ECON 255 Lecture Notes - Michael Milken, High-Yield Debt, Takeover
Document Summary
Reading 8: akerlof and schiller - corruption and bad faith. [case #1: savings and loans associations and the recession of 1991 / saving&loans (s&l) crisis] Public corporations managed people"s s&l s&l represent the banks they lend money for mainly mortgages. Progress towards the crisis: banks were deregulated money lending occurred more aggressively because government acted as the guarantor of their deposits government will always bail out. Effects of deregulation: reduces the disincentives to get involved in corruption led to the proliferation of bad loans. Michael milken discovered a way to reduce the cost of takeover use the money obtained from the junk bond (other people"s money) Junk bond was discovered to be able to pay-off the stockholders method known as warrant . The coincidence: 1) the advent of junk bonds, 2) the hostile takeovers, 3) massive increases in executive pay.
