Den of Thieves

From now and then as I finish a good book.  Quite often I like to discuss small parts of it and recommend it to others, today I finished "Den of Thieves," a book by James Stewart.  The book came out in the 1992 and chronicled the rise of high yield bonds (or the artist formerly known as junk bonds) and the art of the leveraged by out.

The main character is Michael Milken - the man who pioneered to leverage buyout through junk bonds while dominating his firm Drexel Burnham Lambert.  Milken basically takes over the firm through the sale of junk bonds.  As we know from past articles, at an investment bank the man who runs the bank is not the CEO but the guy that brings in fees - that man was Milken.  To give you a taste of his earning power, he took home over half a billion dollars in payment (mostly bonus) in 1986.

"Den of Thieves" also discusses many arbitrage traders that along with Milken eventually were prosecuted for various insider trading and tax shelter schemes.  Much of Wall Street including the likes of Kidder Peabody, Goldman Sachs, Drexel Burnham Lambert and various law firms were involved in the schemes.

One of the themes I noticed that by far isn't the main theme doesn't come in until the second half of the book.  While members of the Manhattan attorneys office and SEC are trying to put together a case against different investment bankers you realize what they are up against.  The various banks half millions of dollars to throw at lawyers and the number of law firms involved in the defense is mind blowing....the public side that is doing the prosecuting pales in comparison.

Many meetings are held at hotels where law firms would buy out entire floors to set up shop.  In one scene from "Den of Thieves," as lawyers from the attorneys office are discussing arrangements with private lawyers the private lawyers order lunch.  Looking at the prices including a $12 hamburger the members from the attorneys office decide not to eat, although they are very hungry.  They also are forced to stay in sub-par hotels that fit their government stipend and their victory celebration at the end of the trials is held at a small inexpensive restaurant.

My point is that the book paints the picture of how hard it is to regulate Wall Street.  This was during the 1980's and the junk bond fiasco very well mirrors the housing crisis, the products were just further down the food chain in our more recent case.  Public regulators will always have trouble regulating Wall Street, the incentives aren't commensurate on the public side compared to the private side and the resources at ones disposal are nothing compared to the private sector.  The question I would pose to you that is not discussed in "Den of Thieves," is how does one fix that?