Then came the state pension fundsfirst to begin investing with KKR was Oregon, which shovelled money to KKR like there was no, who were also anxious to share in these very large returns. The
tomorrow. Other states that joined in were Washington, Utah, Minnesota, Michigan, New York,
Wisconsin, Illinois, Iowa, Massachusetts, and Montana. The decisions to committ funds were
typically made by state boards. An example is Minnesota: here the State Board of Investment is
made up of the Governor, the state Treasurer, the state auditor, the Secretary of State, and theAttorney General, currently Skip Humphrey. Some of these funds are so heavily committed to KKR (^)
that if any of the highly-leveraged deals should go sour in the current "recession," pensions for
many retired state workers in those states would soon cease to exist. In that eventuality, which for
many working people has already occurred, the victims should remember George Bush, the political
godfather of Henry Kravis and KKR.
KKR had one other very important source of capital for its deals: this was the now-defunct Wall
Strreet investment firm of Drexel, Burnham, Lambert, and its California-based junk bond king,
Michael Milken. Drexel and Milken were the most important single customers KKR had. (Drexel
had its own Harriman link: it had merged with Harriman Ripley & Co. of NDuring the period of close working alliance between KKR and Drexel, Milken's junk-bondew York in 1966.)
operation raised an estimated $20 billion of funds for KKR. Junk bonds were high-risk, high-yield,
junior debt securities that Milken floated. He started off with junk bonds issued by fly-by-night
insurance companies owned by financiers seeking to emerge from the penumbra of Meyer Lansky.
These included Carl Lindner and his Great American; Saul Steinberg and his Reliance InsuranceCo., Meshulam Riklis and his Rapid American group; Laurence Tisch and CNA; Nelson Peltz;
Victor Posner; Carl Icahn; Thomas Spiegel and his Columbia Savings and Loan; and Fred Carr, a
financial gunslinger of the 1960's and his First Executive Corp. insurance firm. Later, the circle of
Milken's customers would expand to include commercial banks, savings and loans, mutual funds,
upscale insurance companies and others who could not resist the high yields. These robbery baronsof modern usury were dubbed "Milken's monsters" by one of their number, Meshulam Riklis.
All of these personages pranced at Milken's annual meetings in Beverley Hills, which were
followed by evenings of sumptuous entertainment. These became known as "the predators' ball,"
and attracted such people as T. BooneWyatt, Saul Steinberg, Boesky, Lindner, the Canadian Belzberg family, Ron P Pickens, Icahn, Irwin Jacobs, Sir James Goldsmith, Oscarerelman, and other (^)
such figures.
First Executive Corp. was the first great bankruptcy among the insurance companies in early 1991,
giving the depression of the 1990's a dimension that the economic-financial conflagration of the1930's did not possess. First Executive Life succumbed to losses on its junk bond portfolio, and it (^)
will be the first of many insurance companies to find bankrutpcy via this route. Shortly thereafter,
Mutual Benefit Life Insurance Company of New Jersey was seized by state regulators. Mutual
Benmefit was also the victim of combined real estate and junk bond losses, and more retirement
plans were threatened with annihlitation. Those whose pensions are lost must recall the junk bondunited front that reached from Milken to Kravis to Bush.
Spiegel's Columbia S&L is a classic case of a thrift institution that went wild in its acquisition of
Milken's high-yield junk. At one time this instutution had about $10 billion of junk in its portfolio.
Columbia S&L was seized by federal regulators during the early months of 1990. Asavings and loan bankruptcies have been caused by real estate speculation, many must also belthough many
attributed to a failed quest for a junk bonanza.
Milken's silent partner was Ivan Boesky, the arbitrageur who went beyond program trading to
become a silent partner in advancing Milken's stockjobbing: sometimes Milkenm would have