High Rollers On the Downside

Another vestige of the Reagan era went the way of the hula hoop this February when the investment banking firm of Drexel Burnham Lambert declared bankruptcy. Drexel et al. was, in more prosperous times, the home base for Wall Street megabucks hustler extraordinaire Michael Milken. In the mid-to-late '80s, under Milken's leadership, Drexel was at the white-hot center of the Wall Street action from which emanated such quintessentially '80s fads as junk bonds, leveraged buyouts, and insider trading.

It was the latter, a form of outright fraud -- even in the deregulated age -- that finally brought Drexel down. Ivan Boesky turned one last big deal with the feds and fingered his buddy Milken for 98 counts of illegal market manipulation. The criminal case finally deprived Drexel's decade-long con game of its crucial ingredient: investor confidence. Suddenly the paper stopped moving. The debts went unserviced. And the deal went down.

The demise of Drexel probably drives the last stake through the heart of the speculative junk bond market. But the economic damage from those heady, bubbly days of fast talk and fast money will linger throughout the new decade.

Junk bonds are just what they sound like: pieces of paper, of dubious value, that promise the bearer a certain number of dollars at the end of a certain period of time. Traditionally bonds are issued by governments or other large institutions to provide long-term capital for major projects. Such bonds are considered one of the safest available forms of "evidence." Compared to traditional investment-grade bonds, the junkers matured quickly and promised to pay off big.

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