbalife, 211 writing to SEC’s chairwoman, 180 See also Ackman, William A.: and Johnson Johnson, Ron, 39, 40 junk bonds, 121 Justice Department, 155 Karabu Ticket Agreement, 125 Katzovicz, Roy, 15, 72, 74 KDP Advisors Inc., 179 Kelly, Kate, 76, 77–78 Keswin, Jeff, 61

The Death of Money: The Coming Collapse of the International Monetary System

by James Rickards  · 7 Apr 2014  · 466pp  · 127,728 words

and lend long on a leveraged basis to capture a spread. Even more opaque are collateral swaps, where a financial institution such as Citibank pledges junk bonds to a counterparty in exchange for Treasury securities on an overnight basis, then uses those Treasury securities as collateral on a higher-yielding off-balance

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite

by Duff McDonald  · 24 Apr 2017  · 827pp  · 239,762 words

gay MBAs in San Francisco. There he made the claim that MBAs only buy into innovations after they’ve peaked. They were late to the junk bond boom, he pointed out, only arriving en masse in 1989, a year before Michael Milken went to jail. None of them went near Silicon Valley

Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market

by Scott Patterson  · 11 Jun 2012  · 356pp  · 105,533 words

keynote speakers at the conference had included luminaries such as former Federal Reserve chairman Alan Greenspan, former secretary of state Colin Powell, and the onetime junk-bond king Michael Milken.) Mathisson hit the button, calling up a chart showing that cash had flowed out of mutual funds every single month through 2010

Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market

by Daniel Reingold and Jennifer Reingold  · 1 Jan 2006  · 506pp  · 146,607 words

-IPO stock instead of taking his usual $80,000 honorarium. That decision netted him $14 million. Global Crossing’s founder was Gary Winnick, a former junk-bond salesman at Drexel Burnham Lambert, Michael Milken’s hotshot firm, whose fortunes had evaporated when Milken pleaded guilty to securities law violations in 1990.6

California Burning: The Fall of Pacific Gas and Electric--And What It Means for America's Power Grid

by Katherine Blunt  · 29 Aug 2022  · 470pp  · 107,074 words

a win all around. If PG&E collected less money from customers, Richard told them, the utility might have to resort to issuing high-interest junk bonds. That would also add to customer bills over time. The deal, as structured, was a bid to restore the company’s investment-grade credit rating

Escape From Model Land: How Mathematical Models Can Lead Us Astray and What We Can Do About It

by Erica Thompson  · 6 Dec 2022  · 250pp  · 79,360 words

11.1% above the LIBOR interbank lending rate (about 2% over the 2017–19 period), a return considerably better than that generated by so-called ‘junk bonds’. The bond class paying 6.9% was capped at 16.7% loss while the 11.1% returns were only offered to investors willing to shoulder

Billionaires' Row: Tycoons, High Rollers, and the Epic Race to Build the World's Most Exclusive Skyscrapers

by Katherine Clarke  · 13 Jun 2023  · 454pp  · 127,319 words

bonds catapulted to 16 percent, as Israeli investors demanded higher returns in exchange for putting their capital at risk with the company, effectively making them junk bonds. The Israelis were worried that the building wouldn’t get built. Barnett had flown to Tel Aviv to meet with bondholders, but his visit did

The Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape

by James Howard Kunstler  · 31 May 1993

in the future ? His government ran up an unprece­ dented public debt, his securities regulators allowed corporations to borrow absurd sums by issuing high risk "junk" bonds, and personal credit was extended to any shmo who could sign his name on a retail receipt, until an alarming percentage of ordinary citizens were

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, the New York-based real estate devel­ oper who built it and owns two other casinos in Atlantic City, financed the Taj largely with junk bonds-the junk bond being Wall Street's way of profiting off business people who think it is possible to get something for nothing. Standing on the Boardwalk this

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, 83 on International Style, 80-81 Jones, Inigo, 63, 157 Illinois Institute of Technology, 77, 80 impact fees, 223 "Jungle Cruise" ride (Disney World), 225 junk bonds, 110, 232 Indiana company, 25 individualism, 26-27 industrialism, 51 Kahn, Albert, 67, 77-78 Kahn, Otto, 53 art and, 40-41 Keats, John, 157

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing

by Vijay Singal  · 15 Jun 2004  · 369pp  · 128,349 words

twenty years later. The smallsample problem is not unique to currencies alone. Similar smallsample limitations can explain returns on many other financial assets, such as junk bonds, emerging bond debt, and so on. While this explanation is reasonable, when does the small sample problem cease to exist? How many years of data

Wealth and Poverty: A New Edition for the Twenty-First Century

by George Gilder  · 30 Apr 1981  · 590pp  · 153,208 words

lives on a blanket on a grate outside a Starbucks, holding out a discarded paper cup for spare change? And why should Michael Milken, the junk bond pioneer who spent time in jail for trumped up “economic crimes,” still be a billionaire, while the president of the United States earns some $450

The Great Railroad Revolution

by Christian Wolmar  · 9 Jun 2014  · 523pp  · 159,884 words

of companies that made it uncertain as to precisely how much money they invested personally and how much consisted of what are now known as junk bonds, included the Erie Railroad, the largely coal-carrying Chesapeake & Ohio Railway, and the Pere Marquette Railway, which had a series of lines in the Great

The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance)

by Feng Gu  · 26 Jun 2016

exceeds a predetermined limit. Traditional tools of investment risk diversification come into play when managing the risk of the investment portfolio: avoiding high-risk investments (junk bonds), using financial derivatives (hedging), and investing in insured bonds (most of insurance companies’ investments are in fixed-income securities). Finally, regulatory risk is largely managed

Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages

by Carlota Pérez  · 1 Jan 2002

investors’ capital, and it borrowed as much as $120 billion … That’s a mighty thin cushion if things go bad – which they did’.136 Derivatives, ‘junk bonds’ and other instruments serve as rakes to bring in capital for a wider than usual range of investment in productive assets and to make ‘everybody

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and mortgages) D Profit-taking and spreading investment and risk Instruments to attract small investors (various forms of mutual funds, certificates of deposit, bonds, IPOs, ‘junk bonds’) New instruments to encourage and facilitate big risk taking (derivatives, hedge funds and similar) E Instruments to refinance obligations or mobilize assets To reschedule debts

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or restructure existing obligations (re-engineering, Brady Bonds, swaps and others) To buy active production assets (acquisitions, incorporations, mergers, takeovers, junk bonds) To acquire and mobilize ‘rent’-type assets (real estate, valuables, futures and similar) F Questionable innovations Discovering and taking advantage of legal loopholes (fiscal havens

