The Predators' Ball: The Inside Story Of Drexel Burnham And The Rise Of The Junk Bond Raiders (1989) - Plot & Excerpts
Of all the financial industry tell-alls of the 1980s, this has to be the most detailed and comprehensive. While writers like Bryan Burroughs, in books like "Barbarians at the Gate," focused on personalities and relationships, Connie Bruck peaked inside the intricate system of junk bond financing that Michael Miliken pioneered at Drexel Burnham Lambert, and explained how such subtle innovations as refinancing bonds and private placements led him to become the most richly rewarded man in the world, and then, of course, a convicted felon.Bruck presents an admirably balanced picture of Milken, as both a driven genius and an occasionally underhanded dealer. At first, one cannot read the book without admiring Milken's intelligence. Taking the research of W. Braddock Hickman from the 1940s, Milken showed his bosses how buying large, diversified portfolios of low-quality corporate bonds, i.e. "junk bonds," would allow them to outperform the competition. Even if a few defaulted, he argued, the high interest on the whole would be greater than supposedly safe triple-A bonds. More than that, Milken, son of a Los Angeles accountant, had an uncanny ability to divine good companies from their balance sheets and statements, and very few of his supposedly junk bonds defaulted. This made him and Drexel the fastest growing financiers in the country. After building up a dedicated cadre of thrift institutions, wealthy individuals, and mutual fund clients, all of whom would buy any bonds Milken offered on pure faith, Milken then transformed that vast reservoir of cash a into a tool to raise money for hostile takeovers. These junk-bond financed raids allowed such previous nobodies as Nelson Peltz of Triangle Industries to take over National Can Company, or Ronald Perelman and his Pantry Pride supermarket chain to take over Revlon. As the section is titled, pawns captured kings. Soon Milken became the center of a vast web of money and companies that funded takeovers, purchased stocks, and distributed vast funds across the nation. He also became a walking conflict of interest who accumulated loads of insider information from his diffuse clients. Then, a U.S. Attorney named Rudolph Guiliani and a crusading SEC finally put him in prison for two years, fined him billions, and pushed Drexel into bankruptcy.Bruck is best in the weeds. She relates how Milken's "stripping" of stock warrants (originally requested as "kickers" to help sell supposedly bad bonds) from bond offerings, and the placing of such warrants and stocks with close friends who were at his beck and call, allowed him to accumulate large positions in companies before filing an SEC 13D form admitting to at least 5% ownership, and thus gave him the nebulous power to potentially threaten almost any CEO in the country. Few knew how much potential stock he controlled. Bruck also shows how Milken's 3(a)9 deals, that is, private placements of bonds that did not have to register with the SEC, but, contrary to Milken's actual practice, which were not supposed to be quickly traded, allowed him to create sudden streams of funds to use against takeover targets. Also, Bruck points out how Milken's "highly confident" letters, stating merely that his firm strongly believed it could raise, say, $100 million in a few weeks, were enough to make many corporate chieftains quake in their loafers and then to make them offer him large payouts to stay away from their companies. Although he didn't originate such "greenmail," he made it ubiquitous.All this legerdomain had wider consequences, since it was part of a vast assault on the corporate establishment, and, as Bruck shows, this largely an attack by Jewish outsiders on Eastern WASPy managers grown fat and comfortable atop aging giants, giants that Milken thought needed to be paired and slimmed. The amount of clear antisemitism among defenders of the old order is fairly shocking here, as is the vision of Milken and others to reshape America through junk bonds. And though Bruck supports much of this reshaping, she knows that Milken flew too high, too fast, and his collapse is such a classic tale of hubris gone awry that it would be prosaic almost to describe it. Still, the consequences of Milken's vision, for better and worse, live on. Bruck effectively shows how corporate America is living in the world one former felon created.
Extremely well-written. Presents the junk bond financing market's birth and its aftermath. In the 1970s and 80s, small & medium companies were hard-pressed to find financing for expansion. Banks were inclined to lend only to blue chip companies.The junk bond financing was responsible for laying bare several things: (1) the super cozy relationships between bank, broker & lawyer (2) the insulated world of the blue chip companies - undervalued and under-utilizedAt its best it would have been a wonderful invention to allow non-blue chip companies acquire necessary funds for R&D and expansion. The book, however, presents Michael Milliken and Drexel Burnham in an even more incestuous circle with its customers. Often the financing would be contingent on DBL acquiring a stake in the company in addition to its fees. Further, DBL would often raise and extend more money than the company needed, further inflating its billings.
What do You think about The Predators' Ball: The Inside Story Of Drexel Burnham And The Rise Of The Junk Bond Raiders (1989)?
I read this book as part of an ongoing effort to read about all of the big financial crime prosecutions (I think I might like to be a federal prosecutor, hence the interest). The book tells the story of Michael Milken's rise to prominence at Drexel Burnham, his creation of the junk bond market, and the beginning of his fall from grace. I found the book a really thorough, and comprehensible, guide to this market and to what happened, which was great, and the research is comprehensive (Bruck also gets a lot of really good interviews). If anything, the book may have gone a little bit overboard, covering the same ground more than once (Milken as god of his land is an over-painted picture). Also, and this is obviously no fault of the author, the book is a little dated. I wanted to know more about what happened after the prosecution and Milken's being imprisoned, but this book was written before that all happened, or right around that time (there were other issues because of its timing, like predicting something would happen that didn't and not knowing outcomes). However, for someone interested in these kinds of financial fiascos, I recommend this book.
—Katherine
The essential book on Michael Milkin, the junk bond king. The book made me sympathetic toward him, seeing that he did contribute a lot to financial markets, innovated and provide a service for which he was amply rewarded. Whether he was chosen to be prosecuted because he was outside the Wall Street in crowd, whether he desreved what he got is a matter of debate, but there have been others who have done worse, such as a certain politican from New Jersey, who have slid through. Maybe Michael Milkin should have run for political office, then gone into finance.
—Bryan Taylor
Outstanding book that takes complicated material and a sensationalized era and makes it all contextualized, accessible, and clear. I hadn't realized how big a role fixed-incomes played in all that has gone wrong over the past thirty years, but Bruck makes it clear -- no less an analyst and commentator than Michael Lewis (Liar's Poker) stated as much to us when he conference-called with our Viewpoints class in February 2010. Bruck is the one who taught me how and why this is so.She is equally good with the explanatory stuff and the narrative, which is what really makes this book special. The characters (Perelman, Icahn, especially Milken, and the rest) fascinate. This is one of the most impressive pieces of non-fiction I've read in recent years.
—Carl
