Michael Milken

and Drexel wealthy beyond their dreams. However, the same competitive nature that made Milk and millions ended up hurting him in the end. In April of nineteen ninety, after four years of investigation and prosecution, Milkin pled guilty to six counts of violating securities law, spent one year and ten months in prison, and paid a government fine of two hundred million dollars, and put an additional four hundred million

in a fund to compensate investors. Both before and after his incarceration, Milkin has been heavily involved in philanthropy and now leads the Milk And Institute, among many other organizations. He recently sat down with Carlisle Group co founder David Rubinstein. They spoke on David Rubenstein's Bloomberg television program Peer to Peer Conversations. You signed the giving pledge Green to get away half your money. What did your children say about that? Well,

it's interesting. They've been involved in our philanthropic efforts since they were young. And Uh, my wife, Laurie. Lorie defines wealth is that she can buy any book she wants. Uh, And so I think that's been instilled in our children from the very beginning. You met your wife in high school. We met in seventh grade, seventh grade, and you've been married for how long? Well, we just celebrated our fiftieth Winnie anniversary. Okays a professor? Okay, so you didn't date

a round when you were in the seventh grade edition? Well, and who didn't really? We dated maybe once in the ninth grade. But you know, she knew who I was and who she was. She was voted in high school the most likely to succeed. So I wanted to hang around here as much as I did. But what were you? You weren't voted that I was voted the most spirited friendliest at that time. So you grew up in Los Angeles?

Is that right? Yes. My father was a lawyer and an accountant, and my mom was a homemaker, and yes I got to work. Anyone who's the child of a person has his own accounting firm. You don't you get to work on balance sheets and tax returns when you're eight? Did you at the early ages where you are pretty good student? Well? I was a very good student. But what they did instill on all of us is that for us to have a meaningful life, at least everyone

had to have a chance in a meaningful life. And if our children or our children's children, we're going to have a meaningful life or a good life, then all children had to feel they had that opportunity, and that was instilled with us. So you go to Berkeley and um, you're gonna major in science and be a scientist and so forth. What happened? Why did you change? On August eleven, what became known as the Watts Riots occurred, So I didn't have to go to Vietnam. Their armed personnel carriers

on the street, the city is on fire. And it took a while for me to convince my dad to let me go and understand what was happening, because I was convinced I knew everything, and I met a young African American man who had sitting outside looking in a building that had burned down that he worked in. No one would give any financial support to his father or

to him because he was an African American. And it struck me that I thought I knew everything and now everything that I believed a chance to succeed based on your ability. No, w your parents were not we went to school, not your religion, not we were there a man or a woman, that this individual had made a irrational decision watching the burning down of the building that employed him, and that he felt he wasn't part of

the American chain. So I went back to Berkeley, changed my major to finance in business uh and was determined to change that so that everyone felt that they would have access to capital based on their ability. Majored in finance and then went right to business school at at at Wharton. Is that right, that's correct. You have the highest grades in the history of the school. More or less,

there's that that happened. Yes, Okay, So you graduate from Wharton in nineteen seventy and you're working for Drexel, which is a leading prestigious firm. Then, but um it is said that you discovered the idea or helped to propel the idea of that investing in and what's called high yield bonds was a better investment than investing in UM let's say investment grade bonds. Is that more or less?

It is. One of the ways I was able to convince the firm was I took a look at the stocks they were recommending, and most of the companies were non investment grade. So here they're suggesting you invest in the equity of businesses, but not suggesting you could buy

preferred stocks other part of the capital structure. It's you know, if we look at it today, David, you know the rating agencies about the lowest you can be rated before you go bankrupt, and then you get a D. Is the triple C. Well, let's think of three firms that are in the news today. Uber companies worth tens of billions of dollars, doesn't have a lot of debt relative to its equity, Well, it's rated triple C. Your your talking about Tesla doesn't have a lot of debt relative

to its equity. It's rated triple C. And or you can go to we work the rated triple C. So what what I discovered was quite often the future and credit is rated low even though it's the future, and the real risk lies often in companies that we think of his establishment or have paid dividends for a long time. All Right, So you're doing reasonably well living in Philadelphia and you go up to New York. You're commuting back

and forth. Well, the person I went to work for, who is the chairman, got in a serious accident, and so they asked me to go to New York and set up the bond department in New York for the firm. So I had my two and a half hour commute each way. And you're doing that at what age were you? I was twenty four. You're twenty four years old, and they're having you set up their operation to lead their effort in New York. Yes, okay, did you like try to look older than twenty four? You know, you know

it's funny you say that, David. And in nineteen seventy four, I'm in hard for giving this talk uh to the insurance companies, and a person said, you know, we have a lot of young people coming up here. We generally don't like to listen to anyone under thirty. I said, I fully understand that myself, And so I was thirty for a number of years. You know, so you told people you were thirty. Okay. So, um, you ultimately your father comes down with cancer melanoma, and you decide you'd

