This Sunday, the New York Times portrayed the presidential pardon of Michael Milken as a dirty thing, the result of string-pulling political and financial elites. “Milken Had Key Allies in Pardon Bid: Trump’s Inner Circle” is the headline of the piece by James B. Stewart (to whom we will return) and Jesse Drucker, writers who wanted to make damn sure we knew that nefarious people contrived a saga stewed in payola and prompted by benefit.
How easily the dots connected, the inferences flowed, the implications stacked, all to achieve the article’s objectives: to dent Milken’s overdue good fortune, to nullify the altruism of seekers of justice, and to keep alive that fiction, spelled out in the piece’s disdainful subhead, that, pardon or no pardon, the financial whiz remained “a symbol of 1980s greed.”
The harder and less-neat story to have written would have been the one that reflects long-held and -argued points: that Michael Milken was the victim of a travesty of justice, of a motivated prosecution, of a political hit (Candidate Giuliani), of a fixated journalist (Mr. Stewart), and that he was indeed innocent, and that he indeed merited a pardon, merited such for many years, and that quite sincere efforts to bring about this justice commenced not even in this millennium but when Donald Trump’s “Inner Circle” was to be found at Studio 54.
The fact is, Michael Milken’s pardon effort was well into its third decade when President Trump acted, and the beneficiary counted as his allies and advocates people and institutions who knew not the man, or barely so, and who benefited from him in no way. Like David Bahnsen (more on him below), they sincerely saw an egregious wrong that needed to be righted.
One such ally: this institution. Frequently, as the outrages against Milken were unfolding, championed by Mr. Stewart — now penning a column at the Times, where he seethes over the pardon, and who in the late 1980s was a star at the Wall Street Journal, where he made Milken his special project — it was National Review that spoke out repeatedly and formally on Milken’s behalf. This was a National Review that celebrated $100 contributions. That was $100 more than billionaire Michael Milken ever donated. Call it quid pro no.
We got it so right from the get-go: Among the many Milken-related examples from the NR archives was our first editorial on the case, appearing in the magazine’s May 5, 1989 issue. It focused on the establishment’s anger at the uppitiness of the young financier:
What Michael Milken, the high-yield bond wizard, may be guilty of, or whether he is guilty of anything at all, is now in the hands of the law — though considering the whimsicality of securities regulations, the word “law” is surely too dignified. Milken is unquestionably guilty of breaking one law, however, which, though it is on no statute book, is rigorously enforced: the social law that outsiders must know their place.
For years, the Drexel High Yield Bond Conference, a/k/a the Predators’ Ball — an annual conference, half sales pitch, half revival meeting, over which Milken used to preside — has been a favorite set-piece of business journalists. The keynote of all descriptions was its outlandishness. It was held at the Hilton in Beverly Hills, not on the East Coast. Meetings began at 6:00 A.M., in deference to Milken, who rises at 4:30. The entertainment at one conference included a video of Madonna, decked out in trashy jewelry and little else, slinking around and singing “I’m a Double B Girl in a High Yield World — Drexel, Drexel, Drexel.”
Then there were the people. Milken grew up in the Valley, as in Valley girls, and lives there still. He is Jewish, as were many of his partners and peers. (Indeed, about the only sympathy he has gotten is from those who see his prosecution as an instance of anti-Semitism.) But there were non-Jews too: Carl Lindner, a Baptist supermarket-chain owner from Cincinnati; Rupert Murdoch, the Australian press mogul.
This was not a white-shoe crowd. It was not even wannabe white-shoe. Pete Peterson, the Greek diner-owner’s son from Kearney, Nebraska, might aspire to be chairman of the Council on Foreign Relations. Milken & Co. didn’t want status credentialing. They wanted money. They saw their opportunity in .an economic area — high-risk bonds — that the establishment had not exploited, and they took it.
The establishment, in this case, most definitely includes the press, which fancies itself as a band of renegades, but which, in fact, craves status as desperately as the worst Thackeray toady (all that talk about the fourth branch of government). It’s no surprise that the establishment resented the predators’ rise, and now gloats over their fall; no surprise that the attorney who led some of them out of their offices in handcuffs is now the establishment’s candidate to be mayor of New York. No surprise, perhaps, but a source of real misgivings.
