Will we ever be rid of these crooks? They are STILL involved!
The first collateralized debt obligation was created by Drexel Burnham during the heyday of Michael Milken, the junk bond dealer who gained notoriety for an insider trading scandal in the 1980s. Mr. Milken asserted that investors who bought a basket of diverse junk bonds would earn a high-rate of return without incurring significant risk.
Drexel Burnham Lambert went belly up over these junk bonds.
Michael R. Milken, the former junk bond king, received a lifetime ban and served two years in prison after pleading guilty to securities fraud in 1990. In the mid-1990's, he reinvented himself as a mergers and acquisitions adviser, counseling people like Rupert Murdoch, the chairman of the News Corporation; Ronald O. Perelman, the chairman of Revlon; and Ted Turner, on various deals.
While Mr. Milken was accused by the Securities and Exchange Commission of violating his lifetime ban, and paid $47 million to settle the accusations, he did keep $50 million in fees that Mr. Turner paid him for advising him on his sale of Turner Broadcasting to Time Warner.
Then there is the case of Frederick H. Joseph, Mr. Milken's boss at Drexel Burnham Lambert in the 1980's.
While never charged with a crime, Mr. Joseph was barred from being a chairman or chief executive of a securities firm in 1993 because of his failure to supervise Mr. Milken.
Such a restriction does not bar him from being the co-head of investment banking in his own investment boutique, called Morgan Joseph, which he formed in 2001. Whether he could work in some capacity for a hedge fund -- private pools of investment capital that are not regulated by the S.E.C. -- is not entirely clear.