Affluenza: The All-Consuming Epidemic

by John de Graaf, David Wann, Thomas H Naylor and David Horsey  · 1 Jan 2001  · 378pp  · 102,966 words

citizen,”15 Thoreau wrote, in words all the more relevant today, when corporate speculators shear off entire forests of old-growth redwoods to pay for junk bonds. For Marx, Thoreau, and many other oft-quoted, but more often ignored, philosophers of the mid-nineteenth century, industrial development could only be justified because

The America That Reagan Built

by J. David Woodard  · 15 Mar 2006

buy it. The funds came from the managers themselves, but most were borrowed. The money for takeovers was raised through the sale of so-called junk bonds. Junk bonds were high-risk investments by securities rating agencies, such as Standard and Poor’s and Moody’s, marked as such because they had a potential

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with Silverado, and he knew that the company had multiple big loans going sour and a credit rating so bad it could not even issue junk bonds on Wall Street.43 To raise cash, the Silverado executives devised a scheme to loan money for real estate developments at prices for more than

Liberalism at Large: The World According to the Economist

by Alex Zevin  · 12 Nov 2019  · 767pp  · 208,933 words

are chugging merrily along, apparently oblivious to the crash’ that had briefly spooked them in October 1987.22 In 1989 Michael Milken, the ‘king of junk bonds’ at Drexel Burnham Lambert, bankrupted the fifth largest US investment bank and went to jail. ‘There is nothing wrong, in principle, with

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junk bonds’, Emmott wrote. He bridled at caricatures of Wall Street as a ‘den of greed and chance’, which was a ‘harsh judgment to make of the

Vulture Capitalism: Corporate Crimes, Backdoor Bailouts, and the Death of Freedom

by Grace Blakeley  · 11 Mar 2024  · 371pp  · 137,268 words

Vasudevan, “How Big Finance Is Making a Killing from the Pandemic,” Jacobin, June 11, 2020, https://jacobin.com/2020/06/federal-reserve-fed-coronavirus-covid-junk-bonds. 139. Christophers, Our Lives in Their Portfolios. 140. Jan Fichtner and Eelke M. Heemskerk, “The New Permanent Universal Owners: Index Funds, Patient Capital, and the

Boom: Mad Money, Mega Dealers, and the Rise of Contemporary Art

by Michael Shnayerson  · 20 May 2019  · 552pp  · 163,292 words

dealers: a felon as a father. Ivan Boesky had been caught up in one of the decade’s biggest insider-trading scandals, which also netted junk-bond financier Michael Milken and sent both men to jail. “Everyone presumed I was coming with my pockets filled with money, and that I would soon

The Cleaner: The True Story of One of the World's Most Successful Money Launderers

by Bruce Aitken  · 2 Mar 2017

his frequently calls with the likes of Saudi billionaire and “partner”Adnan Koshoggi and the wife, for some unknown reason, of convicted Brexel Burnham Lambert “Junk Bond King”, and wealthy philanthropist, and partner, Michael Milken. With failing health, an apparent stroke a year or two later, he was definitely better off in

The Everything Store: Jeff Bezos and the Age of Amazon

by Brad Stone  · 14 Oct 2013  · 380pp  · 118,675 words

categories and build more warehouses, Amazon needed more than a plan: it needed additional capital. So that May, the company raised $326 million in a junk-bond offering, and the following February, another $1.25 billion in what was at the time the largest convertible debt offering in history. With a 4

Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino

by Jim McTague  · 1 Mar 2011  · 280pp  · 73,420 words

.42 in August—a level that contrarians felt was overvalued.2 But this had been a year of buying frenzy fueled by takeovers funded by junk bonds. The deals enriched corporate raiders, investment bankers, and investors, and the fever had not abated even when one of the era’s most successful buccaneers

Ethics in Investment Banking

by John N. Reynolds and Edmund Newell  · 8 Nov 2011  · 193pp  · 11,060 words

Adviser Islamic banking: banking structured to comply with Shariah (Islamic) law Junior debt: debt that is subordinated or has a lower priority than other debt Junk bond: see High yield bond Lenders: providers of debt finance Leverage: debt Leveraged acquisition: acquisition of a company using high levels of debt to finance the

Living in a Material World: The Commodity Connection

by Kevin Morrison  · 15 Jul 2008  · 311pp  · 17,232 words

collapsed after its peak in January 1980. Morgan Stanley was also a new customer, as was Drexel Burnham Lambert, which is better known for employing junk-bond trader Michael Milken. ‘The cartel was breaking up and the trend was towards free-market oil pricing . . . once a commodity was established as a futures

The Red and the Blue: The 1990s and the Birth of Political Tribalism

by Steve Kornacki  · 1 Oct 2018  · 589pp  · 167,680 words

, which was quickly overshadowed by the news that one of them—Majority Whip Tony Coelho—was himself facing a federal investigation over illicit profits from junk bonds. Gingrich was always talking about a corrupt Democratic machine bent on protecting its own at any cost. Now they were making his point for him

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, 385 Clinton’s extramarital affairs, 50–51, 114–122, 364–376, 381–383, 392, 395–396 Clinton’s past marijuana use, 141–142 Coelho and junk bonds, 70 D’Amato and federal housing program, 384 Democratic perks for big donors, 351 Diggs, 34 during election of 1992, 168 Gingrich’s book deal

Three Felonies a Day: How the Feds Target the Innocent

by Harvey Silverglate  · 6 Jun 2011  · 389pp  · 136,320 words

, did not appear to constitute crimes. 98 Following (or Harassing?) the Money Michael Milken’s pioneering development of higher-risk, higher-yield corporate bonds (dubbed “junk bonds” by his detractors) gave birth to some of the most important start-up (and, in a real sense, upstart) companies of the decade. Among these

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media Lachman, Walter L., 224–232, 264 judges propensity for following sentencing guidelines, 40 witness cooperation and, 270 ladder climbing, 10, 14–17, 27, 50 junk bonds, 97–105 law school accreditation, 181–185 juries credibility judgements by, 72 pre-trial publicity and, 269–270 Lay, Kenneth L., 122–125 Kagan, Elena

Framing Class: Media Representations of Wealth and Poverty in America

by Diana Elizabeth Kendall  · 27 Jul 2005  · 311pp  · 130,761 words

the media for deliberately seeking publicity (a very un–upper class thing to do); hotel owner Leona Helmsley was caricatured for her personal cruelties; and junk bond broker Michael Milken was condemned because he had the audacity to rob the rich.23 As Mantsios suggests, some of the wealthy can be viewed

