Milken Only Enriched Himself

Posted: April 04, 1989

The Wall Street Journal has done its sums. Taking Michael Milken's salary for 1987, it has figured that he made $1.5 million a day or $107,000 an hour. He paid off his annual Social Security payment while brushing his teeth. He earned more in a year than it cost to build a B1 bomber, launch a space shuttle or, given some extrapolation, buy the territory that we now call the Louisiana Purchase. Milken made $550 million in 1987.

The salary figure was contained in the indictment filed against Milken by the U.S. attorney's office in New York last week. The Drexel Burnham Lambert trader, this Wall Street alchemist who turned junk bonds into gold, is accused of a bevy of crimes, among them inside trading. Outside or inside, in three years Milken was paid more than $1 billion. John D. Rockefeller should have done so well. In fact, the Journal said Rockefeller didn't.

But Rockefeller was merely in oil. Milken is in something else - the floating of junk bonds with which corporations are reorganized, sometimes bought, sometimes taken private by their managers. Guilty or innocent, the man stands supreme among Wall Street financiers - a Midas who is said to be worth maybe more than $1 billion. In his behalf, it must be said he works long hours.

The staggering sums, the incredible wealth, brings to mind Scrooge McDuck, that comic-book character who drove a bulldozer around his vault, arranging his money. His constant dilemma was what to do with all his loot. It was spilling out the vault and, even, out of the house. The troubles of Scrooge McDuck were awesome. But where his wealth came from was anyone's guess.

It is, however, easier to explain the riches of a comic-book character than that of Michael Milken. The floating of junk bonds aside, the man produces nothing. He has invented nothing. He manufactures nothing. He has dug no wells, cut no record, made no movie. But the people who have done those things - even the most incredibly successful of them (Michael Jackson, $60 million last year) cannot approach the wealth of Milken.

Milken's friends and associates also say that he is one swell fellow. In full-page newspaper ads (you expected something less?) they say, "Mike Milken, we believe in you." As well they should. Milken has made some of them wealthy. But what he has done for the rest of us is a matter of dispute. Without him, the recent wave of hostile corporate takeover and leveraged buyouts may never have happened. Whether that is a good thing or not, I leave to you.

Take the case of the Fruehauf Corp., for many a year the maker of truck trailers. Successful, indeed king of the road, it had those certain somethings that attract Wall Street raiders: cash in the bank and an undervalued stock. A raider, Asher Edelman, made a pass at it, but Fruehauf's management fought back. With the assistance of Merrill Lynch, the firm was taken private three years ago - and into the toilet.

Fruehauf has sold various divisions. It has fired oodles of employees, given others early retirement and is saddled with enormous debt - $101 million annually in payments. Things are so bad at the old trailer company that even some former executives lost money on their deal. But not Merrill Lynch. It invested $10.5 million in Fruehauf, but has so far "earned" $54.6 million in fees.

Something is terribly wrong here. A catastrophic deal in which a once thriving company is nearly destroyed and many jobs lost should not turn anyone a profit. But too often that is the case. Corporations are being turned upside down for the change in their pockets. They are leveraged, which is a fancy way of saying put into debt. The money borrowed is not used to produce a new product or invested in research, it goes to finance the deal. The deal - not the product - is now king in America.

Who can blame the young and the restless if they go into the demolition of companies, rather than the building of them? Indeed, who can blame them if they ignore warnings that corporate debt is crushing and that if a recession comes, it will bust many companies? There's more money to be made in the demolition of a company than the building of it.

In E. L. Doctorow's wonderful novel, "Billy Bathgate," the psychotic mobster Dutch Schultz becomes the benefactor of the small town where his trial is to be held - and is exonerated. In a similar way, Michael Milken has discovered the virtues of public relations. Once a recluse, he has emerged as a fund-raiser on the charity circuit. But he might serve his cause better if he admitted he was grossly overpaid, that the system he perfected has gone haywire and that - if the court pleases - he'll take the money he has left so that he can start a company and put people to work.

Of course, he'd have to take a pay cut.

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