Whenever people discuss economic or financial instances of enormous profit, either due to innovative thinking or straight out fraud, the name Michael Milken is almost certain to come up. Known as the “junk bond king,” Milken may be individually responsible for revolutionizing the world of corporate finance and transforming a lagging nation in the 1980s to one with unprecedented economic development. Milken obtained his masters degree in business from the Wharton School of Business and claimed that he had a mission to democratize capital. While many banks were rejecting risky loan pleas and remained stringent on their credit policies, Milken reaped the benefits of this opportunity. He realized that the system of credit could be opened to more people by providing credit based on a company's upside potential instead of its past history. Milken was an executive at Drexel Burnham Lambert, Inc., where he utilized high-yield junk bonds for corporate financing. These risky issues that pay a high interest rate financed the growth of companies that could not get conventional backing. The list includes some outstanding successes: MCI, Viacom, Turner Broadcasting and others. In just a few years, Milken reshaped the financial world single-handily. He effectively created a bond market that eliminated traditional restraints and created a half-trillion dollar pool of capital. While economic sage Schumpeter realized banks’ role of development in the economy, channeling credit to more efficient innovators, Milken’s junk bonds provided the most efficient innovators with the necessary capital and the result was a financial and economic revolution. As might be expected, Milken’s success story does have quite a blemish. In 1989 a federal grand jury indicted Milken for violations of federal securities and racketeering laws. He was heavily fined and sentenced to prison for ten years, but in 1991 his sentence was reduced to two years in addition to a mandatory probation sentence of three years. Although not much has changed in the justice system, recent scandals by companies such as Enron and Worldcom have lead to more stringent policies. While critics of Michael Milken acknowledge his brilliance, they see him as the ultimate paragon of the greedy 1980s. However, how one man could create changes of this magnitude, and make nearly a billion dollars, is a story of American success and capitalism.
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