Mike Milken: Who Gets Access to Capital, From Junk Bonds to Private Credit

Mike Milken, the financier who built the high-yield bond market, tells Nicolai Tangen why “safe” credit is often the riskiest and who still gets shut out of capital. In this episode of In Good Company, the podcast of Norges Bank Investment Management, Milken, now 80, traces his career back to a conversation with a young man in Los Angeles in 1965, then turns to private credit, the maturity mismatches that sank Silicon Valley Bank, the migration of wealthy entrepreneurs out of the US and Europe, medical research as an engine of growth, and the center he opened in Washington to tell the story of the American Dream.

TLDW

Milken argues that the credit establishment has been wrong about risk for a century: it rated sovereigns and big incumbents as safe and treated the 99.99% of companies below investment grade as too risky, when the historical record said the opposite. Financing the “risky” companies, he says, created MCI, cable, cellular, casinos and more than 60 million US jobs. Looking at today’s markets, he sees private credit as a return to the insurance-company lending of the 1950s and 1960s, warns that the real danger is funding long assets with short money, and worries that human capital is leaving the places that used to attract it. He closes on medical research, his grandchildren, and the case for curiosity at any age.

Thoughts

Milken’s sharpest point about today’s credit markets is that the thing that breaks financial institutions is rarely the quality of what they own. It is how they pay for it. Silicon Valley Bank and First Republic did not fail because their borrowers defaulted. They held US government securities, the safest credit there is, and financed them with deposits that could leave overnight. When rates rose, the “riskless” assets became the problem. Milken says the first thing he checks in any market is whether the holders of the assets have their own capital locked up at a fixed rate for a long time, and that framing is more useful than the usual private credit debate about loan quality. His verdict on private credit follows from it: it is “really no different than public credit,” a throwback to the insurance companies that were the largest lenders before he started, and its strength is that 95 to 99% of the money comes from long-term investors. The weak spot is the slice of individual investors who can redeem quarterly, and the uncomfortable aside is that managers can charge three to five times as much for private credit as for the public kind. That fee gap is an incentive to grow the asset class regardless of whether the liability side is sound.

The line that ties the whole interview together is short: new industries are always considered risky, and in industries of the past, people underestimate the risk. It explains why Venezuela could be rated AAA with 30% unemployment, why AT&T’s fee power kept firms from financing MCI, and why the big losses of 2007 to 2010 came from securities rated AAA, AA and single A rather than from junk bonds. It also explains his aside about television: broadcasters look like durable incumbents, but they live on sports and a handful of big live events, and he points out that YouTube is set to carry the Academy Awards from 2029. Ratings describe the past. A lender who only reads them will keep financing yesterday’s winners and starving tomorrow’s, which is the real meaning behind the episode’s title question about who gets access to capital.

The best story comes near the end. In about 1970 Milken took the head of a major financial institution to a New York Knicks game and spent three quarters pelting him with facts about non-investment grade debt. The executive finally told him to stop talking: if the Knicks won, he would buy; if they lost, he would not. Milken took the lesson seriously. A powerful presentation lost to a basketball score, so he stopped arguing and started asking questions, letting people discover the answer themselves, the same method he credits to his friend Hans Rosling’s Factfulness. He says his organizations have since prepared around 100,000 slides and questions built this way. It is a useful admission from someone famous for being relentless: being right was not enough, and the facts only moved people once they found them on their own.

Milken’s motivation at 80 rests on something his father told him at seven or eight: his children would not have an opportunity unless everyone felt they had a chance. Not that everyone succeeded, but that everyone felt they could. That idea connects the Watts conversation of 1965, the death threats he received for financing Reginald Lewis’s $1 billion deal in the mid 1980s, and his worry about where talent is going now. He notes that the UAE overtook the US as the top destination for millionaires, that wealthy Europeans are moving to Italy and Greece for tax regimes the US once could have offered, and that Elon Musk and Alex Karp moved companies out of California. His Center for Advancing the American Dream is aimed at the third of people who believe upward mobility is closed to them. The economic argument and the moral one are the same here: social capital is an asset, and a country that spends it down loses the people who would have built its next companies.