want to move back to be closer to him. So you went to people at Drexel and said, I'm I'm moving the operation to l A. Whether you like it or not, or is that how it worked? This was an unusual period of time. Um, all these theories that I had at Wharton and at Berkeley, everything that I had studied for from six to seventy four, I was able to apply and all these theories turned out to

be true, and the modern capital markets began. But my mother in law and had breast cancer and my father had melanoma, and I could not solve the melanoma problem from my father. So I didn't really get to Basque and the son of your theories and finance and markets and change that occurred because I now faced really the first problem in my life that I could not solve. My father was dying, and I made the decision. We had two young children that they needed to meet my

father and spend time with him before he died. And therefore I was either going to take a sabbatical or I was going to move the whole department to Los Angeles. Okay, so everybody moves out to Los Angeles and they fall in love with the California lifestyle, I guess, and they're probably not wearing ties to work or anything like that. Is that true? Or well, they're not wearing ties to work.

But you know, I had the clock set on New York times, so when you came in, if you came in at four and said seven, yeah, you know, psychologically he gives you a little boots you have to get up at two to do that or something three. But and then but then at four o'clock you sent them back to l Any time, you get your second win,

so you get him back to last. So somebody wanted to start a new company, like Ted Turner or Rupert Murdoch or John Malone, they had to come to somebody like you to get money, and you would give them hi yel bonds. Can you explain how you kind of invented hi yel bonds for people to get new companies off the ground as opposed to traditional today venture capital. I would take you back to seventy four. So what happened in seventy The banking system had to save itself

growth companies. They were denied capital in this period of time, and therefore, once you saw the performance, the decision was, you don't want to rely on your financial institution for access to capital, and so to de risk America, to de risk the entire system. You want to have ten thousand, a hundred thousand institutions like your own at Carlisle, who could invest. You don't want to be dependent on a

handful of banks. In night, when the Asian crisis started in Thailand, there were five banks that got in trouble, but they were providing the capital to everyone in the country. So to understand the future, So if cable is the future industry, of course it's going to be rated very low at the beginning. But if you can find the most talented people and give them capital to grow, and that was really the mixture. Let us go find people that are talented. So when you mentioned Rupert Murdoch, Rupert

wanted to build a company. His passion for what he's done. He almost lost his company when he was in school in England and his father died and adelaide and they tried to take his family company. So he remembered that. But he wanted to build something. Ted Turner wanted to build something. And so you're interacting Craig McCall. His family was in cable, was in radio, was in television. They

were willing to give all that up for seller. You wanted to find that individual who had passion for what they were doing, and if you believed in them, finding great people on back him is obviously one of the great decisions. And so bringing capital to them they might be low rated. And there was only five companies in America raided investment grade Sea. You can imagine, I'm coming to Wall Street. I have umpteen million companies and everyone else is focused on five and those five hundred don't

create jobs. Did you ever have somebody come to you if you didn't finance them and they actually turned out to be successful? Ever later that ever happened? Or I'm sure there wasn't, But there were plenty where the idea didn't make any sense, you know, I remember we had a presentation on investing in in an oil of drilling business and an oil exploration business, and they brought them in and we wanted to see their data. And about an hour into the meeting, I asked them what technique

they use close oology. And I think one on things I've discovered over the years, if you don't understand something, ask what it is. A lot of people don't ask, they don't want to show they don't know. But I had never heard of close oology. And so their drilling technique is they see where others drill and they get as close as possible. There's no there's no geowag gee, there's nothing going on. So we decided not to finance that company. Okay, so you're at the height of your power.

You are the most important person in finance in the United States, I think most people would probably say at the time. And then all of a sudden, some people didn't like what you were doing and investigate and ultimately you leave Directel at a very important point in your king. You might have thought that I was the most important person, but you know, I don't view that world. The most important person was the person who is responsible for running

that business. We can help create the capital structure, but the other person is responsible for the business. We can coach him, we can talk to him. But yes, long before I left, in the mid nineteen eighties, there was legislation introduced in America to ban the deductibility of entrance for non investment great debt. So if you're one of these five hundred companies, you're entitled to borrow and duct interests. But if you're not, then you're not. We were so

surprised by the reaction of congressmen or senators. One told us that, you know, if their state has to sacrifice to get rid of the scourge of junk bonds by that time, they were junk bonds, uh, that they would sacrifice at that time. So the idea that you were going to deny capital two smaller and medium businesses who were creating at this time a d percent of all jobs.

