What do you think?
Rate this book
Payback: Conspiracy to Destroy Michael Milken and His Financial Revolution, The
Charges that the Wall Street trader and others were wrongfully prosecuted by a nervous corporate establishment
352 pages, Paperback
First published October 9, 1996
13 people are currently reading
84 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 3 of 3 reviews
June 14, 2023
Payback — The Conspiracy to Destroy Michael Milken And His Financial Revolution
Daniel Fischel, ©1995, 332 pages
A short Book Report by Ron Housley (6.14.2023)
A generation ago Michael Milken found himself destroyed by the press, destroyed by the courts, destroyed by Rudolph Giuliani. Controversy has swirled around the Milken story ever since — and once the smoke had cleared, some felt that Giuliani had acted at the height of immorality when he had Michael Milken perp-walked in order to pad his own résumé as a future political candidate. Others were focused on seeing Milken as a genius beyond his years, cut down in his prime by out-of-control political ambitiousness.
The press, the political class and Establishment bankers felt that Milken’s demise was the equivalent of being saved from Satin himself.
I have heard the stories for decades now; and I thought it was time to look deeper into the details of what actually happened. Daniel Fischel’s “Payback,” written over 25 years ago, is the story of what happened during the restructuring revolution of the 1980s.
Right out of the gate in Chapter 1, Fischel asks what for me was the central question: What was accomplished by the hostile corporate takeovers of the 1980s? Was it true that the corporate restructuring was bad for America, bad for those who lost their jobs, and not in any way good for overall prosperity — and that it was merely a way for the new crop of “robber barons” to drain wealth into their own pockets?
Was the media hype correct that something must be done to stop all the “fruitless paper-shuffling deals” benefiting only the greedy speculators? After all, that’s the same story we were all told about the Great Depression, where the depression was wrongly framed as the consequence of “greedy speculators.” I found myself asking: has the corporate raider story fallen victim to the same type of “spin?” How has the culture come to judge what transpired back in the 1980s when Michael Milken and the boys figured out how to completely reinvent fundamental financial arrangements?
This book was a difficult read for me, in the sense that it’s stressful to be on the edge of the seat for an entire movie. “Payback” was like one of those chase scenes where we all knew that the hero was going to get his legs chopped off in the end, but we were committed to watching until the final reel had played.
JUNK “EQUITY” VS. JUNK BONDS
There was always something suspicious, to me, about the expression, “junk bonds.” Why were critics embracing the term, “junk,” to describe a financial vehicle that was so successful in the marketplace? It turned out that many corporate stocks were more risky and hence “junky” than the high-yield bonds which critics denigrated with the label, “junk.” But nobody talked about “junk equity.” The “objective was not conceptual clarity but inflaming public opinion.” (p. 30)
THE ESTABLISHMENT VS. MICHAEL MILKEN
Once Michael Milken had enlisted legions of individual investors to buy his high-yield bonds, circumventing traditional investment banks as the source of funding, the Establishment bankers decided that it was “unfair” that Milken’s new model was passing them by. Battle lines were drawn. Scapegoats were invented. The enemy was branded as “junk;” public opinion was marshalled; and new legal tools were invented to destroy Milken’s brilliant innovation.
The Establishment bankers hatched a plan to make the new bond market illegal. They would enlist the coercive gun of government to accomplish what they could not achieve themselves in the marketplace. “The usual approach is to equate the competitive threat to you with injury to society, exaggerate the magnitude of the danger….and then claim regulation is the only solution.” (p. 35)
They would spearhead a campaign to destroy Milken, along with the creative financial instruments which were literally saving America from its orgy of mismanagement and inefficient use of capital.
REALLOCATING CAPITAL
This was the decade when it was commonly thought that America could never catch up with the stunningly successful Japanese. It was not widely understood how massively inefficient the American conglomerates had become, and how addressing capital inefficiency was key to international competition and was also key to the growth of America itself.
Entire new economic sectors were being created by the new financial instruments, particularly in telecommunications (think MCI) and health care. This was the moment in history when Silicon Valley was in need of investment capital; and if the new digital age were to blossom, the capital would have to come from where it was being less efficiently deployed — such as companies ripe for a takeover.