Bureaucracy

by David Graeber  · 3 Feb 2015  · 252pp  · 80,636 words

.S. corporate bureaucracy—away from the workers, and towards shareholders, and eventually, towards the financial structure as a whole. The mergers and acquisitions, corporate raiding, junk bonds, and asset stripping that began under Reagan and Thatcher and culminated in the rise of private equity firms were merely some of the more dramatic

The Myth of Capitalism: Monopolies and the Death of Competition

by Jonathan Tepper  · 20 Nov 2018  · 417pp  · 97,577 words

shareholders in Moody's Corporation, a ratings agency that shares an effective duopoly with Standard & Poor's. (You might remember they rated the toxic subprime junk bonds that blew up the economy as AAA gold). He and his lieutenants bought shares in DaVita, which has a price gouging duopoly in the kidney

The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy

by David Gelles  · 30 May 2022  · 318pp  · 91,957 words

a religion of money and of power. The achievement of infinite wealth and fame became the ultimate standard, to be achieved at any price. The junk-bond peddlers and the raiders, the speculators and the savings-and-loan hustlers with their legions of consultants, their lobbyists and their friendly politicians, turned this

Cable Cowboy

by Mark Robichaux  · 19 Oct 2002

the 1980s, 9486_Robichaux_03.f.qxd 8/28/02 9:54 AM Page 199 De at h of a C owboy and Milken’s junk bonds had financed much of the cable industry. For the first time, Malone sought his counsel on a topic unrelated to financial deals. Milken urged Malone

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as the stock fell. Later, with UGC’s and UPC’s debt reaching $8 billion, a Liberty affiliate bought $1.4 billion of UGC’s junk bonds at 40 cents on the dollar, lent the company more money, and bought more stock. The total price, as the financial press reported, was a

Born in Flames

by Bench Ansfield  · 15 Aug 2025  · 366pp  · 138,787 words

the popular imagination, the rise of finance took place under the fluorescent lights of Wall Street trading floors, in the corner offices of coked-up junk bond traders, and inside the algorithmic universe of a Bloomberg terminal. But the where of financialization was not just in lower Manhattan or the City of

Unscripted: The Epic Battle for a Media Empire and the Redstone Family Legacy

by James B Stewart and Rachel Abrams  · 14 Feb 2023  · 521pp  · 136,802 words

Katzenberg, the DreamWorks cofounder Eisner had forced out at Disney. (Viacom had bought DreamWorks’ live-action studio for $1.6 billion in 2006.) The former junk-bond king Michael Milken, who had advised Sumner about his prostate cancer, was there, too. Sumner had given $30 million to George Washington University, home to

Aftershocks: Pandemic Politics and the End of the Old International Order

by Colin Kahl and Thomas Wright  · 23 Aug 2021  · 652pp  · 172,428 words

March 23, it committed to unlimited purchases of Treasuries.10 It would lend directly to American businesses, make massive purchases of corporate bonds and riskier junk bonds, provide emergency facilities to bolster credit markets, and work with foreign central banks to maintain liquidity globally. The Fed had bought large quantities of Treasuries

The Price of Everything: And the Hidden Logic of Value

by Eduardo Porter  · 4 Jan 2011  · 353pp  · 98,267 words

profitable endeavors in the world. Remember the eighties? Gordon Gekko sashayed across the silver screen. Ivan Boesky was jailed for insider trading. Michael Milken peddled junk bonds. In 1987 financial firms amassed a little less than a fifth of the profits of all American corporations. Wall Street bonuses totaled $2.6 billion

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in the finance industry with a college education exceeded that of other industries by nearly 20 percent. These smart financiers turned their creativity on, inventing junk bonds in the 1980s and moving on, in the last few years, to residential mortgage-backed securities and credit default swaps. By 2006, pay in the

The Power Law: Venture Capital and the Making of the New Future

by Sebastian Mallaby  · 1 Feb 2022  · 935pp  · 197,338 words

so fertile. In an earlier era, J. P. Morgan’s brand of finance fashioned American business into muscular oligopolies; in the 1980s, Michael Milken’s junk bonds fueled a burst of corporate takeovers and slash-and-burn cost cuts. In similar fashion, venture capital has stamped its mark on an industrial culture

The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund

by Anita Raghavan  · 4 Jun 2013  · 575pp  · 171,599 words

trading strategies changed Wall Street. What securities firms needed most were financial wizards who actually had the brains to dream up newfangled products—derivatives and junk bonds—and sell them to an ever-increasing number of clients, savings and loans, pension funds, and high-net-worth individuals. It needed analysts who could

Stephen Fry in America

by Stephen Fry  · 1 Jan 2008  · 362pp  · 95,782 words

construction and development projects, I know that there is a demand and that casinos will be built. I can pardon Trump all his vanities and junk-bonded dealings and financial brinkmanship, I would even forgive him his hair, were it not that everything he does is done with such poisonously atrocious taste

Understanding Power

by Noam Chomsky  · 26 Jul 2010

now—because they have violated their legal responsibility to invest those funds in safe investments. For instance, they are investing your pensions in things like junk bonds in Mexico—and the people making those investment decisions would be legally liable for that, if we applied our laws, because they have a trust

Vanishing New York

by Jeremiah Moss  · 19 May 2017  · 479pp  · 140,421 words

. Real estate investors panicked as journalists wrote of “degentrification.” In 1991, the Times announced that gentrification was in retreat and “may be remembered, along with junk bonds, stretch limousines and television evangelism, as just another grand excess of the 1980’s.” A few years later, the paper declared gentrification dead and buried

The King of Content: Sumner Redstone's Battle for Viacom, CBS, and Everlasting Control of His Media Empire

by Keach Hagey  · 25 Jun 2018  · 499pp  · 131,113 words

were set. Management owned just 5 percent of the company’s equity—far less than Sumner owned—and was having to rely on high-interest junk bonds to finance their bid. “He said, ‘These guys are going to take over the company for less money than we already have invested in the

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share—an offer, he argued, that was not just higher than the management’s offer but more secure.29 Viacom’s management’s reliance on junk bonds would almost certainly require selling off and cutting huge pieces of the company to make the interest payments, were they to succeed. Sumner’s offer

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, 154 Jimmy Fund, 67 Jobs, Steve, 205 Jones, Buck, 31 Joost, 208 Jordan, Michael, 163–165 Judge Baker Children’s Center, 73 Juenger, Todd, 232 junk bonds, 119–20, 122 Jurassic World, 270 Justice Department (DOJ), 59, 65, 92, 98, 102, 134 Karmazin, Mel, 8, 163–67, 175–76, 178, 183–84

