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The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street by Jonathan R. Macey

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5. Proof in the Pudding: Michael Milken, Junk Bonds, and the Decline of Drexel and Nobody Else

This chapter tells the story of the collapse of Drexel Burnham Lambert, which was the first significant example of the failure of the old reputational model. First, this chapter introduces Michael Milken, who created the so-called “junk bond” market and helped turn Drexel into a financial powerhouse. Milken and his team underwrote and sold below-investment-grade corporate debt that produced significantly greater returns than investment-grade bonds and helped finance a period of rapid corporate expansion. Second, this chapter describes how Milken became implicated in the savings and loan (S&L) crisis of the late 1980s and early 1990s. The S&L business ...

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