PLANS TO DESTROY THE INNOVATORS
During the mid-1980s the Establishment bankers tried to get legislation passed to outlaw both takeovers and “junk bonds.” But the legislative fervor died out in the aftermath of the 1987 stock market “crash,” when no politician wanted to be seen as fomenting a crisis by threatening to regulate business. In the end, the Reagan administration felt that corporate takeovers were a good way to reallocate capital that was inefficiently deployed; and also a good way to hold ineffective managers to account. For the Establishment bankers there would be no legislative guillotine — they would have to concoct a Plan B to dethrone Milken and the company he made famous: Drexel.
Their Plan B took the form of transforming nearly 200 years of insider trading into some brand new bogeyman, suddenly framing insider trading as the very center of corruption threatening to destroy confidence in America itself. Insider trading was not thought to have crippled investment in all the decades prior to the new 1968 regulation against it, before which time there had been many decades of investment prosperity. But if a huge public relations campaign could drum up support against insider trading, then there would be acceptance of Giuliani’s government lynch mob which would ultimately destroy Milken and the others, restoring the Establishment bankers to positions of dominance which they were unable to earn on their own in market competition. “…the old-line investment houses were glad to see ‘the upstarts’ put in their place by government prosecutors.” (p. 111)
Practically overnight, relatively minor regulatory offenses had been criminalized so that Milken and his cohort could be arrested and sent to jail — eliminating the Establishment bankers’ chief competitor.
AUTHOR’S BONA FIDES
Daniel Fischel has a good grasp of how the whole thing worked back 40 years ago. He comes to his book with prestigious legal bona fides, including a clerkship stint with a Supreme Court justice, a law school professorship, a slew of published academic papers and a term as a law school dean. He knows the ins and outs of how the government turned a week and dubious case into jail sentences; he knows how powerful bureaucrats can deliberately ruin innocent lives; he knows how threats and the specter of personal ruin can force defendant compliance; he knows how the vendetta game can dominate the halls of power.
GIULIANI’S “REIGN OF TERROR”
Giuliani wanted the political glory of catching the “big fish” — he wanted to take down Michael Milken. Along the way a slew of smaller defendants, including Ivan Boesky, were rounded up, intimidated, “persuaded” to cooperate with government prosecutors. Daniel Fischel called this march to justice “Giuliani’s Reign of Terror.” Individual rights were trampled; threats were made; intimidation became a finely honed government tool — mostly in behalf of buying Giuliani public favor for some future election to public office.
The defendants were being accused of things like insider trading and stock manipulation, “crimes” that had never been defined. For instance, it was considered “stock manipulation” if you invested in a stock while thinking that your purchase would trigger a buying spree to drive up the price; but if you didn’t “think” that your purchase would do that, then the very same trade was not “stock manipulation.” In the case of Ivan Boesky, an early defendant who was “persuaded” to point the accusing finger at Milken, even Giuliani himself admitted:“At the time Boesky decided to plead guilty, the case against him was extremely weak.” (p. 109) and “Boesky never would have been convicted if had he not agreed to plead guilty.” (p. 110)
Giuliani became the poster-boy for prosecutorial excess when he concocted the plan to get sweeping new powers by turning the racketeering laws against Wall Street investment bankers. The violation of individual rights was so bad that the Justice Department ultimately put an end to such a practice, but only after Giuliani had wreaked havoc and destroyed lives.
The RICO laws were hatched by politicians as rights-violating statutes to stop mob violence and organized crime. Those laws gave Giuliani the power to bankrupt entire investment firms by confiscating their assets — robbing the accused of the opportunity to properly defend themselves. The vaguely drafted language of those laws became “a potent weapon to rubber-hose and coerce guilty pleas and punish those who refused to cooperate.” (p. 122)
In the end, Giuliani was able to extract capitulations without a fight, since putting on a defense meant personal ruin. He was able to trigger rounds of dominoes-style guilty pleas. He was able to use a law aimed at mob violence to drive entire investment firms (think Princeton/Newport; Drexel) out of business — by driving away their clients and by confiscating their assets. “The most talented lawyers in the world can do little when the government decides to criminalize routine business practices and declare them to be major felonies.” (p. 102)
DESTROYING DREXEL
It was painful to read about what they did to Drexel Burnham Lambert. Threats of destruction using RICO confiscations; government leaking of insider information to the press in a case which was supposedly all about misusing insider information; bypassing the customary lottery system for assignment of judges, in order to get a “hanging judge” who would deny disclosure of evidence to the Drexel defense — they embraced tactics of a police-state; they stacked the deck to destroy Drexel along with many who just happened to be in smelling distance.
