NEW YORK — J. P. Morgan was accused of selling defective carbines to the Army, setting up an illegal steel trust and running the financial world like a puppeteer. Today he's largely remembered as the financier who averted a financial panic, enabled the U.S. Treasury to refinance its debts and helped build the American empire.
The passage of years may similarly polish the reputation of Michael Milken, the junk bond pioneer who pleaded guilty to federal felony charges last week. But only if he's lucky.
Events that are still unfolding will largely determine whether Milken's marble bust will reside in the pantheon of financial greats or be consigned to the rogues gallery along with "Robber Baron" Jay Gould, swindler Charles Ponzi and Milken co-conspirator Ivan F. Boesky.
If junk bond investments are found to be central to the collapse of many thrifts, if more junk-funded companies fold under their debts and if the Wall Street scandal widens, Milken's name may be mud. He could go down in the record books as a symbol of a decade when financiers earned fortunes shuffling paper and raiding companies while America's industrial core rotted.
But if those crises ease, history may remember him primarily as a man who breathed life into corporate have-nots with a new means of financing and who fell because he crossed the line in an age when many on Wall Street seemed to have done the same.
If events take this course, Milken may be able to resurface in a few years in the mantle of a senior statesman, in the manner of Richard Nixon, making occasional appearances to dispense economic wisdom and tend the flame of his own reputation.
"Milken's reputation is still highly fluid, and what happens next will have a lot of effect on how people remember him," says Robert Sobel, a business historian at Hofstra University in Hempstead, N.Y. "Remember, if there hadn't been a Great Depression, Herbert Hoover might be considered a statesman of stature."
Whether he ends up a hero or a bum, Milken has cinched a place in the history texts. As is often pointed out, he became the most important financier of the 1980s by pioneering the high-yield, low-rated bonds that helped fuel a takeover boom, forced companies to restructure and, in some cases, gave them the funds to grow.
The securities investigation that brought him down was the most far-reaching in history. His $600-million settlement set a record; his 1987 earnings of $550 million alone guarantee him a place in the popular imagination.
What's more, the Wall Street corruption scandal that humbled him was like few in U.S. history in the way it alleged corruption at the very heart of the financial world. Most of the celebrated financial rogues are fringe operators like Charles Ponzi, who became eponymous with a certain kind of swindle by bilking Boston immigrants of their savings, or like Bernard Cornfeld, whose mutual fund empire, Investors Overseas Services, promised the unwary big tax-free returns and delivered losses.
Richard F. Whitney was a former president of the New York Stock Exchange when he was escorted to a Sing Sing cell in 1938, but his "borrowing" of securities and cash from the accounts of customers, his firm, the exchange and his yacht club said nothing at all about the integrity of the financial system.
Some of the government officials who have pursued Milken believe that, as the center of a huge financial conspiracy, he ranks among the worst violators of securities laws in U.S. history. This judgment suggests that the current Wall Street investigation is in the league of Credit Mobilier, the scandal that surrounded the building of the Union Pacific Railroad in the 1860s.
In that affair, the railroad's shareholders, who included some of the most powerful financiers and politicians of the day, padded the railroad's construction budget to enrich themselves from government subsidies, and sold shares in the company's stock to select congressmen to guarantee their political leverage. The scandal came to symbolize the bottomless corruption that attended the building of the railroads, then the country's most vibrant industry.
The government has another chance to make its case when it files a sentencing memorandum with U.S. District Judge Kimba Wood in the next few months. Prosecutors are expected to try to substantiate their claims that in trading junk bonds, Milken and a wide circle of financiers were conspiring to manipulate markets, force takeovers and cheat customers, investors and the Internal Revenue Service.
But since Milken pleaded guilty to just six counts, reduced from the 98 included in the March, 1989, indictment, the government may never be able to persuade the world that his crimes were nearly that extensive.