Five other strong editorials followed. The next, appearing in our May 17, 1990 edition, was titled “The Mugging of Michael Milken”:
If the plea bargain between Michael Milken and the federal prosecutors goes ahead as leaked, we can be sure of only one thing. Mr. Milken may be guilty of no crime whatsoever or of many more serious offenses than those in the agreed-upon indictment, but he is assuredly not guilty as charged. The fact that he is pleading guilty to these offenses is no more than a legal technicality reflecting the final balance of power in a complex game of threats and inducements in which the prosecutors hold most of the cards.
The only card they apparently lack is any clear evidence of serious crimes Milken may have committed. At first, this did not seem to matter, because they had enough legal bludgeons to frighten most people into crying uncle. There was, first, the RICO statute, which allows prosecutors to seize assets before a trial and which last year forced Drexel Burnham into pleading guilty to securities fraud, going bankrupt, and abandoning Milken. Then, there was the threat of a major indictment against Milken’s younger brother, Lowell, for whom he apparently feels a fraternal protectiveness. Third, there was the overlapping confusion of securities law, which is drawn up so that no one can be certain of complying fully with it and everyone is therefore permanently exposed to legal attack. And, finally, there was the excited state of liberal opinion, led by the New York Times editorial page, baying for the blood of an insider trader. To Rudolph Giuliani and his captains down at the U.S. Attorney’s office, Milken must have seemed an easy mark.
Yet Milken refused to buckle, at which point the tables were turned. The terrible prospect yawned before the prosecutors that they might have to prove their case in court. Milken might even be acquitted. Threats of fresh charges suddenly materialized-presumably in the hope that a jury will conclude that a man accused on 99 counts must be guilty on at least one. This produced the Mexican standoff of last week’s plea bargain: a $600-million fine and a five-year sentence, but no racketeering charges, no charges based on insider trading, no indictment against Lowell Milken, and, above all, the sentencing of Milken before he could testify to prosecutors on the crimes of Wall Street.
Not that the prosecutors have entirely given up their intimidation. The Washington Post quotes “sources” as claiming that “if the government concludes Milken is being untruthful, it might seek to use the threat of less comfortable prison treatment to encourage better cooperation.” And what if that fails? Place him in a crowded cell in the hope that homosexual rape will do the trick?
It is difficult to know which is the more shocking: that prosecutors should consider such methods, or that they should discuss them in the pages of a liberal newspaper in the (apparently justified) certainty that this will arouse no indignation whatsoever. We repeat: No one will ever know what crimes, if any, Michael Milken has committed. The prosecutors’ tactics have seen to that―tactics which can acknowledge their own brutality only because they enjoy a legal immunity initially granted on the assumption that such acts were unthinkable. Mr. Milken might reasonably put himself down as another victim of white-collar crime.
Upon Milken’s conviction, and outlandish sentencing, we wrote (December 17, 1990):
So Michael Milken is now going to jail. You might assume that his offenses must have been serious indeed, considering that the rapists and near-murderers of the Central Park jogger got sentences of five to ten years, while the judge handed Milken a flat ten-year sentence. Instead, the Milken case shows that equality under law does not apply in extreme cases, such as the crime of symbolizing a “greedy decade.”
Milken’s punishment was so unexpected that even members of the press, who had brayed against him for years, collectively gasped in the courtroom when the sentence was announced. One reason is that the more that people learned about the prosecution case, the weaker it looked. What started out as Rudy Giuliani’s bully-boy 98-count indictment alleging insider trading and “racketeering” under RICO eventually came down to six pleas on crimes so petty that if Milken had been anyone else the punishment would have been a stern letter from securities regulators.
His crimes, which a jury never got to consider, were far from transgressions of the Ten Commandments. It is no doubt wrong to aid and abet the false securities filing of a client, but this is not a sin that normally earns a jail term. Ivan Boesky traded suitcases of cash for stolen insider information, yet got only three years because he cooperated with prosecutors. Federal Judge Kimba Wood agreed that Milken was no insider trader and that junk bonds were not some kind of Ponzi scheme. Instead, she said Milken deserved more punishment as a deterrent precisely because his technical and regulatory crimes were amorphous and any victims, therefore, remain hard to find. It’s apparently better to mug someone in the street at high noon than to step just over the line of some hazy regulations. This logic mocks the idea that punishment must fit the crime.
