Innovation & Wealth › The information age › Deregulation, privatization and 'shareholder value'
Michael Milken, junk bonds and buyouts
1977–1990· Event· Companies & fortunes
Well documentedSolid records, texts or physical evidence.
Michael Milken's high-interest bonds for risky companies financed the 1980s wave of corporate raids and debt-fueled buyouts.
See it on the Innovation & Wealth map →What happened
At Drexel Burnham Lambert, Michael Milken argued that bonds of risky, low-rated companies paid more interest than their defaults cost. From 1977 Drexel sold such 'junk' bonds for growing firms like MCI and Turner Broadcasting, then for corporate raiders and leveraged buyouts, in which a company is bought mostly with borrowed money repaid from its own cash. KKR's $25 billion RJR Nabisco buyout (1988–89) was the peak. Milken earned $550 million in 1987 alone.
Impact on society and the economy
It opened bond markets to mid-sized companies and made managers fear takeovers. Target shareholders gained; laid-off workers, defaulted bondholders and failed savings-and-loans paid. Modern private equity grew from it.
How we know
SEC and court records: in 1990 Milken pleaded guilty to six felonies, including securities and tax violations, paid over $1 billion in fines and settlements, and served about 22 months. Connie Bruck's The Predators' Ball (1988). Pardoned in 2020.
Still debated
Whether 1980s buyouts made companies more efficient or mainly shifted wealth from workers, bondholders and taxpayers to shareholders is still debated, as is how serious Milken's crimes were.
Connections (2)
▸Deregulation, privatization and 'shareholder value' made room for Michael Milken, junk bonds and buyoutsMostly agreed
The connection
Looser rules widened the market for junk bonds and takeovers. The 1982 Garn–St Germain Act let savings-and-loans make riskier investments, and some bought junk bonds heavily. Reagan's Justice Department issued looser merger guidelines in 1982, letting far bigger takeovers proceed. Together these opened the way for Milken's hostile-takeover financing.
When and how
Washington and Wall Street, 1980–1989: the Garn–St Germain Act and new merger guidelines (both 1982); Drexel's Beverly Hills bond desk became the market's center.
How sure are we?
Congressional and regulatory records document the rule changes; studies of the savings-and-loan crisis trace junk-bond holdings at thrifts like Columbia Savings and Lincoln Savings.
Debates
Junk-bond issuance began in 1977, before most deregulation, so its rise also reflected Milken's own innovation and high inflation; how much the rules mattered is debated.
▸Michael Milken, junk bonds and buyouts put into practice Friedman doctrine: business exists to make profitsMostly agreed
The connection
Raiders armed with junk-bond financing bought undervalued or poorly run companies, often cutting jobs, selling divisions and loading on debt to pay shareholders. Supporters said this disciplined complacent managers who wasted owners' money, Friedman's core complaint; critics said it sacrificed workers and long-term investment for quick gains.
When and how
US boardrooms in the 1980s: takeovers of Revlon (1985, by Ronald Perelman), TWA (1985, by Carl Icahn) and RJR Nabisco (1988–89, by KKR).
How sure are we?
Economist Michael Jensen explicitly defended buyouts as enforcing shareholder interests (1986, 1989), and raiders used the same shareholder-value language.
Debates
Economists Andrei Shleifer and Lawrence Summers (1988) argued many takeover gains could come from breaking implicit promises to workers and suppliers, not from efficiency; how often that happened is still debated.