The Predators’ Ball (56 page)

Perhaps as a consequence of that, one can still see vestiges today of the oddness that always set him apart, making him slightly misfitted for any group but the one he eventually created. He was, after all, the teenager who slept only three or four hours a night, who was not the football player but the cheerleader, who in L.A. and Berkeley in the sixties not only never smoked or drank or experimented with drugs but did not even drink carbonated beverages.
He was the new Wharton student, made fun of by his pipe-smoking Ivy League classmates, but vowing he would be number one in his class. He was the Jew at the blueblood Drexel Firestone, segregated off in a corner of the trading floor. He was the bond trader at Drexel Burnham who, even as he began making millions trading his strange bonds, still looked so strange, with his shirt-and-tie combinations that made him the brunt of others' jokes, with his dreadful “rug” that Saul Steinberg once, in a bit of office horseplay, pulled off his head. He was the Drexel junk-bond trader from
California,
no less, who, when he asserted to a roomful of investment bankers and lawyers in '83 that he could raise $4–5 billion for Boone Pickens' Mesa-Gulf bid, which Pickens was having trouble financing, was greeted by snickers from the men from Cravath, Swaine and Moore, and Lehman Brothers, the aristocrats of the Street.

Milken must have been determined from his youth to show the world just how smart he was, and to make wealth his measure. One of his favorite anecdotes concerns a recent Wharton graduate who returned to the school to speak while Milken was a student. The graduate had blueblood credentials. He had attended a prestigious prep school and an Ivy League college. He was twenty-nine years old, and he told the assembled group of students he was worth $30 million. Milken was impressed. But what emerged a little later—the punch line that so delighted Milken—was that the young multimillionaire had inherited $50 million when he was twenty-five. (This was the individual-squandering-wealth analogue to those corporate-disaster stories Milken also loved, about the blue-chip, triple-A companies that lost hundreds of millions, even billions, of dollars of capital in foolish business decisions.) The moral, of course, was that however impressive appearances might be, it was not birth, not a prestige education, and not inherited wealth that counted at the continuing, year-after-year bottom line, but performance. Nothing else. Milken resolved to outperform them all.

And for him, high-yielding bonds were a custom-made vehicle. They were the outcasts and misfits of the securities world, disdained by the rating agencies and the establishment, many of them victims of misconceptions. In that gap between perception and reality, as Milken liked to say, there was money to be made. Later, when he began to underwrite them, and when they were eventually used by his chosen—the outsiders of American business life—to challenge the corporate giants, his operation of course metamorphosed into
something far larger and more powerful than even the farsighted Milken could have dreamed when he first started trading these contemned bonds at Drexel Firestone in 1970. But the whole long journey, starting with the bus ride from Cherry Hill and culminating at the pinnacle of power in American finance, was an unbroken continuum.

Milken's group, the first one ever which fit him like a glove, had been cloaked in mystery for years. As bits and pieces of information emerged, they added descriptive detail to the image of the peculiar, cultlike whole, but did not explain it. Milken, however, did that. It became clear, in listening to him, that his group was the physical embodiment of his theory of productivity, fused with his need for absolute control.

Milken believed that people were at their most productive when they felt they were part of a collective enterprise. There could, therefore, be no stars, and that included him. That was why he refused to have his picture in Drexel's annual report—it would detract from the team spirit. He had no office, only his desk on the trading floor, for the same reason. He had no meaningful title in the firm, and there were no meaningful titles in his group; no one was to be ranked over someone else. (As Milken had mentioned, his group's Christmas card, in the form of a bond, was an undifferentiated printing of the names of all its members—a graphic illustration of this principle.) He would not, of course, have allowed the members of his group to speak to the press, because of his insistence upon secrecy and control; but he also mentioned that he did not want his people to start thinking of themselves as stars. It would be harder to motivate them, come four-thirty Monday morning.