The was kind of reminded me of the nobility in England with the mercantile class, where you went to the king and said, Okay, we can no longer compete with these businesses or the people, so therefore you have to deny him access to Camp ultimately left the company and you started different businesses, and then you came down with prost cancer, you were told that you didn't have very long to live? Is that right? It spread through my body. So I actually had to lay down for almost twenty

four hours and think about it. I had lost ten relatives to cancer, and so I had to think, Okay, what can I do um differently than they did. So the first thing I decided was I'd stopped eating anything except fruits and vegetables, this idea that maybe something that I was eating was accelerating the growth of cancer. Second, I reduced stress. I had just come out of an extensive stressful period me versus parts of the US government and uh, so I started meditation and I had to

do something different to survive. I went and visited she doctors in China, he ers from Russia, which doctors in Africa, Indians in the northwest Amazon. Uh what did you conclude that any of no more than the western doctors. I didn't have a lot of faith in the healers. But the one that I embraced was iravade in medicine from India. And I moved a doctor and Iravated doctor into my house for six months. And the herbs, the meditation, the chanting ah and I took these hormones. I felt that

there was an opportunity here using immunology. UH to change my outcoming need to accelerate research. Uh, if I'm going to save myself or I'm going to have to change how medical research has done. We created camp here and the promise was, we're gonna double the money going into medical research. We're going to triple the money going fross cancer research, and we're gonna increase prostate cancer tenfold. But

today you you're um in remission. I'm in total suspended animation here, but I'm in you know, you could say remission. I've now celebrated my year. The death rate from projected levels has followed by there's millions of men alive today. Um, I can see the end of cancer as a cause of death with treatment. The changes that have occurred in bioscience are so dramatic, particularly in achnology. What is it that you did that helped to change the way we finance health or look at it? I would say, first

you collected data. If you're going to accelerate science, it has to be based on basic science. But first data, let's check your micro am let's sequence. Uh, your disease if you have it, and then let's give you something that will work for you. We talked about health. Are you an exerciser? Yes, I would say it's two thirds what goes in and one third the exercise. And what do you what do you are? Your sports person or you have just jim? What do you do well? Here

was one of my problems. Uh, when I was twelve. I was five eleven. Now it's seventy two on five nine and a half, okay, And I did not grow one quarter of an inch from twelve. So I was a star basketball player at twelve, the player of the year. Then something happened and everyone else grew two inches and I didn't. I went from center to forward, to guard, to the bench to the stands. Okay, let's talk about other things you're doing at philanthropy. You've been very involved

in education. Why is education so important? When I was in elementary skill in the fifties, only of jobs required a skill. Today, whether it's a skill or a semi skill, eight jobs require some skill, some knowledge. And I think when we studied education in the nineteen seventies, what we discovered was the United States was the most educated country in the world, and so other countries have now caught

the United States and passed. And so yes we are the leader and higher it and as you know as the former head of trustee of so many of them today, but we are strained in many ways in education. So our whole emphasis in our foundation was education, and that's why it was launched. And it was really the education. I got that we didn't focus on the schools and for our employees as much as we should have. You look back on your remarkable career, any regrets in your

nancial career. Sure, there's a few people I wish I would have never met Okay, or a few phone calls I wish I would have never returned. And but I think also I regret that the American public didn't understand almost every person is high yield junk. You know, when things started coming from Japan in the sixties and seventies, everyone said they were junk. It's junk, And then all of a sudden we felt by the eighties the quality of their products and cars was better. Everything coming on

to China was junk. The American public didn't understand they were talking about themselves. Sixty million jobs being created by non investment grade companies in the latter third of the twentieth century minus jobs being created by investment grade companies. And I think going forward, you know, I'm going to devote a large percentage of my time here to the American what I call the living the American dream. Now

you're creating a center for the American dream. So why don't we conclude with what do you think the American dream is all about? I think the American dream, which is so unique, is a chance to succeed based on your ability. You're going to work hard, your knowledge, your insight, which is one of the most valuable qualities. Now, I can't tell you how depressed I am when I see that of Americans under thirty. I think they're going to have a better life than their parents. A long time

ago it was of Americans. So why do they feel that? Why? Why? Why do fifty of Americans under thirty think socialism might be better? In the free enterprise system, you can see socialism and venezuela playing out, and so something is miss seen. And I think, as I've been focused on it one it's hope. What I see is a large percentage of Americans don't see that hope. They have their student loans that are burdens for their entire life. Even if you

go bankrupt, you can't get real your student loans. We have to eliminate student loans. We have to find another way to finance college. Two. Someone try to take their parents home in two thousand eight or nine or ten, or they lost their homes, so their interaction with our financial system, they haven't really seen the benefits of it. We need to make sure that the financial system is working for them. It needs to and it should, and it starts with education, and starts with health, and it

starts with access to capital. So for me, I'm going back to where I was fifty years ago. Thank you very much for doing that, and thank you for your time today and very remarkable career. Thank you, Muchell, thank you David, Thanks, thank you, thank you must I, thank h