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Donald Trump’s recent pardon of Michael Milken, the so-called junk bond king, has brought out the usual suspects to denounce Milken. John Carroll, one of the federal prosecutors that secured Milken’s guilty plea (more on Carroll later) declared in the Washington Post that Trump’s action “outraged” him and claimed that the pardon is proof that American “justice” is unjust:
What outrages me, and what I think should outrage others, is the process that brought about the pardon. In as guileless an admission as I have ever seen of rich man’s justice, the White House bolstered its decision by listing a murderer’s row of Republican donors and billionaires who provided “widespread and long-standing” support for Milken’s pardon.
In fact, what makes this pardon worse, according to Carroll, is that wealthy people—and even Rudy Giuliani himself, the man who led Milken’s prosecution—asked Trump to pardon him. In other words, some of those who have stood up for Milken are wealthy beyond a reasonable doubt, and if their names aren’t George Soros or Kennedy, they should just shut up and count their money.
Indeed, I, too, am outraged by Trump’s pardoning Michael Milken, but the cause of my outrage is that Milken should have needed a pardon at all. That he was coerced into a guilty plea—for “crimes” that federal judges later would say were not criminal actions—and that he spent two years in a federal prison is the real outrage, and the fact that even after thirty years American political and legal elites still are holding to the same false narrative should raise the blood pressure of any person who believes in liberty, fairness, and the rule of law.
For those readers who do not remember the infamous Wall Street prosecutions of more than three decades ago, the story does not have a happy ending. In his brief article celebrating the Milken pardon, David Gordon cites Murray Rothbard’s commentary on that era. Rothbard correctly identified it as a struggle between Michael Milken—a true financial genius who had a positive macroeconomic effect on the US economy—and the power elite.
The story of Michael Milken does not begin with his guilty plea or even the start of the Wall Street predations led by Rudy Giuliani, who then was the US attorney for the Southern District of New York and used his success to launch his political career. Instead, it begins during the Great Depression, when the Franklin Roosevelt administration decided that America’s economic salvation lay in reorganizing the US economy into a series of cartels.
Because of the huge rate of bank failures in the early 1930s, the New Dealers especially sought to cartelize the nation’s financial system, and although the system held together in the first two decades after World War II, by the 1970s it was clear that the heavily regulated and noncompetitive system was not up to enterprises tied in with the new technologies making their way into the economy. That is where Michael Milken and his high-yield bonds underwritten through the upstart investment bank Drexel Burnham stepped in.
When CNN ran its story on the pardon with a snarky headline derisively calling Milken the “Junk Bond King” (and falsely intimating that he was convicted of insider trading and calling him the “face of greed,” another misnomer), the story failed to point out that CNN’s very existence is due to the fact that Milken underwrote its financing through those “junk bonds” that CNN’s talking heads now are deriding. The cartelized banking system was not about to finance a 24-hour news channel, something the “experts” were panning, and especially not one founded by the iconoclastic Ted Turner and to be headquartered in Atlanta and not New York.
Milken also led the financing for McCaw Cellular and MCI, both of which helped to revolutionize telecommunications and upset the status quo. However, as Rothbard points out, Milken’s real “sin” was to be a major force in financing the wave of mergers and hostile takeovers that challenged the progressive status quo in corporate America and the mainstream media. Rothbard wrote:
What Milken did was to resurrect and make flourish the takeover bid concept through the issue of high-yield bonds (the "leveraged buyout"). The new takeover process enraged the Rockefeller-type corporate elite, and enriched both Mr. Milken and his employers, who had the sound business sense to hire Milken on commission, and to keep the commission going despite the wrath of the establishment. In the process Drexel Burnham grew from a small, third-tier investment firm to one of the giants of Wall Street.
The establishment was bitter for many reasons. The big banks who were tied in with the existing, inefficient corporate elites, found that the upstart takeover groups could make an end run around the banks by floating high-yield bonds on the open market. The competition also proved inconvenient for firms who issue and trade in blue-chip, but low-yield, bonds; these firms soon persuaded their allies in the establishment media to sneeringly refer to their high-yield competition as "junk" bonds, which is equivalent to the makers of Porsches persuading the press to refer to Volvos as "junk" cars.
The Wall Street establishment had its own weapon in Giuliani, who saw an opportunity to permanently ingratiate himself with New York’s political and financial ruling classes, which would prove to be valuable to him when he later became the city’s mayor. Both Daniel Fischel and Harvey Silverglate have written definitive books in which they detail the abusive way that federal prosecutors went after the financial upstarts using the Racketeer Influenced and Corrupt Organizations (RICO) Act. I also detailed Giuliani’s predations in Regulation a decade ago:
The most notorious business RICO prosecutions came in the late 1980s when Giuliani, then the U.S. attorney for the Southern District of New York, went after two investment firms, Princeton-Newport Securities and Drexel-Burnham-Lambert, which employed Michael Milken. Because RICO’s language is vague, Giuliani found a political treasure trove on Wall Street, where the onerous penalties that accompany RICO coincided with the fact that few people who work on Wall Street ever have been caught up in the maw of the criminal justice system. Giuliani bragged that business people “roll a lot easier” than do hardened criminals. The complexity of the criminal charges plus the stigma of being investigated or charged with “crimes” made Wall Street figures more likely to plead guilty.
