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Drexel's party is over, and the bill is coming due

It is unusual for the Zeitgeist to obey the calendar and come to a halt when the decade ends. The conservativism of the 1950s spilled over well into the '60s. The liberalism of the 1960s thrived through the early '70s.

But last week's bankruptcy of Drexel Burnham Lambert Group Inc., coming only a few weeks after the 1980s ended, decisively shuts the door on the Decade of Greed.

Drexel was the most visible symbol of the decade's unbridled capitalism. Its disintegration, trailing closely the Campeau Corp. bankruptcy and the savings and loan debacle, punctures the free-wheeling, money-crazed balloon of the 1980s.

The 1990s will be the Cleanup Decade, when we pick up after the mess of the past 10 years.

With its new junk bond financing sensation, Drexel was transformed from an obscure brokerage house to Wall Street's most profitable investment firm.

Along the way, Drexel transformed corporate America.

Wall Street's stodgy investment houses typically raised debt only for corporate blue bloods based on their history of creditworthiness. Drexel, with the controversial genius of Michael Milken, turned the concept of corporate credit upside down. Milken bet on the future, projecting a company's ability to pay back its debt based on its ability to generate cash in the future either from its business or by selling parts of its business.

That change in the way corporate credit was evaluated became a powerful tool on Wall Street and Main Street. It launched hundreds of upstart companies and scores of takeovers by previously unknown entrepreneurs who could raise a small fortune and rattle corporate chiefs with takeover attempts.

To keep from being swallowed by the Milken machine, corporate executives moved to maximize profit, gutting their research and development departments. When the highly leveraged buyouts were consummated, the R&D department was often closed to help pay debt. Thousands were laid off to balance the debt-laden books.

Drexel did not invent junk bonds, which are basically high-risk corporate debt. Drexel just raised to unprecedented proportions the size of the junk bond market.

From virtually nothing in 1970, the junk bond market is now worth $200-billion, even in its depressed condition.

But the bad ultimately tipped the scale against whatever good Drexel accomplished. Much of Drexel's energy and financial muscle was expended on corporate deals merely for profit and ego. It ostentatiously celebrated its new order with an annual Drexel-sponsored conference of raiders and investors in Beverly Hills dubbed the "Predators' Ball."

What was wrong with Drexel's excess was how it swallowed up hard-built companies, tearing them apart to pay debt and putting longtime employees out work.

On a steamy July evening in 1988, I remember the uncertain voice of Ronald Duval, a vice president of Maas Brothers who said that he, along with 500 other employees, had lost his job. In his quest for millions and to pay his debt, Robert Campeau took Duval's job away and cut in half the 59-year-old's pension.

Then there was Walter Brown, twice sacked by a Drexel-backed deal. Brown worked for Zale Corp., a Dallas jewelry retailer, until a Drexel financed takeover bought out the company. Brown was hired by another large jewelry retailer. A Drexel deal bought out that company, too, and Brown was let go a second time to help pay debt.

Maybe the lesson here is that nothing from nothing after a brief, highflying spin, ultimately leaves nothing. That's what is left of Drexel now.

Say goodbye to Drexel, deregulation, Reagonomics. Say hello to the taxpayer-financed S&L bailout, the junk bond bankruptcies. Milken and his marauders made a killing. We're all about to pay for it.

DREXEL'S RISE AND FALL:

A CHRONOLOGY

A chronology of major developments in the recent history of the investment firm Drexel Burnham Lambert:

1986

May 12 _ The SEC charges Dennis Levine of Drexel with making $12.6-million in profits from illegal trading on inside information since 1980.

June 5 _ Levine pleads guilty to four felonies, agrees to cooperate with the government's investigation and surrenders $11.6-million in illicit profits and restitution.

Nov. 14 _ Stock speculator Ivan Boesky agrees to pay a $100-million penalty to settle charges of insider trading. He also agrees to cooperate with investigators in a much broader investigation of Drexel and its chief financier, Michael Milken.

1987

Early 1987 _ Drexel announces a $523-million net profit for 1986, reaping the riches of a booming market in corporate takeovers that it helped fuel with its innovative use of high-risk, high-interest "junk bond" financing.

Feb. 20 _ Levine is sentenced to two years in prison and fined $362,000 on charges of securities fraud, tax evasion and perjury.

Dec. 18 _ Boesky is sentenced to a three-year prison term and no fine after pleading guilty to a single charge of conspiracy to lie to the SEC.

1988

Sept. 7 _ The SEC accuses Drexel, Milken and three other employees of violating a wide range of securities laws, most in connection with Boesky. Drexel and the others deny the accusations.

Dec. 21 _ Drexel agrees to plead guilty to six felonies and pay a record $650-million in fines and restitution to settle the biggest securities fraud investigation in history. Drexel must also cooperate in the government's pursuit of other alleged wrongdoers.

1989

March 29 _ A federal grand jury indicts Milken, his brother Lowell Milken and former Drexel trader Bruce Newberg on 98 counts of racketeering and fraud. Potential penalties and fines under the counts amount to more than $12-billion plus possible prison terms.

April 7 _ Michael and Lowell Milken plead innocent to all charges at a federal court arraignment.

April 13 _ Drexel and the SEC announce a settlement of the civil fraud case that subjects the firm to federal monitoring for three years and forces it to sever ties with Michael Milken.

April 18 _ Drexel announces it is selling its retail brokerage unit, which has 2,300 employees and 1,200 brokers, partly because of continued bad publicity over its legal troubles.

June 15 _ Milken resigns from Drexel after 19 years and announces formation of his own consulting firm that will not trade securities.

Nov. 9 _ Drexel confirms plans to eliminate about 300 jobs in a continuing restructuring that reduces employment to 5,300 at year's end from a peak of 10,700 in 1988.

1990

Feb. 4 _ Drexel posts a loss of $40-million after taxes for 1989, compared with a loss of $167-million in 1988.

Feb. 12 _ Drexel says it is seeking a major investor or merger partner because of deteriorating conditions in the junk-bond market.

Feb. 13 _ Drexel Burnham Lambert Group files for protection from creditors under Chapter 11 of the federal bankruptcy law.

Mr. Liesman, a Times business writer, covers real estate issues.

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