The Predators’ Ball by Connie Bruck

refusal was evidence that the autocratic salesman-trader had no interest in the future of Drexel and was merely using it as his vehicle while it suited him.
    Now Joseph persuaded Milken to make a show of good faith by taking some stock. Milken agreed, on the condition that the firm offer him a special issue—a bond with a warrant, a kind of hybrid convertible. Since this issue and a second issue several years later were made available only to Milken and some of his designated people in L.A., it became known within the firm as the “Western convertible.”
    â€œWas a special deal created for Mike, different than for anybody else? Yes,” said Edwin Kantor. “Did he deserve it? Yes, again.”
    Milken, of course, had not done this solely as a peacemakinggesture. As one former member of his group explained, “Before that [Milken’s taking stock], he just thought of it as a place where he had a nice deal. But by this time he saw that what he was creating was going to be unbelievable, and the profits were spilling over to the firm, in corporate finance and so forth. So why shouldn’t he get his money both ways [in his percentage-of-profits deal and as an equity holder in the firm]?” He added that many members of Milken’s group—who heretofore had not owned a significant stake in the firm—now followed Milken’s lead. By 1986, Milken would be the firm’s largest individual shareholder, owning about 6 percent of the firm’s stock, according to an estimate in Forbes.
    B Y 1980 THE recession had hit, and Milken’s business was especially vulnerable—for as interest rates skyrocketed, bond prices plummeted. But Milken was in his element. His friend Stephen Wynn asserted, “Mike does better in hard times than good. He goes hundreds of millions long. I remember I called him one day [in the early 1980s] and said, ‘How are you doing?’ ‘Wonderful,’ he said. ‘Down eleven million today, after sixteen million yesterday. I’m stuck for a hundred eighty million in all.’ He was cheerful.
    â€œMike knows the market is crazy, but it will come back,” Wynn continued. “But the people who run money panic, they want to get out, so they start selling everything—and Mike will make a bid. Then he sits there. And when it does come back, he makes out.”
    Milken does not run with the herd. He is, said Joseph, “one of the greatest natural contra-thinkers I’ve ever seen. If you say, ‘It’s a nice day,’ he thinks about the fact that people think it’s a nice day, maybe it’s not nice somewhere else, maybe it’s not gonna be nice, compared to what, what do you mean, nice day? He really thinks that way. That is perfect for an investor, or a trader, to be a contra-thinker. It turns out it is perfect for a finance business, trying to figure out what’s going to happen in the future.”
    In the early eighties, Milken took Drexel’s junk-bond business characteristically against the current. While other investment-banking firms, some of which had been only gingerly testing the waters in junk, pulled back in the recession, Drexel kept pushing ahead, taking ever greater chunks of market share. In 1979 there were sixteen firms in addition to Drexel in the junk market; in 1980 that number dropped to twelve, and in 1981 to five. The totalamount of junk issued in these years did not vary that much, hovering between $1 billion and $1.5 billion—but Drexel came to be responsible for nearly all of it.
    In 1979 the total issued was $1.22 billion, and Drexel had issued $408 million of it. By 1981, the total issued was $1.47 billion, and Drexel had issued $1.08 billion of that total. Drexel did twenty deals that year, and its closest competitor did three.
    That competitor was Merrill Lynch—a firm that would try over the next two years to stay in the market and challenge Drexel’s hegemony. By