Keeping his people pure—consumed and fixated on the work at hand—was his perpetual effort. Milken believed that two of life's major distractions, romance and wealth, were counterproductive, diminishing the kind of intensity he required of his people. He therefore advocated long-term, stable relationships; he took pride in what he claimed was the group's low divorce rate. Wealth, of course, was a double-edged sword for Milken. Its achievement (largely through the equity stakes in the investment partnerships) was what gave his people incentive. But once he had made his people wealthy beyond their imaginings in order to both motivate them and bind them to him, that very wealth tended to divert them with life's pleasures.

Milken attempted to cure this dilemma through control. Much of his people's wealth, of course, was in the investment partnerships, kept out of their reach, although as the years went on and the accumulated wealth of the group grew mountainous, a substantial portion did reach its owners. Still, when Milken was displeased, he manipulated the levers of the partnerships, reducing someone's existing percentage, freezing him out of the next.

There were other, more subtle but probably more powerful means of control, understood by any charismatic, messianic leader. Milken sought to inspire by example. He expected no one to work any harder than he did, and as his power increased he worked the same punishing hours he always had, or longer. He climbed no social (and time-consuming) ladder. He had been married to the same woman, with whom he had three children, since 1968. He lived simply, rejecting the symbols of materialism that he wanted his people to reject, in emulation. He lived in the Valley, not in decadent, splashy Beverly Hills, and he urged his people, also, to buy homes outside of Beverly Hills (many, indeed, lived in the Valley). For a man who was driven by limitless greed (one could hear the pleasure that money gave, sometimes, when he spoke), he espoused—in terms of lifestyle—anti-materialism. Everything, but everything, in Milken's life—and, if he had his way, in his people's lives—was subsumed to productivity.

Milken meant to inspire so that his people would feel like cathedral-builders, not bricklayers, and he did so. “If he was walking over a cliff,” declared one former disciple, “everyone in that group would have followed him.”

As Milken himself suggested with his allusion to Gandhi, he had not built this holy army for the sole purpose of buying and selling securities. It had begun that way. But by the late seventies, when Milken was providing capital to an underclass of corporate America that had not been able to obtain it before, he had started to envision his larger purpose. That was also when he moved back to California and began building his cadre in earnest.

One of its former members recounted that in 1979 he had read a thriller,
The Matarese Circle,
by Robert Ludlum, whose plot revolves around a worldwide terrorist conspiracy orchestrated and financed through the largest multinational corporations. The goal of the Matarese fanatics, who are so imbued with their cause that they willingly sacrifice themselves, is to plunge the established
world powers into chaos and then impose their own new order, in which all power will be held by the Matarese through the corporations they control. The conspiracy's mastermind is a brilliant, megalomaniac naif. Once a Corsican shepherd boy, he has built an inestimable fortune and is so consumed by his vision of world control that he bends everything in life to its shape.

“My nickname for Michael was ‘the Shep,' ” commented this former disciple. “A few other people in the group read it, and they saw it, too. The incredible thing was, that was 1979—and then, over the next five or six years, we watched it happen.”

The comparison to the murderous “Shepherd Boy,” of course, is not meant to be taken literally. But the parallel that struck this former member of Milken's group lay in the force of the obsession, the megalomania, the conviction of a cause so just that the end justified the means, and, finally, the conceptualization of the corporate vehicle as a means of extending control nationwide—and then worldwide.

The Michael Milken interviewed by this reporter displayed no hint of such rapacity. Though naturally intense, he seemed to strive for a casual manner. He was painstakingly modest, praising the achievements of others at Drexel, repeatedly attempting to shift the focus from himself. He refused to criticize rivals at other investment-banking firms, though he was well aware that many of them show no such restraint about him and Drexel. He spoke repeatedly of his pride in having financed companies which had been small, or in dire financial straits, when he first underwrote their bonds, and which had grown and prospered (not via acquisition). He described Drexel's paradigmatic trait as an eagerness to help. He pointedly mentioned his being around to help in the hard times that would come in the future, as he has been in earlier hard times.

