Michael Milken's Spreadsheets: Computation and Charisma in Finance in the Go-Go ’80s

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Finance Michael Milken

Notes

Indicted on ninety-eight criminal counts in 1989, including securities fraud and racketeering, he was sentenced to ten years in prison and $600 billion in fines—he ultimately served twenty-two months—and banned for life from the securities industry. His estimated net worth today is $3.7 billion.

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VisiCalc (the “Visible Calculator”), the first personal computer spreadsheet program.

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asked to explain the unprecedented financial turmoil of the 1980s, Milken once claimed the true culprits were the creators of VisiCalc.

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Milken invoked a blunt technological determinism: the spreadsheets did it! And Milken was not alone in this assessment.

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Every reasonably-sized company in America became a conceivable target.

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half of the companies in a representative sample of 1,064 firms were subject to a takeover bid between 1982 and 1989; nearly half of those (23% overall) faced a hostile bid.

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A typical large hostile takeover in the mid- 1980s cost 500 jobs, or 5.7% of a company’s workforce.

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“greed is good” became the icon of the age.

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remembered by subsequent generations of financiers as a founding moment when bankers “rescued American business.”

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the ‘80s represented a long-needed effort by investors to discipline irresponsible corporate executives, triggered by mismanagement epidemic in the ‘70s.

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debt-fueled acquisitions were rational responses to the tax code,

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backlash against the longstanding dominance of large, diversified conglomerates

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structural transformations in how corporations were organized and controlled and a broader “financialization” of the American economy.

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rollback of New Deal-era financial regulations.

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emergent ideology about the nature of business—what Marion Fourcade and Rakesh Khurana call “the neoliberal common sense of capital”—that envisioned companies as generators of “cash flow” and posited that managers’ key responsibility was “maximizing shareholder value.”

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First, they achieved new capacities of surveillance. With the help of computers, Milken and his team were able to keep precise track of the movement and location of junk bonds,

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Second, they achieved capacities of valuation.

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Third, ‘80s financiers achieved augmented imagination. Adapting the “what if?” powers of spreadsheets, buyout artists like KKR—among Milken’s most important clients—built hypothetical models about potential buyout transactions and used them to scan for takeover targets.

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a rhetorical gambit, aimed at shifting responsibility from humans to machines.

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Milken’s own rhetorical engagement with computing technology was complex and seemingly contradictory.

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the most in/famous figures in recent Wall Street history, those most responsible for generating change and turmoil, hardly accord with Weber’s picture of modern capitalist rationality.

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explicate this “disjuncture… between hypercharismatic leaders and hypermethodical devices,” a task which “requires us to admit the gap between the ‘ghost’ and the ‘machine’” in modern finance.

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charisma required computation, and vice versa.

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When Milken began at Drexel, investment banks would only underwrite bonds for the roughly 800 large companies deemed investment-grade. So the only “junk” bonds existing were “fallen angels,”

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such downgraded bonds were actually a good investment,

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In 1977, Milken’s operation took a bold step and began underwriting new issues of high-yield bonds, creating bonds “born” as junk.

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issuing junk bonds to fund management-led “leveraged buyouts,”

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Weber’s “ascetical Calvinist businessman,” many of Milken’s contemporaries saw him as precisely that. His work ethic was legendary.

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The firm was attempting to switch to a computer-based system to address a mounting “paper crunch”—part of a broader crisis hitting Wall Street in the late 1960s.

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Critically, only Milken and his team could comprehend who was included within this network, where various securities were owned, and the prices they could sell for. It was a “vast, interlocking machine of which he alone would know all the parts.”43 Because other participants had so little information about the rest of the high-yield market, they were forced to transact business through the Drexel nexus.

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Compared to these other securities, junk bonds were well-suited for analysis on personal computers with flexible, ready- made software. They were complicated enough that PCs offered huge advantages over pen-and- paper methods, but not so much that they demanded esoteric models, specialty software, or doctoral-level mathematics.

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“Thousands of MBAs, relieved of the drudgery of financial calculations, turned into what [Mitch] Kapor [creator of Lotus 1-2-3] refers to as ‘net-present-value machines.’”

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“In the 1970s, KKR couldn’t rapidly stalk several companies at once, because its financial blueprints required weeks of calculations by hand,” Anders explained. “Then microchips came to Wall Street…. All of a sudden, giant companies’ finances could be picked apart in an afternoon.”

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Like gunpowder, spreadsheets proved to be potent tools of persuasion, used by buyout artists to help others—lenders, managers, shareholders—see the future the buyers wanted.

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the disruptive effects of computing technology and the triumph of a new forms of methodical rationality in a realm dominated by elite sociality.

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For others, including many “white shoe” bankers displaced by Milken and the buyout artists, new computational methods enacted a fanciful and reckless form of finance.

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Milken’s operation was much more a social and even cultural achievement than a technical one.

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Milken’s power lay in his ability to construct around him an ever denser network of investors, entrepreneurs, executives, and raiders who were personally beholden to him—what Milken called “matrixing.”

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One of the most striking patterns in the discourse in and around Milken was the prevalence of religious language. Milken was labelled a “prophet,” “guru,” or even “God,” his clients as “devotees,” his employees “disciples.” 60 Milken’s promotion of high-yield finance was “evangelizing,” a “sermon,” a “crusade,” while his conflict with the American financial and business “establishment” was a “holy war.”

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Milken cast his development of high-yield finance as a higher cause, which he elevated above his own personal reward.

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Milken’s own employees never knew exactly how their compensation was calculated or how much they were worth in Milken’s eyes, uncertainty that helped Milken maintain sway over his disciples.

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Milken actively stoked the mystical air around him. He was fascinated by the work of business writer and popular futurologist John Naisbitt and drew upon those idea to imbue his high-yield mission within a futuristic spirit.

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Essential to Milken’s charisma was the impression that his capacities transcended the mere technicalities of finance.

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Milken routinely cast himself as a higher intellectual with expertise beyond finance.

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we could just sit there with our minds wide open and smoke pot—he laughs—daydream, and say, ‘What do you want?”

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“Interesting, in a world of finance characterized by quantitative methods, numerical minutiae, and concrete business plans,” wrote Yago in 1991, “the first question Milken was to ask entrepreneurs and managers seeking to raise money… [was] ‘What are your hopes and dreams?’”

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to suggest that Milken’s power was essentially charismatic rather than methodical is to miss a profound fact of financial capitalism in the period: those two modes were constitutively interdependent.

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Before more hostile audiences, for whom Milken’s individual artifice indicated the illicit character of his enterprise, it was shrewd to embrace the technicality of Milken’s machine. Taken to the extreme, this might entail adopting a kind of technological determinism, suggesting that the junk bond revolution and takeover frenzy it fueled were the inevitable consequence of evolving computational and financial technology,

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Before generous audiences, like potential investors and readers of the business press, it was empowering to cast Milken’s project as a visionary mission

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The fact that the junk bond machine was so dependent on new technological devices was, I propose, a key reason why the human components of that system wished to understand their achievement as beyond technical. The machine vision had alienating implications for Milken’s people, perhaps even Milken himself, who risked being reduced to cogs in the financial machinery.

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broader anxiety on the part of financial actors that they might lose their agential selves within the ruthless efficiency of the market.

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