Still, the fact that the Milken sentence trashed the rule of law to serve the bald political purpose of bashing an era of takeovers and junk bonds is only one of the problems with that sentence. The greater problem is that all the prosecutor’s journalists and all the prosecutor’s judges won’t be able to put the booming economy of the 1980s back together again. Milken was the symbol of much that was good, including junk bonds that gave small entrepreneurs access they no longer have to capital. The would-be MCIs and Turner Broadcastings of the 1990s instead face stillbirth, strangled by the credit crunch created in large part by overzealous regulators.
And then in March 18, 1991 issue, our editorial, “Milking Milken,” condemned the ongoing efforts by the government to exploit a man unjustly jailed:
Imagine an institution which follows one set of rules in public, but bends them on the sly; which takes positions for all the world to see, while angling for secret deals; which says one thing, then does (or tries to do) another. No, it’s not the junk-bond division of Drexel Burnham Lambert under the sway of Michael Milken; it’s the federal judiciary which, after sentencing him, has recommended the terms of his parole.
Last year, District Judge Kimba Wood slapped the financier with a ten-year jail sentence ― an average sentence for a crime of violence these days; astonishing for a white-collar crime, even the crime of making more money than the Wall Street establishment. Last month, Judge Wood, putting a different spin on her severity, suggested that Milken be eligible for parole after only 36 months in the slammer.
The potential reduction in Milken’s jail time came cloaked in a dense discussion of the gravity of his offenses. If he “caused” losses of greater than $1 million, as the prosecution maintains, then he would have to wait at least forty months. If the total loss is less than a million (Judge Wood puts a $318,000 price tag on his derelictions), then the law allows him to get out earlier.
In fact, however, the months and years being bandied about have to do mainly with the degree to which Milken is willing to cooperate with the Feds. Ivan Boesky, who fingered him, was sprung after two years, and even the prosecution admits that Boesky’s crimes were greater than Milken’s (they actually were crimes). Milken pleaded guilty to six counts of securities fraud but refused to cooperate until he had been sentenced. Hence the ten years dumped on his shoulders. If he now cooperates as efficaciously as Boesky did, his time will be shrunk by a third.
Apart from the question of ethics, the danger of such procedures is that the guilty party will tell, not the truth, but what his jailers wish to hear. This danger exists in the multitude of quotidian prosecutions in which the state uses plea bargains and the testimony of “turned” defendants to make its case. It is a risk worth running, however, in prosecutions where the definitions of the crimes are clear and strict, and the rules of evidence are traditional and widely recognized. In a field like securities law, where legal and economic doctrine mutates as fast as an AIDS virus, the stick-and-carrot method of pursuing testimony amounts to a prosecutors’ license to get whomever they want, however it’s easiest to get him.
Such methods have already brought Michael Milken to what is called justice. They should not be used, on him, to ensnare the next victim-or the next three or four.
There was more, such as our judgment hammering Big Brother’s pile-on suit against Milken. We condemned that formally in this October 7, 1991 editorial:
The Resolution Trust Corporation’s current lawsuit against Michael Milken and other former Drexel employees represents the latest, and we hope last, phase of the largest financial coverup in U.S. history. The plaintiff’s scenario runs like this: the junk-bond market was dying, as were many S&Ls; Michael Milken saw an opportunity; he agreed to pump Drexel’s money into dying thrifts on condition that they buy his bonds, the risks of which were conveniently never spelled out. For a while the scam succeeded in artificially propping up bond prices. In the end, however, it killed the S&Ls.
Those who received their financial education via the pages of Bonfire of the Vanities will no doubt find this plausible. Unfortunately, real life is rarely so exciting. A voluminous public record attests to the openness and extreme competitiveness of the junk-bond market. Far from being snookered by fast-talking Masters of the Universe, the S&Ls made their own investment decisions, aided by teams of analysts, credit officers, and independent money managers. The level of risk of high-yield bonds was equally well known to federal bank regulators, who never questioned the judgment of the S&Ls who bought them. Indeed, a 1989 General Accounting Office report touted them as among the most profitable investments held by thrifts.