One thing the conversation leaves out is Milken’s own history. He pleaded guilty to securities violations in 1990, served prison time and was pardoned in 2020, and Tangen does not raise it. That matters for how to read his complaint that only about 1% of new finance hires now say they went into finance to change the world, against one in four in the 1970s. He blames the pay and valuations of the industry, and he is probably right, but the culture of 1980s high-yield finance is part of why the public distrusts the financial system he says has done a poor job of explaining itself. His larger claim still stands on its own: the person who lends to Microsoft changes nothing, because thousands of others would, while the person who backs the unproven entrepreneur decides whether that company exists at all.

Key Takeaways

Milken traces his career to August 1965, when at 19 he met a young African American man in Los Angeles after the Watts riots who said he could not get capital because of the color of his skin.
Studying a century of credit at Berkeley, he found that during the Depression the lowest-quality debt earned the highest risk-adjusted returns, and that sovereign debt, then treated as riskless, had the worst record.
He says 99.99% of companies in the world are non-investment grade, so a market that only lends to investment grade shuts out almost everyone.
The 1974 crash (stocks down 50%, rates doubled, credit controls on banks) was his turning point: buyers of non-investment grade debt made 100% on their money from the end of 1974 through 1976.
High-yield financing helped build MCI, cable, cellular, biotech, home builders and the casino industry. A 1970s long distance call cost $10 a minute, and MCI cut that by 75%.
In the last 30 years of the 20th century, he says, non-investment grade companies created more than 60 million US jobs while investment grade companies created minus 4 million.
He puts the value of US human and social capital at more than $2,000 trillion, against roughly $300 trillion in financial assets and $30 trillion in GDP, and bets on people before balance sheets.
Securitization, one of his six goals from the 1960s, lowers the rates on mortgages, car loans and credit cards and makes it hard to discriminate against a borrower nobody can identify.
Private credit, in his view, is no different from public high-yield debt, but managers can charge three to five times the fees for it.
The biggest risk in financial markets is a mismatch between the maturity of assets and liabilities, which is what sank Silicon Valley Bank and First Republic and cost Schwab 40% of its stock price.
He says more than 50% of all economic growth in the world has come from advances in healthcare and public health, and life expectancy rose from 31 in 1900 to the mid 70s today.
The Milken Center for Advancing the American Dream, opened near the White House, tells 10,000 stories of people who overcame their circumstances, built on four pillars: education, healthcare, entrepreneurs and financial literacy.
His advice to young people is education and curiosity: when people say something, go and find out whether they are right.

Chapters

1:14 Origins of the High-Yield Market

Milken describes going to Watts the day after the 1965 riots and meeting a young man who said he would never get capital because of his race. Back at Berkeley he studied credit history and found that everything people believed about it was wrong. Low-quality debt had outperformed through the Depression once risk was accounted for, and sovereign debt, rated AAA almost by default, had the worst record of all.

4:06 Changing Perspectives on Credit

Starting as a consultant at Drexel, he learned you do not change minds by raising your voice. He showed his own firm that the stocks its analysts liked had non-investment grade debt, and reminded them that debt is senior to equity. The real conversion came in 1974, when stocks fell 50%, rates doubled and banks faced credit controls, and investors in non-investment grade debt doubled their money by 1976.

7:26 Funding New Industries

Insurance companies held most high-yield bonds in the 1950s and 1960s and asked him to stop issuing, because public ratings exposed their generous internal ones. He lists energy, early biotech, cable, home builders and casinos, noting that Mirage became one of America’s most admired companies. Financing MCI meant defying AT&T, the largest payer of fees on Wall Street. He closes with his 1965 formula: financial technology as a multiplier on human, social and real capital.

