The Glory of Junk

Sunday, August 14, 2005
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I’m currently reading Junk Bonds: How High Yield Securities Restructured Corporate America, by Glenn Yago. This is an insightful study about junk bonds and economic growth. Yago argues that, pre-Milken, much of corporate America had no access to long-term capital and thus did Michael Milken offer ungraded securities for companies that could not yet obtain investment grade support, due to either “newness” or untested waters in regards to radical, new ventures. This financing revolution, of course, led to the exponential growth in the glorious technology that we all enjoy today.aa.jpg Said Michael Jensen in “Eclipse of the Public Corporation,” Harvard Business Review: “Junk bonds meant the eclipse of the public corporation by taking capital out of the hands of Wall Street elites and democratizing it.” I’m not sure that “democratizing” is the right word, but Milken indeed raised $2 billion for MCI, allowing it to invest in its fiber-optic telecommunications system. Then there’s the heroic Charles Merrill, who brought investment speculating to mom-and-pop America, and junk bonds to Wall Street (a fact that is ignored by the linked Wikipedia entry).

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