A few S&Ls undoubtedly got into trouble because of the junk bonds. But many more went bankrupt investing in real estate and oil, neither of which is mentioned in the federal complaint.
In any event, most of the S&Ls were insolvent long before they got into junk bonds. During the Seventies and early Eighties, failing S&Ls tried to stay afloat by investing federally insured deposits in high-risk ventures. Federal regulators — many of whom now work for the RTC — turned a blind eye to early indications of the crisis. Rather than close hundreds of ailing S&Ls, they issued “special certificates” of net worth and sanctioned other accounting gimmicks designed to buy time for moribund S&Ls.
When the magnitude of the debacle could no longer be denied, government policy switched from malign neglect to regulatory overkill. The 1989 bailout bill forced even healthy thrifts to sell off their high-yield portfolios. That accelerated the fall in the value of junk bonds. So the S&L bailout precipitated the collapse of junk bonds, not the reverse. Maybe Mr. Milken should sue the government.
The final, formal thundering came in the August 31, 1992 issue, when the monopoly of Stewart’s “greed” portrayal began to lose market share, and the farce began to look truly farcical, factors which seemed to motivate Judge Woods to roll back her original ridiculous sentence:
Federal Judge Kimba Wood has reduced junk-bond king Michael Milken’s sentence from ten years to less than three (plus three years’ full-time community service), making him eligible for parole almost immediately. At last, the government has taken a serious step toward spurring economic recovery.
The reduction is curious in that the usual beneficiaries of such mercy are little fish who have helped to land a bigger fish. While Michael Milken has cooperated with government investigators, his testimony has been of little use to them: the United States Attorney’s office points to his help in convicting a former Drexel colleague, Alan E. Rosenthal, on one count of embezzlement, but the Securities and Exchange Commission complains accurately that he has “provided little information of value to the SEC’s pre-existing investigations,” yielding “few concrete results.” Milken has even testified for the defense, against the government, in another case.
To explain the oddity we must return to his presentencing hearings. Threatened by the pre-trial penalties allowed under RICO as well as by a prosecutorial vendetta against his entire family, Milken had pleaded guilty to six violations that normally would merit only a warning letter from the SEC. Prosecutors declined to charge him with the more serious crimes of which he had already been convicted in the press. When these offenses were examined in pre-sentencing hearings, Milken’s lawyers, for the first time able to cross-examine his accusers, showed that he had neither manipulated stock (his department sold Wickes Co. when he was alleged to be driving up the price) nor engaged in insider trading (a supposedly concealed purchase of Caesar’s World bonds was in fact recorded on the books). James Dahl, a star witness, was forced to admit numerous errors of fact, demolishing his portrait of Milken’s villainy, which had so strengthened his own plea-bargain. (See Jude Wanniski’s “Insider Reporting,” NR, Dec. 2, 1991.)
Judge Wood deemed the government’s pre-sentencing claims entirely unproved, but still gave Milken ten years, a pronouncement which brought a gasp even from the hostile press corps in the courtroom. Stranger still, she then suggested that cooperation—helping investigators uncover a conspiracy he had just proved he knew nothing about—might bring a reduction. Since Milken has not produced such information, why did she spring him? One factor: at the time of sentencing, reporting was dominated by the extremely anti-Milken James B. Stewart of the Wall Street Journal. Today, Jesse Kornbluth’s more balanced account. Highly Confident: The Crime and Punishment of Michael Milken, is on its way up the best-seller list. Mr. Kombluth praised Judge Wood’s change of heart to the Washington Post: “I think she’s discovered that Milken’s crimes weren’t heinous.” Or decided it was best to stop the scapegoating before it became a public scandal.
For NR, or for any publication, that amounted to a lot of editorializing. Not a word of it came from “Trump Allies.”