11:21 People and Vision in Finance

Asked what John Malone, Ted Turner and Rupert Murdoch had in common, Milken says he backed people, not balance sheets, and cites Gary Becker’s work on human capital. He then explains securitization as risk spreading that cuts borrowing costs for ordinary people, and warns that traditional television depends on sports and big live events that may move to streaming. New industries look risky; old ones hide their risk.

15:54 The Evolving Culture of Finance

Drexel alumni went on to found Apollo and Ares, and Milken says what they took away was to finance the person and the idea and to know the decision matters. He used to ask recruits whether they went into finance to change the world: one in four said yes in the 1970s, about 1% now. Of roughly 3,000 companies he financed, one CEO admitted to being in it for the money, and that CEO did not get capital. He recalls hate mail and death threats for backing a woman and Reginald Lewis in the 1980s.

20:11 Current Credit Market Outlook

Milken thinks financial institutions have failed to explain their role, recalling how the Goldman Sachs CEO and later Amgen’s CEO were attacked for saying they did “God’s work.” On private credit, losses in tech debt and high government borrowing, he calls private credit a throwback to insurance company lending. Its investors are mostly long-term, credit losses have historically been low, and the big losses of 2007 to 2010 were in investment grade paper.

23:15 Global Asset Movement

He names maturity mismatch as the greatest risk in markets, with Silicon Valley Bank, First Republic and Schwab as recent examples, and says the first thing he checks is whether asset holders have long-term, fixed-rate capital. The second is where human capital is moving. For more than a century it flowed to the US, but by 2023 or 2024 the UAE was the top destination for millionaires, and within the US companies like Palantir and SpaceX are building in Florida and Texas instead of California.

28:47 The American Dream Center

Concern about US social capital since 2005 led to the center opened near the White House. Milken once believed wealthy foreigners would pay millions for green cards, enough to make a dent in the national debt, and fears damage to the country’s appeal will keep the best people elsewhere. The center aims to be a beacon for the third of people who think upward mobility is out of reach, through 10,000 stories of people who rose above their circumstances.

31:36 Commitment to Research and Life

After losing ten family members to cancer, Milken concluded early that extending life was the main driver of economic growth. Life expectancy went from 31 in 1900 to the mid 70s today, and he invests in medical research both through philanthropy and for profit, pointing to Novo Nordisk’s run as Europe’s most valuable company. At 80, he says 97% of his effort goes to the world his grandchildren will grow up in, guided by his father’s line about everyone feeling they have a chance.

35:26 Work Ethic and Advice

Tangen relays Tony Ressler’s story that nobody could beat Milken to the office, and describes him reading research in the front row at Giving Pledge meetings. Milken traces it to reading the Almanac as a child for its facts and trends. He tells the Knicks story that pushed him toward teaching by questions, and ends with advice to the young: education and curiosity, at any age, or you will be stuck in the past.

Notable Quotes

“What I discovered was that every one thing that people said about credit was wrong.”
Mike Milken, on what he found studying the history of credit at Berkeley

“Venezuela was rated AAA with 30% unemployment.”
Mike Milken, on how sovereign ratings ignored the facts

“New industries are always considered to be risky. In industries of the past, people underestimate the risk.”
Mike Milken, on why ratings favor incumbents

“Only one CEO ever told me he was in it for the money.”
Mike Milken, on the roughly 3,000 companies he financed

“One of the greatest risks in financial markets is mismatch of maturities and investments.”
Mike Milken, explaining the failures of Silicon Valley Bank and First Republic

“Not that they succeeded, but everyone felt they had a chance to succeed.”
Mike Milken, recalling what his father told him as a boy

“If the Knicks win, I’ll buy it. And if the Knicks lose, I won’t.”
Mike Milken, quoting a financial executive he was pitching in about 1970

Watch the full conversation with Mike Milken and Nicolai Tangen here.