Saturday, July 19, 2008

Pardon me...

...but, though slowly, the wheels of justice still grind.

Picking over-ripe, low-hanging fruit with which to pelt her political anti-selves, the old Gray "Lady" has put on the table the subject of presidential pardons.

From the New York Times:
Among the petitioners is Michael Milken, the billionaire former junk bond king turned philanthropist, who is seeking a pardon for his 1990 conviction for securities fraud, the Justice Department said. Mr. Milken sought a pardon eight years ago from President Bill Clinton, and submitted a new petition in June.

"Felon" is a dirty word that is prominent in the piece -- the very headline, in fact -- and John Walker Lindh, another pardon hopeful, is pretty despicable company to be associated with. Mr. Lindh, a citizen-turned-terrorist, doesn't deserve the rights that felons are denied. But why should a "philanthropist" suffer the same penalty?

Milken, junk bonds and the very public destruction of Drexel Burnham Lambert were headlines a decade before "perp walks" became a regular media offering. The first legitimate business which RICO (a law intended to give government the power to seize assets of Mob controlled businesses) was (mis)applied to was Drexel.
In fact, the case, its consequences and penalties were so breathtakingly large that a study was done after the headlines started to thin out to ascertain just how much real "damage" the offenses for which Mr. Milken earned the title of "felon" had caused. That study put the number at about a quarter million dollars -- the equivalent of a parking ticket in the securities industry, which is known for its web of vague regulations that are quite open to "interpretation." [I'll try to find a reference to it, but it was a very long time ago.]

To my knowledge, no study was done to ascertain the economic benefit of this radical tool of corporate finance made newly accessible through Mr. Milken's efforts.

In the process of pursuing "justice" against the man who singlehandedly made junk bond financing a mainstay in the capital markets, Drexel was ruined (wealth destroyed, jobs lost); Milken, his brother, their families, employees, and anyone whose shadow had ever crossed theirs were dragged into legal hell: Michael Milken, the first Wall Streeter to earn $1 billion in a year -- back when it was a lot of money -- was forced to relinquish it all. The nuclear option had been used by Washington on Wall Street.

In the aftermath, the junk bond market froze, as did, to a lesser degree, stock and credit markets as market-makers huddled with counsel to discuss whether saying things like "your bunny has a good nose" over the telephone was legal or not.
Coincidentally, or consequently, the temporary paranoia of the credit markets brought about the S&L "crisis," the end of what was, at that time, a "real estate boom," and a deep U.S. recession. Then Bill "it-depends-on-what-you-mean-by-'is'" Clinton was elected.

The world was never quite the same after that.

The fact that Mr. Clinton refused to pardon Mr. Milken is a good sign that he should be pardoned. This can be deduced from the sorts of people Mr. Clinton did pardon. Mark Rich, for example, a "felon" financier arguably worthy of the title, was one notable recipient of the Clinton Indulgence.
Even Rudy Giuliani, who prosecuted Michael Milken, wanted to go into business with him a few years later. The hell he was put through cannot be undone, but the travesty of the residual label can, by pardoning this most un-criminal "felon."
And unpardon Mark Rich to do it, if you have to.

[thanks to these guys for the heads up.]


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