The editorials found much company in NR’s reporting. The late Jude Wanniski wrote a massive piece — from the December 2, 1991 issue of the magazine (which we have extracted from the archives and made available here in PDF format) chronicling Stewart’s journalistic jihad against Milken. It remains a stunning exposé of the journalist as Ahab. Here is a slab from the article:
Before sentencing Milken, however, Judge Wood had invited the prosecutors in special court hearings to go beyond the harmless “crimes” to which Milken had confessed and present the best evidence they had against him on the accusations that had never been brought into court as formal charges but had got wide public attention via the leaks to the Journal. The purpose was to help Judge Wood, when sentencing Milken, to determine if the crimes to which he had confessed were or were not part of a broader pattern of criminality. The proceedings were known as the Fatico hearings. For four weeks last October, the federal prosecutors took their best shots — one trying to prove Milken manipulated stock, one trying to prove he engaged in insider trading, and one trying to prove he committed bribery. In each attempt, the government failed miserably. Judge Wood sentenced Milken to ten years in prison, followed by three years of full-time community service, even while acknowledging the prosecution had indeed failed to prove its case.
For instance, in the attempt to prove stock manipulation — a charge based on information supplied to them by Boesky — the government lawyers discovered they were looking in the wrong place. Milken’s lawyers demonstrated that while it appeared someone at Drexel was involved, Milken not only was not trying to drive up the price of Wickes Co. stock, as the government alleged, but his department had been serious sellers of the stock during the period in question. Judge Wood concluded that the government witnesses had failed to show that Milken was even involved in the Wickes transaction. The judge also found that the government failed to prove its charges in the bribery case, involving warrants of Storer Communications.
The attempt to prove insider trading went especially awry. The government had as a key witness an employee of Milken’s junk-bond department, James Dahl, who swore before a grand jury that Milken advised him to buy up Caesar’s World bonds from Drexel’s own customers at a time when Drexel had inside knowledge of impending financing developments that would make the bonds more valuable. To the government, this was a smoking gun. It turned out, however, that Dahl had confused several events, and when the true facts began to emerge, even he was not so sure that his version was correct. Here’s what happened.
In June of 1983, a sales meeting was set up by Drexel at Caesar’s World, a meeting Milken attended long enough to make his pitch. Coincidentally, a Drexel client wanted to sell Drexel $6 million of Caesar’s World bonds. Milken bought $3 million of those bonds for Drexel’s profit-sharing account before the meeting, but the government saw only the actual transfer on Drexel’s books, which occurred after the meeting. This seemed suspicious. It turned out, however, that while Drexel’s books reflected the purchase on the day it was made, the transfer had been delayed because Milken needed Drexel’s permission to place the bonds in Drexel’s profit-sharing account. That permission came days later.
The government’s suspicions did seem confirmed when Dahl told the feds that immediately after the meeting, Milken urged the Drexel salesmen to buy Caesar’s World bonds. But no other salesmen remembered such exhortations. The clincher came when Milken’s lawyers produced one of Dahl’s customers who had sold Dahl his Caesar’s World bonds at the time. The client remembered — and produced a contemporaneous memo confirming — that Dahl had called to sell him Texas International, not to buy Caesar’s World. He sold the bonds only to raise the cash to buy Texas International. When Dahl was shown the memo on the witness stand, his memory was refreshed as to the swap, and he said he would not dispute that version of the event.
Stewart must have been stunned by Dahl’s memory lapse, but he takes no note of this in the material from his book in the October 2 Journal. Indeed, in his entire book, Stewart makes barely a mention of the Fatico hearings, which were the only proceedings at which the government’s witnesses were exposed to cross-examination by Milken’s lawyers. These hearings exonerated Milken on all three of the central charges Stewart had been pressing. On the day the Fatico hearings ended, I called Milken and told him the last small shadow of doubt I had had been expunged by the hearings: “You’ve now been vindicated by history.”
It would have been helpful to the Journal’s readers if Stewart had told us something about Dahl’s refreshed memory in the Fatico hearings. He ignores it. Instead “Scenes from a Scandal” opens with a dynamite scene, which attempts to leave no doubt that Milken and Boesky were fellow crooks.