DESTROYING MICHAEL MILKEN
It was even more painful to read how they “went after” Milken personally. The government had a weak case, so their success required a guilty plea that would allow them to ride roughshod all the way to prison without risking a public trial. When Milken at first was prepared to defend himself, Giuliani threatened to expand the indictment, to line up many years of prosecutions, to involve Milken’s brother as a defendant, to bring RICO racketeering charges so that the government could seize all of Milken’s wealth in order to disable any hope of a defense. There was even a line-up of clients who Milken had made rich, prepared to testify against Milken in exchange for favorable treatment by the government. Giuliani needed a guilty plea.
The actual indictment included a section highlighting Milken’s extraordinarily high financial compensation, but never even claimed any connection to the alleged “crimes.” The purpose was to pander to the anti-rich mentality that was assured in any 1980s jury pool.
THE PUBLIC IN THE DARK
The public remained largely in the dark that its own government was pulling all the strings here, not Milken.
Politicians were frantic to save the S&Ls (Savings & Loans) which were on the brink of extinction in the early 1980s. Hoping to save the S&Ls, politicians changed regulations (such as encouraging S&Ls to invest in high-yield bonds), but even that was too late to save the day.
When the S&Ls finally did fail, the politicians were not about to accept blame for their own regulations. Instead, they would launch a PR campaign to blame Milken’s high-yield bonds (even though they accounted for less than 1% of the S&Ls investment portfolio). They would ignore and dismiss their own GAO (Government Accounting Office) report that high-yield bonds had actually benefited the S&Ls and were not a factor in the downfall.
The public came out of the era convinced that Milken had “milked” the S&Ls of their capital; the public was content with the story which the politicians had concocted to blame it all on Milken. A scapegoat put a public face on a government-created failure. After all, politicians did not want to get blamed at the polls.
THIRTY-THOUSAND FOOT PERSPECTIVE
As I painfully digested the machinations of Giuliani’s inquisition, it struck me that it was as if he had known to do the groundwork that would be needed for “deep state” excesses to also garner public acceptance 30 years later. The Drexel/Milken prosecution was like setting the stage for a new type of egregious government behavior that would become accepted as normal.
Early in the story I began asking myself whether Milken’s innovative approach in the restructuring revolution might have been the magic potion the country needed to survive the Japanese competitive onslaught. The very heart of Milken’s genius was routing out corporate rot, as well as beginning the process that ultimately funded Silicon Valley. It is no coincidence that Silicon Valley burst upon the scene at the same time the Rust Belt turned into rust. The restructuring revolution was part of the wealth transfer that made it all happen.
But it looks from here as if a wrongfully drawn portrait of Michael Milken, as villain rather than hero, has been permanently burned into the public consciousness. The few who invest the effort to digest evidence which Daniel Fischel offeres up in this 1995 accounting may be able to draw a better conclusion.
Daniel Fischel, ©1995, 332 pages
A short Book Report by Ron Housley (6.14.2023)
A generation ago Michael Milken found himself destroyed by the press, destroyed by the courts, destroyed by Rudolph Giuliani. Controversy has swirled around the Milken story ever since — and once the smoke had cleared, some felt that Giuliani had acted at the height of immorality when he had Michael Milken perp-walked in order to pad his own résumé as a future political candidate. Others were focused on seeing Milken as a genius beyond his years, cut down in his prime by out-of-control political ambitiousness.
The press, the political class and Establishment bankers felt that Milken’s demise was the equivalent of being saved from Satin himself.
I have heard the stories for decades now; and I thought it was time to look deeper into the details of what actually happened. Daniel Fischel’s “Payback,” written over 25 years ago, is the story of what happened during the restructuring revolution of the 1980s.
