Economics - Stars of the Junkyard - Junk Bonds

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  • Topic: Leveraged buyout, Drexel Burnham Lambert, Private equity
  • Pages : 18 (5855 words )
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  • Published : February 14, 2013
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|tHE hAGUE UNIVERSITY | |Personal Essay Assignment | | | | | | | | |

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TABLE OF CONTENTS

INTRODUCTION3

SUMMARY – ARTICLE4

SUMMARY – REVENUE (5.5)5

LINK BETHWEEN ARTICLE AND THEORY6

CONCLUSION9

USED LITERATURE10

APPENDICES11

Briefing| Drexel Burnham Lambert’s legacy: Stars of the Junkyard11

INTRODUCTION

In the pages to follow, I will introduce a couple of topics. One on revenue from an economic point of view, and a story about one of the most popular investment banks in the mid 70’s and 80’s, Drexel Burnham Lambert and its star junk-bond trader Michael Milken, and the legacy they left that revolutionized the bond market.

Furthermore, I will link the theory learned in class, and more specifically the revenue, to the legacy and past of Drexel Burnham Lambert. By doing this, I want to prove that I have gained sufficient knowledge at that point, that I could read and understand economy related media on a high enough level, to be able to link it to the gradually thought theory.

SUMMARY – ARTICLE

Stars of the Junkyard

Today, the Creative Artist Agency occupies its recently built offices in Los Angeles, California. In the same building are located three investment firms. All three can trace their origins to the popular in the 70’s and 80’s investment bank Drexel Burnham Lambert that collapsed in 1990, deteriorated by an insider-trading scandal.

Without doubt, the star of DBL was junk-bond trader Michael Milken. Some twenty years ago he was sentenced to ten years in prison, after being proclaimed guilty on charges of securities frauds, but was released in 1992, serving 22 months in jail. Throughout the 80’s, the investment bank was the hottest firm in investment banking, where Milken was king. He used his knowledge and talents to open up the high-yield bonds market, which helped his employers to enter new areas of investing like mergers and acquisitions, and by 1985 Drexel Burnham was the most profitable company on Wall Street.

But later, the company lost its ways and fell of the weight of legal battles and fines of $650 million, because of securities frauds investigation. Thus Michael Milken was forced out in 1988 and the company lost its shining star and their biggest source of revenue. As he left, the junk-bond market imploded, new regulations entered and bond prices fell down, raising suspicion about a Ponzi scheme. However, DBL was left three legacies, a sevenfold growth in the junk-bond market; grown American Corporate elite, financed by junk-bonds; and the young MBA graduates Milken hired.

Before Milken revolutionized the high-yield debt market, much of the issued securities were graded BBB-, the lowest investment grade. His work allowed many middle-sized companies that had poor credit ratings to raise sufficient capital, an access to credit stopped by commercial and investment...
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