In other issues of the magazine, important pieces were filed by writers including David Frum, Margaret Laws, Andrew Stuttaford, and Jody Brennan. And Bill Buckley weighed in with a pre-trial syndicated column in September of 1989, which ended
Much will be written about the Milken case when it comes up for trial some time after next March. And it is a story interesting in every sense. Human, of course; but it is perhaps epochal in the evolution of American commerce. The trial of the junk bond.
Epochal too was one other NR essay, by Gordon Crovitz, published on October 1, 1990 — “Milken and His Enemies.” It was a masterful profile of envy begetting retribution. Here is how it wrapped up:
Mr. Milken’s offended social critics might be cheered by a calculation of what happened to the $1.1 billion the government disclosed that he earned during the four years 1984 through 1987. No tax shelter exists for this kind of income, so at the higher rates then in effect he probably paid about $500 million in federal and state taxes. His staff reported last year that during this period the family trusts he created more than a decade ago gave away some $300 million to schools and other charities. Then there was the $600 million he paid the government to settle the case. This means he paid $1.4 billion out of his $1.1-billion income, for a net of negative $300 million. No doubt he retains substantial earnings from before and after this period, but he may not be quite as wealthy as some assume.
Over time, the prosecution of Mr. Milken will be seen as ranking with other ugly incidents of outrage against anyone who symbolizes forces that undermine the status quo and discomfort the comfortable. Significantly, Mr. Milken had arranged nearly $1 billion of financing for Reginald Lewis’s bid in 1987 for TLC Beatrice International, which remains by far the largest black-owned firm. This is what the Milken revolution brought: a new efficiency to markets that left no one untouched. Getting capital to entrepreneurs made for a booming growth market, but threatened the old ways. The same truth is even more pressing with the takeover market, which leaves no room for management error.
For now, however, Judge Wood will be under extraordinary pressure to justify the exertions by Mr. Milken’s enemies to make him pay for his successes. But if she is looking for judicial precedent to do justice in this case, she might begin her sentencing hearing with these words from Justice Louis Brandeis: “It is immaterial that the intrusion was in aid of law enforcement. Experience should teach us to be most on guard to protect liberty when the government’s purposes are beneficent. Men born to freedom are naturally alert to invasions of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachments by men of zeal, well-meaning but without understanding.”
Back to the Times piece cited at the outset of this admitted diatribe. It ends with a snotty smack at one of Milken’s consequential champions, also not a Trump ally: David Bahnsen, our friend and frequent National Review writer. Wrote Stewart, with pathetic gotcha:
One of the few Milken supporters named by the White House who have no significant financial or personal ties to Mr. Milken or Mr. Trump is David Bahnsen, an investment adviser, who wrote an unsolicited letter seeking a Milken pardon to the White House in 2017.
But even he has White House connections. Mr. Trump’s top economic adviser, Larry Kudlow, is “one of my best friends,” Mr. Bahnsen said.
Seriously, who isn’t a friend of the beloved Kudlow? And even if it could have mattered: Larry’s White House service commenced in April of 2018, several months after Bahnsen wrote President Trump (his letter is dated September 2, 2017).
An investor who is also a historian of finance (I recommend his acclaimed 2018 book, Crisis of Responsibility), Bahnsen was a teenager when the sky fell on Milken. Years later, driven by curiosity, he read various books on the affair and quickly formulated an opinion, shaped by his disdain of class envy (see Commandment No. 10): that Milken was set up and wronged. Incapable of concluding such and not taking action, Bahnsen sought concrete justice for Milken, despite their paths never having crossed, in any form. You can read his powerful entreaty to President Trump here, (it appears alongside an excellent video of Bahnsen making the case not only for Milken’s pardon, but for the genius of what he created in the 1980s). His letter reads in part:
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 law-breaking, 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.
Not if Stewart can help it. But he couldn’t, so kudos to Bahnsen and others, whether more recently engaged in the fight or first having sounded the call to arms decades back, who indeed fought and saw it through. And kudos too, to President Trump for granting the pardon.
Enough, except to say, for those desiring a good listen on this matter, I recommend David discussing this on a recent Radio Free California podcast — here’s the episode — which he and Will Swaim excellently co-host weekly.