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Michael Milken: Political Prisoner

Michael R. Milken: Political Prisoner?
by Liewellyn H. Rockwell

The Dom Perignon must be flowing in the boardrooms of New York: the feds finally got the kid from Encino.

To avoid a worse fate, Michael R. Milken agreed to say he was guilty of six regulatory offenses, manufactured transgressions typical of the Mice-in-Wonderland world of big government.

Crimes are supposed to have victims. But who exactly was harmed by the dread offense of "stock parking?"

Yet Milken will pay a $600 million fine and be sen­tenced to prison with other "white-collar criminals." After a years-long federal envy campaign, he felt he would be convicted by a Bonfire of the Vanities jury for being rich. But he kept his brother Lowell out of jail and avoided 28 years in a federal pen where homosexual rape is the major pursuit, and AIDS, the normal blood condition.

David Rockefeller, said the New York Times, had been furious over Milken's earnings. They indicated "some­thing unbalanced" in "our financial system." Indeed, when it comes to unbalancing the status quo that has served Rockefeller so well, Milken is guilty.

His entrepreneurial discovery was the use of high-yield bonds (called "junk" by his old-line competitors) to finance corporate takeovers. In the past, would-be raid­ers had to get financing from such big banks as Rockefeller's Chase Manhattan. This meant profits and control, both of which shrunk with the advent of Milken.

In the reduced competition of a regulated economy, corporate managers tend to put their own interests before the stockholders. If an entrepreneur can get fi­nancing, he can take over the company—that is, buy It from its owners—and try to improve it. Everyone benefits, except the tossed-out managers.

Managers of big corporations. not surprisingly, hate and fear this process. And they lobbied to pass the Williams Act introduced by Harrison Williams (D-NJ), later convicted as a bribe taker. This law requires anyone buying more than 5% of a company's shares to stop and announce his intentions. This raises the price of the shares, as intended, making it far more expensive to acquire control. It also gives management time to erect barriers ("greenmail" and "poison pills") to thwart the will of stockholders who might want to sell.

The Williams Act and related regulations worked all too well. For more than a decade, there were few chal­lenges to the ensconced managements of big companies, and U.S. competitiveness  nosedived. But in the early eighties, a group of outsiders like Carl C. Icahn and T. Boone Pickens were able to challenge the system, thanks to Milken.

As the London Financial Times noted, this made Milken "enemies all over corporate America." Not surpris­ingly, said the Washington Post, since he was an "an adversary of Wall Street's leading investment firms and blue-chip corporations."

Milken was "the ultimate outsider," working 3,000 miles away in Drexel Burnharn Lambert's Los Angeles office, said the New York Times, living a "relatively mod­est life" while donating "hundreds of millions of dollars to charity.

But didn't he make too much money? In a free market, such a question makes no sense. Milken single­handedly raised Drexel from a third-tier firm to one of the giants. It was happy to pay for the results, although it too has been destroyed in the government's anti-Milken vendetta, with thousands of people losing their jobs.

The humiliation of Michael Milken "will send the right message to the financial community," said Assistant Attorney General John Carroll. Exactly. Don't rock the boat. And don't threaten entrenched interests.

If we had a free-market Amnesty International, Mi­chael Milken would be listed as a political prisoner of special-interest big government.

Richard Breeden, head of the SEC. says that Milken "stood at the center of a network of manipulation, fraud, and deceit." To me, that sounds like a good working definition of Washington, D.C.


Llewellyn H. Rockwell, Jr. is president of the Mises Institute. This essay appeared in The Economics of Liberty (Auburn: Mises Institute, 1990) pp. 70-72.