Big Business: A Love Letter to an American Anti-Hero

by Tyler Cowen  · 8 Apr 2019  · 297pp  · 84,009 words

lending, I would say with mixed results and probably a fair amount of misrepresentation. I think of this as a nascent market, a bit like junk bonds, still going through its teething phase and not quite ready for prime time. But someday it will be, and online lending will be a permanent

Casino

by Nicholas Pileggi  · 13 Aug 2015

convictions. The last Teamster pension fund loan was paid off. The mortgage on the Golden Nugget was bought by Steve Wynn and paid off with junk bonds. The mob’s main muscle—as far as controlling the financing of casinos—was over. In 1983, slot machines became the largest casino revenue producer

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American Express number for verification that you are who you claim to be. The Teamsters pension fund has been replaced by junk bonds as the primary source of casino funding; but while junk bond interest rates are high, they’re not as high as what the outfit charged. Casino executives who borrow the money

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, Gary, 303 Jenner and Block, 139 Jerry’s Lounge, 52 Jews, 28, 269 J. K. Sports Journal, 48 Jubilation nightclub, 257, 268, 315, 318, 333 junk bonds, 392, 401 Justice Department, U.S., 3, 69, 218, 388 Organized Crime Strike Force, 292, 366 Kane, Marty, 259, 273, 372, 374 Kansas City, Mo

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite

by Daniel Markovits  · 14 Sep 2019  · 976pp  · 235,576 words

James, LeBron, 178 JD.com, 175 Jefferson, Thomas, 71, 260 Jobs, Steve, 214 Johnson, Lyndon B., 78, 101–2, 104 JPMorgan Chase (bank), 18, 192 junk bonds, 238 Kaplan, Steven, 314n(5), 335n(88), 336nn(89-90), 363n(164) Katz, Lawrence F., 347n(120), 362n(158), 363n(161), 372n(183), 374n(183

When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm

by Walt Bogdanich and Michael Forsythe  · 3 Oct 2022  · 689pp  · 134,457 words

had neutered the commercial banks and had tamed Wall Street began to loosen. Companies increasingly bypassed commercial banks to raise money, issuing commercial paper or junk bonds. Savers got much better rates with money-market accounts that invested in commercial paper. By 1986, the caps on the interest banks could offer for

Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US

by Rana Foroohar  · 5 Nov 2019  · 380pp  · 109,724 words

IPOs are just two signs of the bubble economy in the Valley. Burgeoning debt is another. Netflix, for example, recently raised $2 billion through a junk bond offering to fund new content.21 It will be interesting to see how the next round of big anticipated IPOs goes—or if they go

The Billion-Dollar Molecule

by Barry Werth  · 543pp  · 163,997 words

with its recent history of regulatory and business difficulties, Kidder was wary of too hard a sell. “Drexel used to have the ability in the junk bond market to tell Vernon Savings, ‘You buy this goddamn bond, or I’m never trading with you again,’ ” Holman says, “and guess what happened to

Without Conscience: The Disturbing World of the Psychopaths Among Us

by Robert D. Hare  · 1 Nov 1993  · 260pp  · 78,229 words

positions. Finally, white-collar crime is lucrative, the chances of getting caught are minimal, and the penalties are often trivial. Think of the insider traders, junk-bond kings, and S & L sharks whose financial depredations were so spectacularly rewarding—even when they were caught. In many cases, the rules of the game

Free Market Missionaries: The Corporate Manipulation of Community Values

by Sharon Beder  · 30 Sep 2006  · 273pp  · 34,920 words

points to the way the public were able to buy corporate bonds from the late 1960s, invest in securitized home mortgages in the 1970s, buy junk bonds in the 1980s, and invest in third world debt in the 1990s – either directly or more often through mutual funds and pension funds: ‘This gave

The Relentless Revolution: A History of Capitalism

by Joyce Appleby  · 22 Dec 2009  · 540pp  · 168,921 words

world recession of 2008–2009, the market’s stumbles had grown ever more frequent and painful, starting with the crash of 1987, followed by the junk bond crisis of the late 1980s, the 1989 sinking of the savings and loan industry, the Japanese depression, the Asian fiscal crisis of 1997, the Long

Breakout Nations: In Pursuit of the Next Economic Miracles

by Ruchir Sharma  · 8 Apr 2012  · 411pp  · 114,717 words

any investment that has a history of sharp up-and-down price movements, from copper to currencies and stocks in commodity-rich nations and even junk bonds—as the same animal. When investors are feeling confident, they pile into all these assets all at once, and when confidence ebbs, they pull out

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Zemin, 29 Jobbik (Movement for a Better Hungary), 105 Jockey underwear, 54 Johannesburg, 181, 204 Jonathan, Goodluck, 209–11, 213 Jordan, 122 J-pop, 167 junk bonds, 228 “just-in-time” supply chains, 80 Kabila, Laurent, 205 Kagame, Paul, 206 Kano, 213 Kaohsiung, 136 Kapoor, Ekta, 41 Karachi, 190 Karnataka, 50, 51

Pity the Billionaire: The Unexpected Resurgence of the American Right

by Thomas Frank  · 16 Aug 2011  · 261pp  · 64,977 words

in a bizarre spectacle it arranged in November of 2007: trader boxing. Before an audience chewing steak and guzzling luxury vodka, the furious fists of junk bond specialists would connect with the jaws of private equity managers, and the world would enjoy a graphic representation of the primal drama of capitalism. I

The Subterranean Railway: How the London Underground Was Built and How It Changed the City Forever

by Christian Wolmar  · 30 Sep 2009  · 447pp  · 126,219 words

Piccadilly was made in 1903, only 40 per cent of the shares were taken up. Here, Yerkes devised his master plan, an Edwardian version of junk bonds. The reasoning was that the tube lines were bound to make a profit and the price of the shares would go up. Therefore, he would

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, investors had been sold a pup. The crisis was brought to a head by the promise Yerkes had made to redeem his £7m worth of junk bonds, the ‘profit sharing notes’, on 30 June 1908. By the time the three tube lines had opened, the value of the £100 notes had fallen

The Armchair Economist: Economics and Everyday Life

by Steven E. Landsburg  · 1 May 2012

a prominent role. Unfortunately, your support for borrowing to bail out the savings and loans is, along with your previous support for the use of junk bonds in the private sector, consistent with that legacy. Your voice is, for many of us, the voice of reason. That, however, requires the support of

Choose Yourself!

by James Altucher  · 14 Sep 2013  · 230pp  · 76,655 words

quickly in the 1970s. Then we felt sick again—which meant that we needed more money to pay for the price increases. Enter the ’80s junk bond boom. Creative ways were found to basically create money out of nothing. And this fueled a stock market boom. We had more money! When this

