Michael Milken at Drexel: A $550 Million Paycheck, RICO and Bankruptcy

SPEAKER_1 (0:00)

So, imagine you are looking at a corporate payroll ledger, right?

SPEAKER_2 (0:03)

Okay.

SPEAKER_1 (0:03)

And you see a single employee taking home a yearly salary of $550 million.

SPEAKER_2 (0:10)

Which is just, I mean, that number is absurd. Right.

SPEAKER_1 (0:13)

And to be entirely clear here, we are not talking about a CEO. We aren't talking about, like, the founder or the owner of the company.

SPEAKER_2 (0:19)

Right.

SPEAKER_1 (0:20)

We are talking about a guy who receives a standard W-2, just an employee.

And this wasn't last year during some, you know, massive tech boom. This was 1987

SPEAKER_2 (0:29)

Yeah, which makes it even crazier.

SPEAKER_1 (0:31)

Exactly. That staggering figure actually represents the highest salary for an employee in the modern history of the world. So how does someone pulling a standard salary engineer that kind of payday?

SPEAKER_2 (0:42)

Well, it fundamentally breaks our understanding of what compensation even means, especially when you, you know, adjust that figure for inflation.

SPEAKER_1 (0:49)

Oh, absolutely.

SPEAKER_2 (0:50)

I mean, we are looking at an individual who essentially built a financial machine so powerful and so completely reliant on his specific talents, that traditional corporate oversight just, well, it just ceased to exist.

SPEAKER_1 (1:03)

And that is exactly our mission for today's Deep Dive. We are going to map out the massive, almost mythical biographical archivist man, Michael Milken.

SPEAKER_2 (1:12)

Right. And the firm that served as his engine, Drexel Burnham Lambert.

SPEAKER_1 (1:16)

Right. We're exploring how this relatively small retail brokerage mutated into a Wall Street titan.

How Milken basically built the 1980s junk bond revolution from the ground up. And how a spectacular collision of ambition and paranoia brought the entire empire crashing down.

SPEAKER_2 (1:33)

And honestly, whether you casually follow finance or you study history, or if you're just fascinated by human psychology, this story is vital.

Because to understand the architecture of modern global finance, you really have to understand the shockwaves that Milken and Drexel sent through the system. We're talking about the invention of financial mechanisms that completely rewrote the rules of corporate America.

SPEAKER_1 (1:54)

Yeah. So to understand the $550 million man, we really have to start with the foundation he built upon.

SPEAKER_2 (1:59)

The origins.

SPEAKER_1 (2:00)

Exactly. The story actually begins in 1935 with a man named IW. Burnham who's known as Tubby.

So Tubby Burnham starts a small retail brokerage in New York with $100,000 in capital.

SPEAKER_2 (2:11)

Which was a decent amount back then, but...

SPEAKER_1 (2:14)

But the interesting part is that $96,000 of that was borrowed from his grandfather. Right. Yeah, who was a Kentucky distillery founder.

So for decades, Burnham and company grows slowly and steadily. And by the 1970s, Burnham has built his firm's capital up to a billion dollars. Which is huge. It is. But he hits this completely invisible wall. He has a billion dollars, but the business just cannot seem to grow any further. So if he has all this capital, why is Wall Street shutting him out?

SPEAKER_2 (2:43)

Well, you have to look at the architecture of old Wall Street during the mid 20th century. The financial sector wasn't just a pure meritocracy based on who had the thickest ledger.

SPEAKER_1 (2:53)

Right. It wasn't just about the money.

SPEAKER_2 (2:54)

No. It was heavily regulated by this unwritten, incredibly rigid social hierarchy. The real money was made in underwriting syndicates.

SPEAKER_1 (3:02)

Okay.

SPEAKER_2 (3:02)

These were groups of banks that teamed up to sell new stocks and bonds for major corporations. But those syndicates were completely controlled by a few elite heritage firms.

SPEAKER_1 (3:12)

So it was an old boys club.

SPEAKER_2 (3:14)

Very much so. Burnham's firm was classified by his establishment as sub-major.

SPEAKER_1 (3:19)

Which meant he was effectively second class.

SPEAKER_2 (3:21)

Exactly. Being sub-major basically dictated your entire existence. It dictated which lucrative deals you were even allowed to participate in.

SPEAKER_1 (3:29)

Wow.

SPEAKER_2 (3:30)

It even dictated the exact order your firm's name would appear in the newspaper advertisements announcing those deals.

SPEAKER_1 (3:37)

That is so incredibly petty.

SPEAKER_2 (3:38)

It really was. So Burnham had hit the absolute ceiling of the sub-major bracket. Just making more money wouldn't fix the problem. He had to acquire pedigree.

SPEAKER_1 (3:48)

It's like buying a vintage leather jacket just to get into an exclusive VIP club, you know?

SPEAKER_2 (3:52)

Yeah, that's actually a perfect way to look at it.

SPEAKER_1 (3:55)

But in Wall Street terms, getting into that VIP club meant you finally got to dictate the pricing and the fees on these massive corporate stock issuances. Right. So Burnham realizes he can't invent a hundred year history for himself out of thin air.