Right out of the gate in Chapter 1, Fischel asks what for me was the central question: What was accomplished by the hostile corporate takeovers of the 1980s? Was it true that the corporate restructuring was bad for America, bad for those who lost their jobs, and not in any way good for overall prosperity — and that it was merely a way for the new crop of “robber barons” to drain wealth into their own pockets?
Was the media hype correct that something must be done to stop all the “fruitless paper-shuffling deals” benefiting only the greedy speculators? After all, that’s the same story we were all told about the Great Depression, where the depression was wrongly framed as the consequence of “greedy speculators.” I found myself asking: has the corporate raider story fallen victim to the same type of “spin?” How has the culture come to judge what transpired back in the 1980s when Michael Milken and the boys figured out how to completely reinvent fundamental financial arrangements?
This book was a difficult read for me, in the sense that it’s stressful to be on the edge of the seat for an entire movie. “Payback” was like one of those chase scenes where we all knew that the hero was going to get his legs chopped off in the end, but we were committed to watching until the final reel had played.
JUNK “EQUITY” VS. JUNK BONDS
There was always something suspicious, to me, about the expression, “junk bonds.” Why were critics embracing the term, “junk,” to describe a financial vehicle that was so successful in the marketplace? It turned out that many corporate stocks were more risky and hence “junky” than the high-yield bonds which critics denigrated with the label, “junk.” But nobody talked about “junk equity.” The “objective was not conceptual clarity but inflaming public opinion.” (p. 30)
THE ESTABLISHMENT VS. MICHAEL MILKEN
Once Michael Milken had enlisted legions of individual investors to buy his high-yield bonds, circumventing traditional investment banks as the source of funding, the Establishment bankers decided that it was “unfair” that Milken’s new model was passing them by. Battle lines were drawn. Scapegoats were invented. The enemy was branded as “junk;” public opinion was marshalled; and new legal tools were invented to destroy Milken’s brilliant innovation.
The Establishment bankers hatched a plan to make the new bond market illegal. They would enlist the coercive gun of government to accomplish what they could not achieve themselves in the marketplace. “The usual approach is to equate the competitive threat to you with injury to society, exaggerate the magnitude of the danger….and then claim regulation is the only solution.” (p. 35)
They would spearhead a campaign to destroy Milken, along with the creative financial instruments which were literally saving America from its orgy of mismanagement and inefficient use of capital.
REALLOCATING CAPITAL
This was the decade when it was commonly thought that America could never catch up with the stunningly successful Japanese. It was not widely understood how massively inefficient the American conglomerates had become, and how addressing capital inefficiency was key to international competition and was also key to the growth of America itself.
Entire new economic sectors were being created by the new financial instruments, particularly in telecommunications (think MCI) and health care. This was the moment in history when Silicon Valley was in need of investment capital; and if the new digital age were to blossom, the capital would have to come from where it was being less efficiently deployed — such as companies ripe for a takeover.
PLANS TO DESTROY THE INNOVATORS
During the mid-1980s the Establishment bankers tried to get legislation passed to outlaw both takeovers and “junk bonds.” But the legislative fervor died out in the aftermath of the 1987 stock market “crash,” when no politician wanted to be seen as fomenting a crisis by threatening to regulate business. In the end, the Reagan administration felt that corporate takeovers were a good way to reallocate capital that was inefficiently deployed; and also a good way to hold ineffective managers to account. For the Establishment bankers there would be no legislative guillotine — they would have to concoct a Plan B to dethrone Milken and the company he made famous: Drexel.
Their Plan B took the form of transforming nearly 200 years of insider trading into some brand new bogeyman, suddenly framing insider trading as the very center of corruption threatening to destroy confidence in America itself. Insider trading was not thought to have crippled investment in all the decades prior to the new 1968 regulation against it, before which time there had been many decades of investment prosperity. But if a huge public relations campaign could drum up support against insider trading, then there would be acceptance of Giuliani’s government lynch mob which would ultimately destroy Milken and the others, restoring the Establishment bankers to positions of dominance which they were unable to earn on their own in market competition. “…the old-line investment houses were glad to see ‘the upstarts’ put in their place by government prosecutors.” (p. 111)
Practically overnight, relatively minor regulatory offenses had been criminalized so that Milken and his cohort could be arrested and sent to jail — eliminating the Establishment bankers’ chief competitor.