The Rough Guide to New York City

by Rough Guides  · 21 May 2018

(also “investment banks”) boomed in the 1920s, survived the Great Depression and regulation of the 1930s and led the world with innovative products such as “junk bonds” and derivatives into the 1990s. Yet today, all the big investment banks have gone and most of Wall Street has been converted into condos – so

Early Retirement Extreme

by Jacob Lund Fisker  · 30 Sep 2010  · 346pp  · 102,625 words

depend on becoming famous on the Internet or getting a book deal, nor will it depend on a timely participation in a market bubble of junk bonds, internet companies, real estate, gold, or tulips. It also won't depend on successfully starting your own business. You won't need to develop a

Capitalism 3.0: A Guide to Reclaiming the Commons

by Peter Barnes  · 29 Sep 2006  · 207pp  · 52,716 words

the directors refused, but when Hurwitz threatened to sue them for violating their fiduciary duty to shareholders, the directors succumbed. Hurwitz financed his purchase with junk bonds, the interest on which was more than the historical profits of the company. To service this debt, he terminated the workers’ pension plan and began

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown

by Philip Mirowski  · 24 Jun 2013  · 662pp  · 180,546 words

, the system as a whole simply cannot fail to price and allocate risks; hence there is no such thing as virulently “toxic” assets. Crappy assets, junk bonds, dogs with fleas, yes; but inherently “toxic,” never. The other dominant metaphor was the biblical “Day of Reckoning.”24 Americans love a good apocalypse, and

Aftershock: The Next Economy and America's Future

by Robert B. Reich  · 21 Sep 2010  · 147pp  · 45,890 words

Street to put greater pressure on companies to perform—for example, by making it easier for investors to mount “leveraged buyouts,” pay with high-risk (junk) bonds, pump up the profits by firing workers, and then dump the company back on the market at a higher price. The plan worked. The Dow

The Fourth Revolution: The Global Race to Reinvent the State

by John Micklethwait and Adrian Wooldridge  · 14 May 2014  · 372pp  · 92,477 words

open primaries and redistricting, with some interesting results. There is even something of a rebirth of centrist pragmatism. One trailblazer was Michael Milken, the former junk bond king, whose Santa Monica–based institute issues annual reports on the state of the state and produces a constant stream of ideas, many of them

Business Lessons From a Radical Industrialist

by Ray C. Anderson  · 28 Mar 2011  · 412pp  · 113,782 words

and wait for grid parity anymore than you would exclude Treasuries from your investment portfolios because their yield is not as good as those from junk bonds. In uncertain times, certainty, whether in energy supplies or your investments, can offer tremendous value. And nothing is more valuable than market share. As fossil

Ten Lessons for a Post-Pandemic World

by Fareed Zakaria  · 5 Oct 2020  · 289pp  · 86,165 words

to benefit established players, even those who have taken wild risks. The Fed is offering investors the upside of a range of risky investments, including junk bonds, while guaranteeing that there will be virtually no downside. It is a fundamental remaking of capitalism—one with no punishment for failure, no dangers of

Accelerando

by Stross, Charles  · 22 Jan 2005  · 489pp  · 148,885 words

the overinflated reputations market, following revelations that some u-media gurus have been hyped past all realistic levels of credibility. The consequent damage to the junk-bonds market in integrity is serious. The EU council of independent heads of state has denied plans for another attempt at Eurofederalisme, at least until the

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right

by George R. Tyler  · 15 Jul 2013  · 772pp  · 203,182 words

the urging of the Reagan administration in 1981 and given effective carte blanche to borrow and invest (read: wheel and deal) in commercial real estate, junk bonds, and other temptations. Edwin Gray, the California Republican who headed the Federal Home Loan Bank Board (FHLBB) under Reagan, agreed that self-regulation was culpable

The Barbell Prescription: Strength Training for Life After 40

by Jonathon Sullivan and Andy Baker  · 2 Dec 2016  · 742pp  · 166,595 words

’s a lump of sugary dough cooked up in a deep fat fryer and then stuffed or painted with more sugar. It’s a nutritional junk bond, an abomination, a toxic toroid of carbohydrate and fat. It’s so energy-dense that unless you’re going to work out immediately, it will

Powerhouse: The Untold Story of Hollywood's Creative Artists Agency

by James Andrew Miller  · 8 Aug 2016  · 790pp  · 253,035 words

heard of Ovitz up to that point and so we started asking around. We found out he was super-secretive, much like Mike Milken, the junk bond king. They both used to buy up photographs of themselves. CAA was very secretive internally as well; we were surprised when we learned that even

Siege: Trump Under Fire

by Michael Wolff  · 3 Jun 2019  · 359pp  · 113,847 words

billion; Dan Gilbert, the founder of Quicken Loans and owner of several sports franchises, worth $6 billion; Michael Milken, the former Wall Street trader and junk bond king who went to jail in the early 1990s for insider trading, worth $4 billion; and Ron Cameron, an Arkansas poultry mogul, and Tom Barrack

The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us

by Robert H. Frank, Philip J. Cook  · 2 May 2011

, brokerage, and other indus­ tries in the United States. Added to that has been the increased threat of outside takeovers resulting from the introduction of junk bonds and other new sources of financial capital . These developments have increased the potential damage that could result from poor perfor­ mance, making it all the

Hope Dies Last: Visionary People Across the World, Fighting to Find Us a Future

by Alan Weisman  · 21 Apr 2025  · 599pp  · 149,014 words

.[*3] In 1989, that happened for real on Black Friday, when an airline’s stock collapse, due to a strike, also dragged down the global junk bond market. Among the casualties was a New Zealand investor, Keith Atwood. Suddenly broke, he found work substitute teaching in Auckland at a school for troubled

Addiction by Design: Machine Gambling in Las Vegas

by Natasha Dow Schüll  · 19 Aug 2012

it ushered in. This wave gathered momentum in the 1990s, set off by the staggering success of the Mirage, a rainforest-themed resort financed with junk bonds in 1989 by an ambitious young casino tycoon named Steve Wynn. His winning venture inspired other companies to build competing properties on the Strip, turning

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2003). 22. This building boom was triggered by the astonishing success of the Mirage, a $640 million, 3,400-room, tropical-themed resort financed with junk bonds in 1989 by Steve Wynn. Nevada maintains a growth-friendly climate by imposing no personal income or general business taxes (companies pay no corporate income

