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The Mike and Rudy show heads for Japan. (Flip Side).

Afascinating article in a recent issue of Barron's reports that a group of executives who run a small investment-management company in Tokyo has informally approached Michael Milken about helping them set up a Japanese junk-bond market. By way of clarification, Glenn Yago, director of capital studies for the Milken Institute and the author of Junk Bonds: How High-Yield Securities Restructured Corporate America, told the magazine that "Japan desperately needs a high-yield bond market, and the timing for such a market seems good." Here, he is referring to the fact that the Japanese economy is something of a disaster.

The basic problem is that many Japanese companies are having a tough time raising capital through conventional channels because their credit ratings are so low and because Japanese banks already have enough troubled loans on their books. Enter high-yield securities. Junk bonds, by paying investors a higher rate of return in recompense for assuming a higher level of risk, provide an effective means of bypassing traditional financing channels. And, if they are used to finance leveraged buyouts, they might also enable energetic, hard-working managers to buy out the present lazy, unimaginative owners, sell off under-performing assets and generally get the lead out. In theory, this could lift these companies -- and the economy--right out of the quagmire. But first, a market for "fallen angels" must be created.

I, for one, have always been in favor of any mechanism that can lift a troubled nation's economy, provided it's legal. Self-interest dictates it; until Japan gets up off the canvas, it is impossible to imagine the global economy kicking into high gear again. If establishing a junk-bond market is the only way to revive the Japanese economy, I'd be all in favor of Milken's involvement.

Of course, there are roadblocks along the way. As the Barron's article notes, nothing formal has been agreed upon and "Milken's involvement may be limited to informal advice or access to his research network and investment contacts." That's because the terms of Milken's probation severely restrict his activities in the securities field. At least on these shores. Whether Milken would legally be permitted to avail the Japanese of his freely offered advice has yet to be determined.

Some purists will object to this overseas resurrection of the junk bond industry's Marconi, pointing out that he is, in the narrow, technical sense of the word, a "crook." Personally, I find such moral prissiness a tad grating. If the only way to stop hackers is to hire hackers to catch them, that is an acceptable solution. If the only way to ensure labor peace during a world war is to cut a deal with a gangster like Lucky Luciano, then cut the deal. And if the only way to revive the Japanese economy is to bring in a convicted felon to give it the kiss of life, then I say the more kissing felons, the merrier.

If the fussbudgets and naysayers insist on official safeguards, on some sort of "overseer" or "probation officer," what better solution than to bring in the man who put him in the calaboose in the first place? I'm talking about Rudy Giuliani. A brilliant, incorruptible public servant who understands the financial markets in a way that few politicians do, Giuliani is that rarest of creatures: a Republican who actually thinks white-collar criminals should go to jail. Since Milken is already responsible for reshaping the U.S. economic landscape, and Giuliani took the nation's helm on September 11, when most of its elected leaders were hiding in bunkers, these are clearly two men who can get things done.

What's more, I think they would welcome the opportunity to work together. Milken spends a good deal of his time now doing philanthropic work, which is about as intellectually challenging as badminton. And Giuliani was last spotted down in Mexico City, shaping up the city's notoriously ineffective police force. Caramba!

It's high time we got these guys off the sidelines and put them to work. And when they've finished repairing Japan, maybe they can take a crack at Germany. Finally, they could come home and figure out a way to revive this moribund economy. I'm not sure those tax cuts are working.

Joe Queenan (flipside@chiefexecutive.net) is CE's longest-running columnist.
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Title Annotation:Mike Milken, Rudy Giuliani
Author:Queenan, Joe
Publication:Chief Executive (U.S.)
Article Type:Column
Geographic Code:9JAPA
Date:Mar 1, 2003
Words:711
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