Long road back to a land of Milken honey

Michael Milken, disgraced father of the junk bond, is seeking a pardon. ROGER FRANKLIN travels Milken's road to acceptance.

Now that he has shed the cheap, synthetic wig that inspired jealous Wall St colleagues to make so many catty comments, Michael Milken - reformed Master of the Universe, father of junk bonds, convicted stock swindler and far-from-penitent ex-jailbird - is on the way to rebuting one of the more lurid speculations about the secret of his success.

Atop his head, where the evidence of his pact with Old Nick should be framed by the tonsured nature strip of surviving follicles, there is nothing but an unremarkable patch of shiny, bald and unblemished skin.

There are no surgical scars to indicate where the rumoured horns might have been removed, no birthmark in the shape of an interlocking 666, no trace of the diabolical talismans that US federal prosecutors once joked about.

Instead, beneath the dome once covered by that thatch of finest Taiwanese nylon, the man at the centre of the biggest scandal to transfix Wall St hopes the world cannot help but notice something else - the thing he has been polishing ever since his release from prison in 1993.

It's a halo, a saintly self-appointed crown he has bought and paid for, and burnished to a bright and blinding lustre of gleaming goodness with the help of public relations consultants and all the good will that a pair of very deep pockets can buy.

Within the month, if the Milken strategy goes according to plan, the man who already has everything will have something even more rare and precious: a presidential pardon.

For an icon of corruption who was once vilified by First Lady and Senator-elect Hillary Rodham Clinton as the epitome of the Reagan era's "Decade of Greed," Bill Clinton's signature on that coveted piece of parchment will be the biggest, and perhaps most improbable, coup of all.

"Mike accepted what happened to him in court, just as he accepted almost dying from cancer," said a former associate. "What he didn't accept was that his conviction marked the end of his career, just as prostate cancer did not mark the end of his life.

"In his eyes, the one and only real bad deal he ever made was agreeing to plead guilty. With the exception of [convicted inside trader] Ivan Boesky, everybody else who went down with him beat the charges, or had their convictions overturned on appeal. But by then it was too late for Mike: he had already done his time."

Though his friend was ardent in asserting Milken's innocence - relative innocence, anyway - the most telling part of the conversation was the parting request for anonymity.

"Don't use my name. I don't need the Securities and Exchange Commission getting in my face. Mike still carries some baggage."

It was always so, almost from the day in 1970 when the ambitious son of a solid but inconspicuous suburban accountant from Encino, California, arrived at the Wall St investment house of Drexel Burnham Lambert.

As a child, while other kids tossed baseballs, young Michael found his fun totting up ledgers for his father. Before the fall, when those who knew him as a nerdy youth were still eager to boast of their brush with greatness, a former teacher recalled how her prize student's mathematical skills made her feel like an innumerate simpleton.

"He could do the most complex problems in his head," she said. "Numbers spoke to Michael like nobody else I've ever met."

That her memories of Milken should have stayed so bright is doubly remarkable for the fact that two of his classmates achieved considerable fame of their own. The first was Oscar winner Sally Field. The other, superagent Michael Ovitz.

On Wall St, other strange and complex concepts also whispered their secrets to Milken. Not that he needed anything other than his own maverick personality to mark him as an odd bird in Drexel's gilded cage. There was that silly wig for starters, an abomination that looked as if it had been lifted off some schlub of a used-car salesman in Brooklyn. Still, given his obvious smarts, the rug was dismissed as an unfortunate but acceptable eccentricity.

Milken's decision to ignore the Street's traditional career path was, at first, harder to comprehend.

For years, the hallmarks of achievement had been a walnut desk and senior partner's berth trading blue-chip stocks like IBM, General Motors and Boeing. Such a life was the acme of achievement, the lofty pinnacle where money, success and prestige awaited the few who paid their dues and made it to the very top.

Milken, however, was all but openly contemptuous of the pin-striped tradition.

Sure you could make money, good money, trading stocks. But as far as he was concerned, the real profits were on the financial frontier - the largely unregulated land that centred on the business of floating and trading the cheapest and nastiest kinds of corporate bonds.

Decidedly downmarket and bereft of all prestige, corporate bonds were then the province of an unglamorous crew, the sort of sneered-at schleppers who earned their degrees at New York's low-rent City College rather than Harvard or Wharton.

An eighth of a point here, a tiny fraction there, the corporate bond trader had a hard-scrabble existence that required no guts and delivered less glory. Top stock traders had holidays in the Caribbean while bond guys ate hot dogs on the beach at Atlantic City.

All the same, that was where Milken wanted to work. His superiors didn't understand the attraction. But hey, what the heck! The kid was smart, so maybe he recognised something they had missed. Indeed he had.

While studying in the 1960s at Berkeley, the radical campus across the bay from San Francisco, Milken skipped the daily protests to immerse himself in the arcane theories of an obscure financial maverick called W. Braddock Hickman, who had done a comprehensive survey of low-grade corporate bonds from 1900 to 1943.

Hickman's conclusion was a revelation to Milken's open and incisive mind: while blue-chips had done well over the period Hickman studied, an investor who put his bundle into bargain basement bonds selected according to certain stringent criteria could have done almost six times better.

At Drexel, Milken preached Hickman's gospel to his employers, who decided to give the intense young man his head.

Author James Stewart, who chronicled Milken's rise and fall in the bestseller Den of Thieves, insists Drexel's chiefs didn't fully understand what their prodigy was on about. But if he was so keen to explore the bottom of the Street, they decided to let him dig for gold in the muck. And when he struck paydirt, they rewarded him by turning an artfully blind eye to just how he did it.

To understand the depth of Milken's insight, it is important to grasp what a bond is, does, and why companies use them.

Imagine for a moment that Consolidated Kiwi needs cash to open a new plant but is loath to issue more stock, since that might dilute the owners' control. So the company sells bonds guaranteeing high rates of interest in return. The risk is that if things go sour, the buyers lose their shirts.

Building on Hickman's foundation, Milken studied those formerly overlooked financial vehicles and figured out which companies were likely to honour their debts and which were apt to go under. Then he tried pitching the "paper" of companies he rated likely to succeed to investors. Trouble was, respectable folk reacted as if he was offering them hot nights with hookers.

So Milken looked elsewhere, stepping outside the clubby mainstream to find investors who were themselves outsiders. Men with reputations for playing fast and loose with convention - and sometimes the law - gave him their money, and Milken made his first real fortune. Although nobody noticed at the time, it was also the glorious beginning of the fall.

He was certainly a hard man to work for.

When one of his trading deputies called him in tears from the hospital to report that his wife had just given birth to a stillborn child, Milken told him to take the rest of the afternoon off - but to be at his desk first thing the next morning.

When another employee, at least according to Wall St legend, reported that his father had passed away, Milken is said to have asked, "Will you be going to the funeral?"

The real glory - and the seeds of his downfall - began when Ronald Reagan ascended to the White House with the stated mission of lifting government off the back of business.

* Tomorrow: Greed is good.