On the Edge: The Art of Risking Everything

by Nate Silver  · 12 Aug 2024  · 848pp  · 227,015 words

catastrophically poor financial planning. The Taj Mahal first filed for bankruptcy in 1991, only a year after it opened. Trump had financed it primarily through junk bonds with a 14 percent interest rate. When a financial analyst named Marvin Roffman pointed out how much the Taj would have to make to pay

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Times, July 18, 1991, sec. Business, nytimes.com/1991/07/18/business/chapter-11-for-taj-mahal.html. GO TO NOTE REFERENCE IN TEXT through junk bonds: Robert O’Harrow Jr., “Trump’s Bad Bet: How Too Much Debt Drove His Biggest Casino Aground,” The Washington Post, May 24, 2023, washingtonpost.com

Obliquity: Why Our Goals Are Best Achieved Indirectly

by John Kay  · 30 Apr 2010  · 237pp  · 50,758 words

).13 Salomon turned bond trading from a backwater into the activity of choice for the financially ambitious, while Drexel Burnham Lambert pioneered the issue of junk bonds. Salomon, whose abuses had exhausted the patience of the U.S. Treasury, had to be rescued by Warren Buffett (in a rare error) and was

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Irish potato famine iteration Jacobs, Jane Japan Jencks, Charles Jenkins, Roy Jobs, Steve job security Johnson, Lyndon B. Johnson, Robert Johnson & Johnson JPMorgan Chase judgment junk bonds juries Kasparov, Garry Keats, John Kelvin, William Thomson, Lord Kennedy, John F. Keynes, John Maynard Khan, Genghis Khmer Rouge Klein, Gary Kubrick, Stanley lactose lateral

Lab Rats: How Silicon Valley Made Work Miserable for the Rest of Us

by Dan Lyons  · 22 Oct 2018  · 252pp  · 78,780 words

, but Netflix also burns more cash than it generates. The company has obligations of more than $28 billion, some of it debt raised by selling junk bonds, a risky strategy that “recalls the dot-com era,” as Crain’s New York Business put it in a May 2018 article. Uber, despite its

Shaky Ground: The Strange Saga of the U.S. Mortgage Giants

by Bethany McLean  · 13 Sep 2015  · 160pp  · 6,876 words

from North Carolina and a longtime evangelist for homeownership. DeMarco took a position at the Milken Institute, a pro-market think tank run by former junk-bond king Michael Milken. (Right around that time, Milken wrote an op-ed for the Wall Street Journal in which he argued that subsidized mortgages create

Addiction by Design: Machine Gambling in Las Vegas

by Natasha Dow Schüll  · 15 Jan 2012  · 632pp  · 166,729 words

it ushered in. This wave gathered momentum in the 1990s, set off by the staggering success of the Mirage, a rainforest-themed resort financed with junk bonds in 1989 by an ambitious young casino tycoon named Steve Wynn. His winning venture inspired other companies to build competing properties on the Strip, turning

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2003). 22. This building boom was triggered by the astonishing success of the Mirage, a $640 million, 3,400-room, tropical-themed resort financed with junk bonds in 1989 by Steve Wynn. Nevada maintains a growth-friendly climate by imposing no personal income or general business taxes (companies pay no corporate income

Power Play: Tesla, Elon Musk, and the Bet of the Century

by Tim Higgins  · 2 Aug 2021  · 430pp  · 135,418 words

institutions that had exposure to the collapse of real estate in Texas, California, and New England. He also found success in shorting Michael Milken’s junk-bond kingdom. His run saw his fund rise at twice the rate of what the S&P Index did in the same years, more than quadrupling

Word Freak: Heartbreak, Triumph, Genius, and Obsession in the World of Competitive ScrabblePlayers

by Stefan Fatsis  · 27 Jul 2001  · 385pp  · 25,673 words

part of it. But I’d written hundreds of stories in my career, and I’d never wanted to do what my subjects did: sell junk bonds or prosecute white-collar criminals or negotiate athlete contracts or run minorleague baseball teams. Scrabble turned out to have a deeper connection. It recalled childhood

Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs

by Andy Kessler  · 1 Feb 2011  · 272pp  · 64,626 words

iPhone iPod iTunes Jenkins, Holman Jobs Creators eliminating with technology licensed occupations replacing with technology Servers Slackers Slimers Sloppers Sponges Super Sloppers Thieves Jobs, Steve Junk bonds Kamangar, Salar Katzenberg, Jeffrey Keynes, John Maynard Kindle Kittler, Fred Kluge, John Lawyers, as Sponges Lehman Brothers bankruptcy Licenses, employment-related LinkedIn Livingston, Robert Longshoremen

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

by William Thorndike  · 14 Sep 2012  · 330pp  · 59,335 words

active in a variety of investing areas outside of traditional equity markets. In 2003, he made a large ($7 billion) and very lucrative bet on junk bonds, then enormously out of favor. In 2003 and 2004, he made a significant ($20 billion) currency bet against the dollar, and in 2006, he announced

Hard Landing

by Thomas Petzinger and Thomas Petzinger Jr.  · 1 Jan 1995  · 726pp  · 210,048 words

they agreed to talk over dinner at a family steak house in St. Paul. Wolf was so intent on selling Republic that he met with junk-bond impresario Michael Milken to plan a hostile takeover of Northwest, should it prove necessary to provoke Northwest into making a defensive acquisition. But Rothmeier, it

The Unbearable Lightness of Scones

by Alexander McCall Smith  · 31 Dec 2007  · 380pp  · 111,795 words

or at some stage in the future. That sounded so greedy, he thought; the sort of thing that fat cats took, or the sellers of junk bonds, or speculators in currency. They took profits and gobbled them up in the way in which a greedy person cuts off the best part of

Philanthrocapitalism

by Matthew Bishop, Michael Green and Bill Clinton  · 29 Sep 2008  · 401pp  · 115,959 words

causes that the superrich feel a responsibility to address often start with a personal experience. This was certainly true of disgraced-but-still-rich former “junk bond king” Michael Milken. The man who is often seen as the epitome of 1980s financial greed suffered from prostate cancer in the 1990s and has

Ludicrous: The Unvarnished Story of Tesla Motors

by Edward Niedermeyer  · 14 Sep 2019  · 328pp  · 90,677 words

.2 billion, 20 percent more than planned.” Reuters, March 17, 2017. https://www.reuters.com/article/us-tesla-offering-idUSKBN16O1NH; Evelyn Chang. “Tesla’s first junk bond offering is a hit, but now Elon Musk must deliver.” CNBC, August 11, 2017. https://www.cnbc.com/2017/08/11/tesla-debt-offering-raised

