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All this makes pleasant reading, but it's questionable what it means. Lipton was making a rhetorical gesture at Tulane, not a precise historical analogy. In Lipton's big corporate world view, with its omnipresent governance fixation, Milken (pictured) did represent the first "barbarians" at the corporate gate, the first real attack on the prerogatives of the large company and its imperial CEO. After all, junk bonds fueled the '80s raiders -- and there's a direct line from them to activist investors and hedge funds today -- and to private equity, which for all the recent turmoil, still has effectively shattered the hegemony of the "public" company. Lipton, of course, never mentioned that Milken may have also ushered in a deal economy that made a law firm that specialized in corporate defense -- like Wachtel Lipton Rosen & Katz -- so enormously powerful. Milken offers his views on these matters, but the fact is much of it's beside the point, if only because we can't change the past no matter what Lipton says. Milken himself at one point seems to take credit for both junk and structured finance, the source of the subprime mess. But while Milken was an innovator, he hardly invented everything. He was a creature of his times as were his high-yield bonds (which he didn't invent either, only perfected and, for a time, monopolized), but he is not usually known as the father of mortgaged-backed securities -- Lewis Raineri, then at Salomon Brothers, is. The larger point here is that both Milken and Raineri were part of a larger wave of innovative finance that resulted from a variety of factors, including advancing computer technology, the theoretical breakthroughs of financial economics and -- most importantly -- the kind of liquidity available in an affluent society increasingly comfortable with financial risk. Milken recognized those conditions, saw that many smaller companies were essentially orphaned by the plain-vanilla offerings of bonds, loans and equity, and made his move. A similar story could be told about Raineri and dozens of other innovators of new markets serving "new" (or newly recognized) corporate and investor needs, including the development of SIVs, CDOs and CLOs. The real question here is whether junk, and all the other financing markets that grew up to service various parts of the risk profile, were good or bad on the whole. Milken may have pushed his dominance too hard, but junk did open up financing possibilities for companies in the middle market -- allowing them to compete more effectively with big corporates and feed a deal market for both strategic and financial players. Milken's junk accelerated the deal economy -- eroding the hegemony of the large (including the CEO), leveraging the possibilities of the small, force-feeding innovation and playing a role in a financial economy that seems always to be on the verge of overheating. It's a mixed bag (as most bags in the real world are), but with the exception of Lipton (and maybe not even him), is anyone really prepared to return to a world dominated by a few major corporations, where the middle-market operator has little choice but to beg for bank loans? Raise your hand if you're ready for the '70s again. - Robert Teitelman See story from The New York Times CategoriesComments
From: PJ,
As the first commenter stated, nice balanced article bringing up both "sides". Of course modern financial innovation is neither good nor evil. It's what you do with it. If you're reckless and don't have any risk controls, then you're bound to end up poorly. If you do have decent risk controls based in the real world, then you're probably making a killing. Either way, it's how you use the tools, not whether the tools are inherently good or evil. Thanks!
Posted on:
April 30, 2008 8:25 AM
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Andrew Ross Sorkin, pivoting off a Marty Lipton 
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Your notes are balanced and historically accurate. What a pleasure after much of the self-serving, factually-inaccurate drivel that passes for commentary.