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Wall Street—On February 13, Drexel Burnham filed for bankruptcy, dying shortly after the market for junk bonds went into decline. It was a case of “exit— pursued by bear market.”

Michael Milken, the genius behind Drexel’s rise, had built the firm by selling junk bonds to investors on a simple pair of facts: because the issuers of the bonds were not considered “investment grade” by Standard & Poor’s or Moody’s, they paid an extra high rate of interest; yet, historically, companies that didn’t get S&P’s and Moody’s little gold stars were no more likely to default than the companies that did. So the extra three or four percentage points of interest that junk paid was found money.

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David Frum

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Wall Street—On February 13, Drexel Burnham filed for bankruptcy, dying shortly after the market for junk bonds went into decline. It was a case of “exit— pursued by bear market.”

Michael Milken, the genius behind Drexel’s rise, had built the firm by selling junk bonds to investors on a simple pair of facts: because the issuers of the bonds were not considered “investment grade” by Standard & Poor’s or Moody’s, they paid an extra high rate of interest; yet, historically, companies that didn’t get S&P’s and Moody’s little gold stars were no more likely to default than the companies that did. So the extra three or four percentage points of interest that junk paid was found money.