George Bush: The Unauthorized Biography - Get a Free Blog

illion of funds for KKR. Junk bonds were high-risk, high-yield, junior debt securities
that Milken floated. He started off with junk bonds issued by fly-by-night insurance
companies owned by financiers seeking to emerge from the penumbra of Meyer Lansky.
These included Carl Lindner and his Great American; Saul Steinberg and his Reliance
Insurance Co., Meshulam Riklis and his Rapid American group; Laurence Tisch and
CNA; Nelson Peltz; Victor Posner; Carl Icahn; Thomas Spiegel and his Columbia
Savings and Loan; and Fred Carr, a financial gunslinger of the 1960's and his First
Executive Corp. insurance firm. Later, the circle of Milken's customers would expand to
include commercial banks, savings and loans, mutual funds, upscale insurance companies
and others who could not resist the high yields. These robbery barons of modern usury
were dubbed "Milken's monsters" by one of their number, Meshulam Riklis.
All of these personages pranced at Milken's annual meetings in Beverley Hills, which
were followed by evenings of sumptuous entertainment. These became known as "the
predators' ball," and attracted such people as T. Boone Pickens, Icahn, Irwin Jacobs, Sir
James Goldsmith, Oscar Wyatt, Saul Steinberg, Boesky, Lindner, the Canadian Belzberg
family, Ron Perelman, and other such figures.
First Executive Corp. was the first great bankruptcy among the insurance companies in
early 1991, giving the depression of the 1990's a dimension that the economic-financial
conflagration of the 1930's did not possess. First Executive Life succumbed to losses on
its junk bond portfolio, and it will be the first of many insurance companies to find
bankrutpcy via this route. Shortly thereafter, Mutual Benefit Life Insurance Company of
New Jersey was seized by state regulators. Mutual Benmefit was also the victim of
combined real estate and junk bond losses, and more retirement plans were threatened
with annihlitation. Those whose pensions are lost must recall the junk bond united front
that reached from Milken to Kravis to Bush.
Spiegel's Columbia S&L is a classic case of a thrift institution that went wild in its
acquisition of Milken's high-yield junk. At one time this instutution had about $10 billion
of junk in its portfolio. Columbia S&L was seized by federal regulators during the early
months of 1990. Although many savings and loan bankruptcies have been caused by real
estate speculation, many must also be attributed to a failed quest for a junk bonanza.
Milken's silent partner was Ivan Boesky, the arbitrageur who went beyond program
trading to become a silent partner in advancing Milken's stockjobbing: sometimes
Milkenm would have Boesky begin to acquire the stock of a certain company so as to
signal to the market that it was in play, setting off a stampede of buyers when this suited
Milken's strategy.
The Beatrice LBO illustrates how necessary Milken's role was to the overall strategy of
Bush backer Kravis. Beatrice was the biggest LBO up to the time it was completed in
January-February 1986, with a price tag of $8.2 billion. As part of this deal, Kravis gave
Milken warrants for five million shares of stock in the new Beatrice corporation. These
warrants could be used in the future to buy Beatrice shares at a small fraction of the
market price. One result of this would be a dilution of the equity of the other investors.