Bill Gates and Michael Milken: The War on Capitalism, Then and Now

It's interesting to compare Bill Gates' and Microsoft's victory last Friday in obtaining a favorable settlement of their antrust case with another battle in the war on capitalism from ten years ago -- one that turned out very, very differently.

In September, 1998, the Securities and Exchange Commission filed securities fraud charges against Drexel Burnham Lambert and its superstar investment banker Michael Milken. Threatening Drexel with ruination by criminal prosecution under the Racketeer-Influenced and Corrupt Organization Act (RICO) originally enacted for fighting the Mafia, US Attorney Rudolph Giuliani forced Drexel to plead guilty to six felony counts, pay a $650 million fine, and fire Milken. In February 1990, Drexel declared bankruptcy.

Milken was indicted under in March 1989, and pleaded guilty in April 1990 to six felony counts. He paid a $600 million fine under a plea bargain that promised him no jail time. In November 1990 judge Kimba Wood sentenced him to 10 years, plea bargain or no plea bargain. But Milken never got his $600 million back. And three years later Rudolph Giuliani was elected mayor of New York City. The whole tragic story is documented beautifully in Payback -- The Conspiracy to Destroy Michael Milken and his Financial Revolution by Daniel Fischel.

Milken and Drexel -- despite all their wealth and power -- opted to go along to get along. And they lost everything. The lesson learned from this by today's corporate executives whose companies face the prospect of criminal prosecution has not been that capitulation leads to disaster -- it's that Milken and Drexel just didn't capitulate soon enough.

But now there's alternative lesson out there -- it will be interesting to see if it's a thought contagion that can spread. A decade after the fall of Milken and Drexel, a capitalist even more spectacularly successful than Milken -- Bill Gates -- dared to fight back. And last Friday, he won.

Don Luskin is Chief Investment Officer for Trend Macrolytics, an economics research and consulting service providing exclusive market-focused, real-time analysis to the institutional investment community. You can visit the weblog of his forthcoming book ‘The Conspiracy to Keep You Poor and Stupid’ at www.poorandstupid.com. He is also a contributing writer to SmartMoney.com.