Michael Milken: A Case Study in America’s Moral Schism

Abstract

This brief article explores competing views on Michael Milken and tries to extrapolate some implications for American law and culture. Milken has been described as a genius, a thief, an industrial revolutionary, a rapacious predator, and the person you would want your children to be when they grow up. Some praise Milken for inspiring private equity and other modern acquisition methods. His approach to corporate finance birthed the takeover frenzy of the 1970s and 80s and normalized the use of leveraged buyouts as a reorganization tool. Others see Milken as a symbol of personal greed and social pathology. Critics have charged that his use of debt to takeover and restructure companies (often laying off employees) is akin to piracy and represents the very worst of a capitalist economy.

These conflicting interpretations of one man’s career point to a schism in moral values. Some see the reports of Milken’s work ethic, ambition, and mathematical genius as qualities to encourage in our society. Others see these attributes as a threat to social stability and decency. To demonstrate this moral divide, this article explores the financial rise and the regulatory fall of Milken and compares the commentary of his detractors and supporters. In addition, this article highlights how conflicting notions of fairness lead to disparate legal treatment of otherwise identical behavior. For example, the law views buying real property based on an information advantage as fair and legally acceptable, while buying stock with an information advantage is considered unfair and often results in legal liability.

The evidence suggests that this moral divide is based on more than disagreements among Americans about what constitutes moral business behavior and the required characteristics of a just society. The evidence suggests that many Americans are internally conflicted on these questions.

Keywords: Insider Trading, Michael Milken, Hostile Takeovers, Leveraged Buyouts, Fairness