Bit Rot

by Douglas Coupland  · 4 Oct 2016

! Modern culture since 1900 has been about the relentless homogenizing of anything that can be homogenized: pig byproducts into hot dogs; coffee into Nespresso capsules; junk bonds into hedge funds. In this spirit of investigation, I began to wonder, “What, then, does money homogenize?” The average person with a high school education

The System: Who Rigged It, How We Fix It

by Robert B. Reich  · 24 Mar 2020  · 154pp  · 47,880 words

Committee, aimed to curb the takeover frenzy. His bill would also have given management more leeway to protect their companies against takeovers financed by risky (junk) bonds. Beryl Sprinkel, then chair of Reagan’s Council of Economic Advisors, testified against Proxmire’s bill, telling the banking committee that the takeovers were making

The Impulse Society: America in the Age of Instant Gratification

by Paul Roberts  · 1 Sep 2014  · 324pp  · 92,805 words

looked for struggling companies whose sagging share price made them a bargain, quietly bought up a controlling stake (usually with high-interest loans, known as “junk bonds”), and then began what was euphemistically referred to as “restructuring.” In some cases, the raiders—epitomized by flashy characters such as bond trader Carl Icahn

Masters of Management: How the Business Gurus and Their Ideas Have Changed the World—for Better and for Worse

by Adrian Wooldridge  · 29 Nov 2011  · 460pp  · 131,579 words

, cheaper, more reliable goods through “lean” production based on teamwork, which avoided both the alienation and the waste of Sloan’s system. Michael Milken, the junk bond king, and Michael Jensen, the leading theoretician of shareholder value, opened the second front, demonstrating that Sloanism had allowed many American firms to be hijacked

Make Your Own Job: How the Entrepreneurial Work Ethic Exhausted America

by Erik Baker  · 13 Jan 2025  · 362pp  · 132,186 words

’s Michael Milken, the highest-compensated man in America in the late 1980s—to amass capital from institutional investors by selling high-risk, high-yield “junk bonds,” and then use the capital to buy the target corporation, restructure it, and sell it for a profit.28 Consultants invoked the specter of hostile

The Age of Entitlement: America Since the Sixties

by Christopher Caldwell  · 21 Jan 2020  · 450pp  · 113,173 words

mix of high philosophy and low tactics. It cut deadwood out of the New Deal economy and guided American institutions as they began using computers, junk bonds, non-unionized labor, and outsourcing to re-establish the economy on different bases. It secured for another generation of Americans the exorbitant privilege of using

The Long Boom: A Vision for the Coming Age of Prosperity

by Peter Schwartz, Peter Leyden and Joel Hyatt  · 18 Oct 2000  · 353pp  · 355 words

, were used in new ways to assess risk and to create increasingly sophisticated financial packages. So we saw the appearance of new financial products like junk bonds and derivatives, as well as the proliferation of increasingly specialized mutual funds. More powerful computers allowed experimentation in computer models of the market that led

Time Lord: Sir Sandford Fleming and the Creation of Standard Time

by Clark Blaise  · 27 Oct 2000  · 240pp  · 75,304 words

created them. New wealth—dirty money, literally and figuratively—was won in high-stakes, high-risk operations in dangerous places. Bribes had to be paid, junk bonds floated, buffalo herds and recalcitrant Indians removed from the right-of-way by any means available. Consolidation and monopolization, starving out the competition, forcing mergers

The Meritocracy Myth

by Stephen J. McNamee  · 17 Jul 2013  · 440pp  · 108,137 words

criminal) totaling $65 billion is one particularly noteworthy example. Other examples include the notorious and illegal stock manipulations of Ivan Boesky (deal stocks), Michael Milken (junk bonds), and Charles Keating (the savings-and-loan scandal); corporate wrongdoing, including ethics scandals at Enron, WorldCom, Arthur Andersen, Adelphia, Global Crossing, Tyco, and many others

The Weather Makers: How Man Is Changing the Climate and What It Means for Life on Earth

by Tim Flannery  · 10 Jan 2001  · 427pp  · 111,965 words

more than a few centuries. In effect, by trading coal storage for tree storage of carbon, we are exchanging a gilt-edged guarantee for a junk bond. It’s clear that engineering solutions to the carbon problem have proved to be neither as straightforward nor as cost effective as industry would like

Hiding in Plain Sight: The Invention of Donald Trump and the Erosion of America

by Sarah Kendzior  · 6 Apr 2020

. You would know on a gut level that your story would never be viewed with sympathy, because sympathy was for suckers now. Sympathy was a junk bond emotion. Sympathy was reserved for only the most virtuous victims—and even then, they always implied, it must have been the victim’s fault. Occasionally

Saudi America: The Truth About Fracking and How It's Changing the World

by Bethany McLean  · 10 Sep 2018

. You might think of McClendon as a bit of J. R. Ewing, the fictional character in the television series Dallas, mixed with Michael Milken, the junk bond king who pioneered an industry and arguably changed the world, but spent several years in prison after pleading guilty to securities fraud. Over and over

Good Economics for Hard Times: Better Answers to Our Biggest Problems

by Abhijit V. Banerjee and Esther Duflo  · 12 Nov 2019  · 470pp  · 148,730 words

countries and the United States? A part of the answer is finance. The US and UK dominate the “high end” of finance—the investment banks, junk bonds, hedge funds, mortgage-backed securities, private equity, quants, etc.—and this is where many of the astronomical earnings have shown up in recent years. Two

They All Came to Barneys: A Personal History of the World's Greatest Store

by Gene Pressman  · 2 Sep 2025  · 313pp  · 107,586 words

, art, fashion, excess. The markets were booming. Stocks were up, and corporate raiders were the new antiheroes. The leveraged buyout was invented; so was the junk bond. A new downtown art scene, centered in SoHo, was flush with interest and cash. We were entering the era memorialized in Oliver Stone’s Wall

Social Life of Information

by John Seely Brown and Paul Duguid  · 2 Feb 2000  · 791pp  · 85,159 words

, allowing its parent company to double revenues and split stocks in the four years since its IPO in December 19944 From freelancing professors to the junk bond king Michael Milken, people are realizing that there is serious money to be made in education. For-profit colleges compete in particular with smaller, less

They Have a Word for It A Lighthearted Lexicon of Untranslatable Words & Phrases-Sarabande Books (2000)

by Howard Rheingold  · 10 Mar 2020

traits, such as humor, irony, and pathos. When two opposing business leaders go head to head on Wall Street, they do it with hostile takeovers, junk bonds, and attorneys. When they do it in the Trobriand Islands, they use a particular ritual that one anthropologist noted produced more fear and anxiety than