Giuliani made it clear that he had targeted Milken for prosecution no matter what, and given the malleability of federal criminal law, Giuliani was able to channel the infamous Lavrentiy Beria, Stalin’s state security head who once declared, “Find me the man, and I will find you the crime.”
Giuliani’s strategy was simple: denounce Milken to a hungry press and feed journalists what for all purposes was disinformation. Select reporters such as James Stewart and Laurie P. Cohen of the Wall Street Journal and journalists at the New York Times received illegally leaked material from the grand jury. Although such leaks are felonies, federal prosecutors are not in the habit of indicting themselves, and the lawless behavior of Giuliani and the elite financial press sent a signal to Milken and everyone else in the federal crosshairs that the rule of law did not apply when the feds were engaged in a popular “war on greed.”
Using the RICO statute enabled Giuliani and his staff to take regulatory violations that normally were handled in the civil arena by the Securities and Exchange Commission and bundle them into “racketeering” charges. At the same time, federal prosecutors constantly threw out the accusations of insider trading, even though they never charged Milken with such “crimes” (and had they had real evidence, there is no doubt that they would have levied that charge, too). However, the progressive American media picked up the “insider trading” narrative and ran with it, just as they did with Martha Stewart (who also did not engage in that act).
While prosecutors levied the usual “fraud” charges against Milken that one sees in federal prosecutions, the actual charges were weak, something that really would come to light when federal judges later deep-sixed identical charges against other Wall Street defendants in future trials. Milken, however, pleaded guilty, something that Carroll writes is proof of his guilt:
I cannot speak to Milken’s place in financial history, but I can attest that he committed financial crimes. I know that not only because we prosecutors saw the evidence but also because his attorneys, the best lawyers of his generation, counseled him to plead guilty. It is true that his crimes were “technical” and “regulatory” in the sense that they violated, as Milken himself put it, “the laws and regulations that govern our industry.” I have always thought that his sentence answered any suggestion that his crimes were less than serious. The sentencing judge determined that Milken should spend years of his life in prison and then three more years doing community service. That has always seemed very serious to me.
Actually, Carroll seems to be quoting himself regarding the “technical” and “regulatory” aspect of Milken’s so-called crimes, since it was Carroll who bragged to Rutgers University law students in 1992 that the government had broken new ground in this case. Federal prosecutors, he said,
were guilty of criminalizing technical offenses….Many of the prosecution theories we used were novel. Many of the statutes that we charged under…hadn’t been charged as crimes before….We’re looking to find the next areas of conduct that meets [sic] any sort of statutory definition of what criminal conduct is.
In other words, Milken and Carroll made the same claims, but now Carroll somehow wants to say that only Milken was saying such a thing. This speaks volumes about Carroll’s integrity.
So why did Milken plead guilty? Even had a Manhattan jury convicted him, the appellate courts almost certainly would have overturned the convictions as they did for the Princeton-Newport defendants. Milken pleaded because federal prosecutors essentially took hostages. First, they aimed their guns at Milken’s 92-year-old grandfather, threatening to prosecute him. Then they indicted Milken’s brother, Lowell. However, they promised Michael that if he pleaded guilty, they would drop the charges against his brother and not prosecute his grandfather. As Giuliani would quip, “A brother for a brother.”
More than three decades have passed since Milken pleaded guilty, his case still brings out the long knives. It doesn’t matter that federal prosecutors committed felony after felony and lied about Milken’s activities. It doesn’t matter that Milken probably broke no criminal statutes and that the advances in finance that he helped create were immeasurable. Nor does it matter that Milken has been a major player in researching prostate cancer—and he even reached out to Giuliani when the latter was stricken with prostate cancer.
No, Michael Milken was responsible for the nonexistent “Decade of Greed.” The New York Times says so. Barron’s says so. The Washington Post says so. Even CNN says so, and Fox News also got into the “greed” act. The narratives, however, are built on something other than the truth. Rothbard puts the whole thing into perspective:
this whole Milken affair, in fact, the entire reign of terror that the Department of Justice and the Securities and Exchange Commission have been conducting for the last several years in Wall Street, raises a lot of questions about the workings of our political as well as our financial system. It raises grave questions about the imbalance of political power enjoyed by our existing financial and corporate elites, power that can persuade the coercive arm of the federal government to repress, cripple, and even jail people whose only "crime" is to make money by facilitating the transfer of capital from less to more efficient hands. When creative and productive businessmen are harassed and jailed while rapists, muggers, and murderers go free, there is something very wrong indeed.
This article first appeared at Mises.org and is reprinted with the author’s permission.