The problem with all this was its utter transparency. Milken, the world's greatest bond salesman, was now attempting to sell himself—as a low-key, humble, beneficent public-servant type, who makes more money than other public servants because he does his version in the private sector. “I
welcome
competition,” insisted the individual whose hallmark since the seventies had been his relentless craving for 100 percent market share, who for years when competition arose would try to either crush it or buy it. What this sales pitch showed, more than anything else, was Milken's shockingly poor judgment about himself in relation to others, to the wider
world—a world that is not confined, as his has been for so long, to his beloved bonds.

Nearly two years earlier, when he was approached by this reporter after the speech he gave to the money managers in Boston, and was asked for his cooperation with this book, Milken replied that he had heard about the book from Fred Joseph. He asked a few questions about its genesis and its aims and then declared, “I do not want it to be done.” When he was told that it was already in progress, he reiterated that he did not want it done. He seemed surprised, almost, by the assurance that it would be done. Then he said, “I was saying to Fred, why don't
we
pay you the commitment fee that your publisher would have paid you—except we'll pay it to you to
not
write the book?

“Or,” he went on, as though he had not heard the response, “why don't we pay you for all the copies you would have sold if you had written it?”

That was in February 1986. That was Milken in his prime, at the very apex of his power: assuming that in the wider world, as in trading, a price exists at which any transaction can be done; comfortable that the end justifies the means; determined that nothing which he did not control should come close to him. So cloistered, and so accustomed to people's hanging on his words and bending to his will, Milken had not had any idea how to relate to the world outside his own.

He never had. But it seemed hardly to matter while the parameters of
his
world—in which he was not a misfit but sovereign—were so wide, and growing by the day. He was feared by his enemies, idolized by his followers. He was soon to be universally lauded by the business press and slavishly imitated by the rest of Wall Street. Many billions of dollars were at his command; capital, as Milken had been saying and proving for a long time, was not a scarce resource. The only limits to his power, it seemed, would be the limits of his febrile imagination.

After the speech to the money managers—many of whom he had first met nearly a decade earlier when he came knocking on their doors, peddling his oddball product—Milken was surrounded by well-wishers paying tribute. One longtime client, unable to see him through the press of the crowd, asked Milken's assistant, Susan Cochran, where he was.

“The King,” she said, with a nod in his direction, “is over there.”

T
HIS BOOK
is the result of interviews I conducted with 250–300 people, during a two-and-a-half-year period. Many of these people I interviewed many times, often for interviews of several hours' duration. Some of their names appear; others said that they could speak candidly to me only on a “background” basis, meaning that their comments would not be attributed to them. While I interviewed dozens of people who had been antagonists of Drexel and its players, the overwhelming majority of my interviews were with the subjects of my book themselves—employees of Drexel, and its network of clients. The hosts, and the guests, of the Predators' Ball.

Fred Joseph's agreement to cooperate with this book spoke for all of the firm with the exception of the West Coast—Milken and his group—a bifurcation that, as I would learn over the next two years, was a way of life within Drexel. Joseph agreed to grant me access in February 1986, nine months before Boesky Day; I therefore had the opportunity to learn about Drexel and its players at a time when their idyll was at its height. Awash in triumph, people spoke quite freely. Had I started to do the reporting on this book after Boesky Day, when the Drexel saga went from being publicly perceived as the success story of Wall Street to, perhaps, its greatest embarrassment and scandal, I would never have been granted such a frank and full view, by the participants themselves.

My meetings with Milken were the bookends of this project, coming at the beginning, when I asked for his cooperation, and very close to the end, when I received it. I feel confident that he never would have decided to go public if he were not in effect fighting for his life, in this battle that must be his worst nightmare—the government's strobe lights playing mercilessly over what was once his
perfectly controlled universe, full of secret pools and pockets known to him alone.