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Greed is Good? Wealth Manager Asks Trump to Pardon Michael Milken
Michael Milken has spent many years now working as a philanthropist, but for better or worse he will probably never shake his reputation among many people as a poster child of Wall Street excess during the 1980s, which culminated with Milken serving 22 months in prison after pleading guilty to securities fraud in 1990.
Famously dubbed the “Junk Bond King” during his time running the high-yield business at Drexel Burnham Lambert, Milken is infamously considered to be Oliver Stone’s inspiration for Gordon “Greed is Good” Gekko in the movie Wall Street. But according to David Bahnsen, managing director and chief investment officer at The Bahnsen Group, it wasn’t greed that got Milken prosecuted, but “a period of class envy run amok,” as Bloomberg reports.
Bahnsen, a former managing director at Morgan Stanley and “a lifetime Republican,” wrote a letter to President Trump, urging him to pardon Milken.
It is true that I do not believe Michael Milken committed a crime, and that if he did, it was never specified, alleged, proven, or established. It is further true that the proportionality of the accusation relative to the sentence was so abusive as to defy common sense and faith in our legal system. But Mr. President, it is also true that the consequences of that prosecution persist with us to this day, and desperately need to be purged from American consciousness.
Comparing the collapse of Drexel Burnham Lambert to the collapse of accounting firm Arthur Anderson in the wake of the Enron scandal, Bahnsen writes “that such headline-seeking, human-damaging corporate prosecutions, devoid of due process and appropriate specificity, will never again put innocent administrative assistants and technology support staff on the unemployment rolls.”
But despite mentioning how the “innocent administrative assistants and technology support staff” suffer when a firm collapses after prosecution, Bahnsen is clearly much more interested in what he sees as a class war against the rich.
Michael Milken was targeted, arrested, prosecuted, and eventually imprisoned, because our society went through a period of class envy run amok. It was not the first time that economic resentments spilled into the public policy sphere, and we hold out no such hope that it will be totally extinguished in the future either. However, the shockingly high income Michael Milken generated in the 1980’s, high enough then to ensure public sympathy for his prosecution, now looks much less relevant in the aftermath of two decades of hedge fund compensation that has trumped several times over what Mr. Milken ever generated. Regardless, in our country, prosecutions should follow lawbreaking, not mere commercial success. While Mr. Milken’s mid-1980’s income may have made him an easy target for prosecutors with political ambitions, it should not have been a basis for his public fall from grace. There was never an allegation that Michael Milken’s heavy income was ill-gotten, indicative of a crime. His earnings were used to poison the well. A pardon will help detoxify it.
Bahnsen also makes a defense of the high-yield market, noting that while “many investors lost money on the junk bond craze of the late 1980’s when the risk that accompanied their high rewards won out for a brief period,” Milken has actually been vindicated as a pioneer of junk bonds, pointing to Elon Musk’s use of the instruments to manage Tesla’s balance sheet.
We look at Tesla today as a quintessential modern company, combining social and environmental goals with an intense corporate culture. As Tesla has managed the equity side of their balance sheet to its fullest for the last several years, high yield bond debt has become the strategy of choice for the company with their latest branch of growth and expansion. Would Tesla have access to such robust capital markets innovation apart from the work of Michael Milken over thirty years ago? We think not.
You can read Bahnsen’s full letter to the president here.