Too Much and Never Enough: How My Family Created the World's Most Dangerous Man

by Mary L. Trump  · 13 Jul 2020  · 269pp  · 72,752 words

$29 million and then, in 1989, the Eastern Air Lines Shuttle for $365 million. In 1990, he’d had to issue almost $700 million in junk bonds, carrying a 14 percent interest rate, just to finish construction on his third casino, the Taj Mahal. It seemed as if the sheer volume of

Filthy Rich: A Powerful Billionaire, the Sex Scandal That Undid Him, and All the Justice That Money Can Buy: The Shocking True Story of Jeffrey Epstein

by James Patterson, John Connolly and Tim Malloy  · 10 Oct 2016  · 234pp  · 63,844 words

that Jeffrey Epstein moved in, philandering wasn’t seen as a vice. Epstein came of age just as industrywide deregulation took hold on Wall Street. Junk bonds were king. Call girls were charging ten thousand dollars a night. And in the shadows, you’d see things that would have made Caligula blush

Bad Company

by Megan Greenwell  · 18 Apr 2025  · 385pp  · 103,818 words

lead to the company’s collapse. The infamous case also resulted in a prison sentence for executive Michael Milken, who had become known as the “junk bond king” for his use of risky debt to finance leveraged buyouts. But the scandal didn’t taint Drexel’s reputation as the prime breeding ground

Toast

by Stross, Charles  · 1 Jan 2002

oracle programs—I figured it would produce the goods, a linear-order performance boost in type IV fast-thinkers, within five mind-years—leveraged off junk bonds issued in Capone City. According to my Bayesian analysers nothing should go wrong in the fifteen seconds I was over-extended. Only it was just

The Numerati

by Stephen Baker  · 11 Aug 2008  · 265pp  · 74,000 words

his team are turning us into symbols so that we can take our place in new human markets. Just the way brokers run portfolios of junk bonds or emerging market stocks, the Numerati are dropping us into portfolios of people. It's happening in industry after industry. Alamo Rent A Car, for

Family Trade

by Stross, Charles  · 6 Jan 2004  · 359pp  · 98,396 words

really glad you're taking it so calmly. For me, I put in three years and nothing to show for it but hard work and junk bonds—then some asshole phoned me and warned me off. How about you? Have you had any trouble?" Paulette peered at her curiously. "What kind of

The Unknowers: How Strategic Ignorance Rules the World

by Linsey McGoey  · 14 Sep 2019

you is, don’t be the first guy through the door because you’re going to get all the arrows,’ Bannon said. ‘If it’s junk bonds, let Michael Milken lead the way.’ He added that one of Goldman’s strongest principles is ‘never lead in any product. Find a business partner

What Makes Narcissists Tick

by Kathleen Krajco

, after all a con artist) can be robbing the place blind under cover of it. For example, some of those who conducted the Savings-&-Loan junk-bond schemes got away with it by conducting a reign of terror in the workplace. People ducking that wildly swinging axe (that blackballs as well as

Commuter City: How the Railways Shaped London

by David Wragg  · 14 Apr 2010  · 369pp  · 120,636 words

rose to 1.5 per cent in 1937, it disappeared once again in 1938! It would be unfair to describe railway stock in 1938 as junk bonds, but it took an act of faith, even of blind optimism, for anyone to consider investing in the railways. The directors and managers of the

Broad Band: The Untold Story of the Women Who Made the Internet

by Claire L. Evans  · 6 Mar 2018  · 371pp  · 93,570 words

and forming words which I couldn’t read.” When she moved to New York in 1985—during the “Donald and Ivana Trump, merger-and-acquisition, junk-bond boom-time”—she discovered BBS culture, and The WELL. “Oh my God,” she thought. “This is just like PLATO but with interesting people!” She was

Sickening: How Big Pharma Broke American Health Care and How We Can Repair It

by John Abramson  · 15 Dec 2022  · 362pp  · 97,473 words

of their own companies. Both takeovers and buyouts required borrowing vast amounts of capital, typically provided by loans in the form of high-yield or “junk” bonds. In any case, corporate executives came under great pressure to squeeze out all the profits possible for shareholders and other investors; if they didn’t

Losing the Signal: The Spectacular Rise and Fall of BlackBerry

by Jacquie McNish and Sean Silcoff  · 6 Apr 2015  · 327pp  · 102,322 words

the number one destination of any aspiring finance grad. It was the nerve center of what was then the biggest corporate takeover binge in history. Junk bonds, buyout barbarians, and Michael Milken were such household names that Hollywood named a blockbuster movie Wall Street. Balsillie’s Harvard peers had never heard of

Bitcoin Billionaires: A True Story of Genius, Betrayal, and Redemption

by Ben Mezrich  · 20 May 2019  · 304pp  · 91,566 words

investment bank created in 1935 that had gone bankrupt fifty-five years later, in 1990, following the indictment of its rainmaker Michael Milken, dubbed the Junk Bond King. So Mellon had been born to banking royalty—and with that came all the ups and downs one would imagine. His father had killed

Does Capitalism Have a Future?

by Immanuel Wallerstein, Randall Collins, Michael Mann, Georgi Derluguian, Craig Calhoun, Stephen Hoye and Audible Studios  · 15 Nov 2013  · 238pp  · 73,121 words

payments were the trigger for Solidarność. The next set of debtors was the wave of large corporations which, beginning in the 1980s, issued the famous junk bonds as a means of overcoming their liquidity problems. This led to acquisitions by a group of ravenous investors, who made their money by stripping the

Darwin's Dangerous Idea: Evolution and the Meanings of Life

by Daniel C. Dennett  · 15 Jan 1995  · 846pp  · 232,630 words

be a logger, we devalue his investment overnight, just as surely as — more surely, in fact, than — if we converted his life savings into worthless junk bonds.) At what "point" does a human life begin or end? The Darwinian perspective lets us see with unmistakable clarity why there is no hope at

The Docks

by Bill Sharpsteen  · 5 Jan 2011  · 326pp  · 29,543 words

an overhead television that buzzes and pops from poor reception. While he flosses, Henry, a Hawaiian in his late thirties, begins a rambling dissertation on junk bonds. At the moment, the boat isn’t moving, just idling at the Mol Endurance’s stern. Privette and a trainee, Jim Brown, are waiting for

A Theory of the Drone

by Gregoire Chamayou  · 23 Apr 2013  · 335pp  · 82,528 words

changes from being intentional to being unintentional, from being a war crime to being a military-industrial accident. Rather, as in the case of the “junk bonds” skillfully elaborated by finance, it becomes very difficult to determine who is who or who has done what. This is a typical way of fabricating