AUTHOR’S BONA FIDES
Daniel Fischel has a good grasp of how the whole thing worked back 40 years ago. He comes to his book with prestigious legal bona fides, including a clerkship stint with a Supreme Court justice, a law school professorship, a slew of published academic papers and a term as a law school dean. He knows the ins and outs of how the government turned a week and dubious case into jail sentences; he knows how powerful bureaucrats can deliberately ruin innocent lives; he knows how threats and the specter of personal ruin can force defendant compliance; he knows how the vendetta game can dominate the halls of power.
GIULIANI’S “REIGN OF TERROR”
Giuliani wanted the political glory of catching the “big fish” — he wanted to take down Michael Milken. Along the way a slew of smaller defendants, including Ivan Boesky, were rounded up, intimidated, “persuaded” to cooperate with government prosecutors. Daniel Fischel called this march to justice “Giuliani’s Reign of Terror.” Individual rights were trampled; threats were made; intimidation became a finely honed government tool — mostly in behalf of buying Giuliani public favor for some future election to public office.
The defendants were being accused of things like insider trading and stock manipulation, “crimes” that had never been defined. For instance, it was considered “stock manipulation” if you invested in a stock while thinking that your purchase would trigger a buying spree to drive up the price; but if you didn’t “think” that your purchase would do that, then the very same trade was not “stock manipulation.” In the case of Ivan Boesky, an early defendant who was “persuaded” to point the accusing finger at Milken, even Giuliani himself admitted:“At the time Boesky decided to plead guilty, the case against him was extremely weak.” (p. 109) and “Boesky never would have been convicted if had he not agreed to plead guilty.” (p. 110)
Giuliani became the poster-boy for prosecutorial excess when he concocted the plan to get sweeping new powers by turning the racketeering laws against Wall Street investment bankers. The violation of individual rights was so bad that the Justice Department ultimately put an end to such a practice, but only after Giuliani had wreaked havoc and destroyed lives.
The RICO laws were hatched by politicians as rights-violating statutes to stop mob violence and organized crime. Those laws gave Giuliani the power to bankrupt entire investment firms by confiscating their assets — robbing the accused of the opportunity to properly defend themselves. The vaguely drafted language of those laws became “a potent weapon to rubber-hose and coerce guilty pleas and punish those who refused to cooperate.” (p. 122)
In the end, Giuliani was able to extract capitulations without a fight, since putting on a defense meant personal ruin. He was able to trigger rounds of dominoes-style guilty pleas. He was able to use a law aimed at mob violence to drive entire investment firms (think Princeton/Newport; Drexel) out of business — by driving away their clients and by confiscating their assets. “The most talented lawyers in the world can do little when the government decides to criminalize routine business practices and declare them to be major felonies.” (p. 102)
DESTROYING DREXEL
It was painful to read about what they did to Drexel Burnham Lambert. Threats of destruction using RICO confiscations; government leaking of insider information to the press in a case which was supposedly all about misusing insider information; bypassing the customary lottery system for assignment of judges, in order to get a “hanging judge” who would deny disclosure of evidence to the Drexel defense — they embraced tactics of a police-state; they stacked the deck to destroy Drexel along with many who just happened to be in smelling distance.
DESTROYING MICHAEL MILKEN
It was even more painful to read how they “went after” Milken personally. The government had a weak case, so their success required a guilty plea that would allow them to ride roughshod all the way to prison without risking a public trial. When Milken at first was prepared to defend himself, Giuliani threatened to expand the indictment, to line up many years of prosecutions, to involve Milken’s brother as a defendant, to bring RICO racketeering charges so that the government could seize all of Milken’s wealth in order to disable any hope of a defense. There was even a line-up of clients who Milken had made rich, prepared to testify against Milken in exchange for favorable treatment by the government. Giuliani needed a guilty plea.
The actual indictment included a section highlighting Milken’s extraordinarily high financial compensation, but never even claimed any connection to the alleged “crimes.” The purpose was to pander to the anti-rich mentality that was assured in any 1980s jury pool.
THE PUBLIC IN THE DARK
The public remained largely in the dark that its own government was pulling all the strings here, not Milken.
