Word: junks
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...Silverado's amazing expansion and rapid demise illustrates the broader evils behind the S&L disaster. It is a tale of interlocking relationships and sweet deals among S&Ls and their biggest customers, the possible impact of political contributions in delaying crackdowns by regulators, even the deceptive lure of junk bonds and their king, Michael Milken. It is not a case history of nice guys being caught innocently in an oil bust, as the defunct thrift's managers often claim. It is a study in greed, deceit and profiteering...
Government investigators are now probing a complex network of companies and S&Ls that invested deeply in junk bonds, mostly handled by Drexel Burnham Lambert, and carried out elaborate deals to swap the bonds and other assets. Some of the bonds were used to artificially shore up ailing thrifts or were sold in multimillion-dollar lots to cooperating S&Ls. Federal investigators are giving particular scrutiny to Silverado, Charles Keating's Lincoln S&L in California, CenTrust Bank in Miami, and San Jacinto Savings in Texas. Each had extensive business dealings with Drexel and with one another...
Milken had profitably discovered that S&Ls could use junk bonds in two ways: to borrow money for expansion and to invest money for a high rate of return. M.D.C.'s Mizel, hard pressed by the economic downturn in Denver and kept afloat by insider swaps with Silverado, met the junk-bond king in Manhattan and became Milken's enthusiastic client. So too did the influential Norman Brownstein, an M.D.C. board member and Mizel's attorney, who lobbied in Washington in favor of the use of junk bonds...
...December 1986 Larry Mizel held a glitzy black-tie New Year's Eve party for his staff that was dubbed "resurrection night." Milken had raised more than $500 million for M.D.C. that year by floating a junk issue; a series of tricky swaps of land and debt with Silverado had swelled the apparent assets and profits of both companies; and Bush had been brought aboard at Silverado. The future seemed bright...
...M.D.C. shares fell from $22 to below $1 for a time. Many M.D.C. officers and board members, including Brownstein, mysteriously managed to sell much of their personal M.D.C. stock at its peak price. The lawsuits also contend that Milken was the architect of a scheme in which M.D.C. sold junk bonds to San Diego's Imperial S&L, which eventually produced huge losses for the California thrift...