He Despoiled the Balance Sheet but He’s Still Just Sacrificial Lamb : Milken: He was rightly punished but was only one of thousands who helped push the U.S. closer to insolvency.

Poor Michael Milken. Only a few years ago, he ruled the financial world from his X-shaped desk in the Beverly Hills office of Drexel Burnham Lambert. Now he’s doing 10 years at Camp Pleasanton. And if the tentative settlement of all the civil lawsuits actually goes through, which would have all aggrieved parties divide a $1.3-billion pool financed by Milken and his ex-colleagues, his family will be down to its last half-billion.

Ten years and a $1-billion civil judgment is a pretty stiff sentence, though it probably could have been stiffer. Had the civil suits gone to trial, Milken might have been forced to tell all about his defunct enterprise; now, he may be spared that embarrassment. And he could have been squeezed drier--leaving him a mere millionaire, instead of a centimillionaire. But for what?

In the popular mind, Milken is being punished for despoiling the national balance sheet. But Milken wasn’t jailed for pushing the United States several steps closer to insolvency. If that were a crime, his fellow Californian, Ronald Reagan, should be breaking rocks, too. No, Milken was guilty of cheating fellow financiers, a much more serious crime. Milken’s victims, in the legal sense, include arbitragers deprived of inside information enjoyed by the Drexel circle and takeover artists outside the Drexel camp whose deals were rendered more expensive by Milken’s machinations. Not a list that should excite the sympathy of ordinary citizens.

The real victims, who have little to do with why Milken had to surrender his wig to federal wardens, are employees and communities wrecked by the restructuring mania of the 1980s and its heir, the downsizing mania of the 1990s. But in this Milken is one of only thousands of responsible parties. Washington and the Wall Street Establishment are just as guilty as the Drexelites.

Paul Volcker, canonized by Wall Street for slashing inflation, could have stopped the buyout mania at any time through the Federal Reserve’s immense power over securities trading and the banking system. So could his successor, Alan Greenspan, or any of the other federal regulators. But they didn’t. A former Fed economist told me that the central bank knew the machinations of the 1980s would turn out badly, but felt that the Reagan Administration wanted Milken & Co. to do their thing, and the Fed was merely to accommodate them.

Congress went eagerly along, too. At a conference on Latin American debt that Milken threw in Beverly Hills in 1988, Sen. Christopher Dodd (a Democrat--so much for blaming the Republicans) “gushed,” as this newspaper put it, over his host, praising his private-sector approach to the problem. “Mike,” said the chairman of the Senate subcommittee on Western Hemisphere affairs, “the next time you’re doing something like this, maybe I could piggyback on it, get you together with some of my colleagues in Washington.”

Milken had imitators all over Wall Street. Every major Wall Street house, including the blue-blooded Morgan Stanley, got into the act. Every major bank financed junk deals, as did most of our major insurance companies.

But none of these people are in jail. In fact, most are doing quite well--still in Congress, still with the Fed or on Wall Street or living comfortably on St. Cloud Road in Bel-Air. Jailing Milken and draining his coffers may make them all sleep better, but it won’t repair the national balance sheet.