Politicians were frantic to save the S&Ls (Savings & Loans) which were on the brink of extinction in the early 1980s. Hoping to save the S&Ls, politicians changed regulations (such as encouraging S&Ls to invest in high-yield bonds), but even that was too late to save the day.
When the S&Ls finally did fail, the politicians were not about to accept blame for their own regulations. Instead, they would launch a PR campaign to blame Milken’s high-yield bonds (even though they accounted for less than 1% of the S&Ls investment portfolio). They would ignore and dismiss their own GAO (Government Accounting Office) report that high-yield bonds had actually benefited the S&Ls and were not a factor in the downfall.
The public came out of the era convinced that Milken had “milked” the S&Ls of their capital; the public was content with the story which the politicians had concocted to blame it all on Milken. A scapegoat put a public face on a government-created failure. After all, politicians did not want to get blamed at the polls.
THIRTY-THOUSAND FOOT PERSPECTIVE
As I painfully digested the machinations of Giuliani’s inquisition, it struck me that it was as if he had known to do the groundwork that would be needed for “deep state” excesses to also garner public acceptance 30 years later. The Drexel/Milken prosecution was like setting the stage for a new type of egregious government behavior that would become accepted as normal.
Early in the story I began asking myself whether Milken’s innovative approach in the restructuring revolution might have been the magic potion the country needed to survive the Japanese competitive onslaught. The very heart of Milken’s genius was routing out corporate rot, as well as beginning the process that ultimately funded Silicon Valley. It is no coincidence that Silicon Valley burst upon the scene at the same time the Rust Belt turned into rust. The restructuring revolution was part of the wealth transfer that made it all happen.
But it looks from here as if a wrongfully drawn portrait of Michael Milken, as villain rather than hero, has been permanently burned into the public consciousness. The few who invest the effort to digest evidence which Daniel Fischel offeres up in this 1995 accounting may be able to draw a better conclusion.
January 22, 2023
There are few things in this world more horrendous than the sight of a hero being punished for his success in lifting humanity to new, unprecedented heights. As Prometheus was sentenced to eternal torture for the heroic act of bringing fire to mankind, so did Michael Milken was sickeningly punished for waking up the American market from its sleep.
The book is a brilliant account of how something life-improving and uplifting – high-yield bond market, the takeover and restructuring industry, financial innovation that disrupts inefficient incumbents and challenges everyone in business to be at their best or perish in competition, putting the whole economy and therefore every individual on a path of progress – can be reconceptualized as fraudulent, criminal, greedy, and destructive. And done so with zero real evidence, nill rational argument, by inventing laws and criminal offenses from thin air as you go, exploiting the ignorant sentiment of the public to achieve political success and status, and drawing on the most irrational fear and hatred of economic success and riches of the most productive people among us.
Often people ask why are some of us so skeptical of government, of its intentions, and of its powers to control, regulate, and destroy. The demonstration of the vicious attack on the takeover "artists" of the 80s and especially the genius of Michael Milken should serve as good of an example why as you can expect.
The book is a brilliant account of how something life-improving and uplifting – high-yield bond market, the takeover and restructuring industry, financial innovation that disrupts inefficient incumbents and challenges everyone in business to be at their best or perish in competition, putting the whole economy and therefore every individual on a path of progress – can be reconceptualized as fraudulent, criminal, greedy, and destructive. And done so with zero real evidence, nill rational argument, by inventing laws and criminal offenses from thin air as you go, exploiting the ignorant sentiment of the public to achieve political success and status, and drawing on the most irrational fear and hatred of economic success and riches of the most productive people among us.
Often people ask why are some of us so skeptical of government, of its intentions, and of its powers to control, regulate, and destroy. The demonstration of the vicious attack on the takeover "artists" of the 80s and especially the genius of Michael Milken should serve as good of an example why as you can expect.
May 27, 2023
This book was written by a college professor and it reads like a lecture…a long boring one. The author makes some good points why ignoring a little common sense - what goes up must go down and stocks are a zero sum game. So while i agree with alot of points the author makes this seemed like this was written for someone looking for your typical libertarian slant.
Displaying 1 - 3 of 3 reviews