An email in response to my post yesterday:

Like you, I don’t know the ins and outs of the Milken case, but even the first quote you provided is a hysterical portrait of fairly ordinary free market events.

“Thousands of workers lost their jobs, companies loaded up with debt to pay for deals, profits were sacrificed to pay interest cost on the borrowings, and even so, many companies were forced into bankruptcies or restructurings. Bondholders and shareholders lost many millions more.”

So, companies borrowed money to pay for deals. Is there something wrong with that? Was it all for “deals” or did some companies use the borrowed funds to make capital investments?

Profits were sacrificed to pay interest. Well, yes, that’s how it works when you borrow money; cash generated by the business that would otherwise be profits is used to pay interest on the money you borrowed. Would those profits even have been available if the borrowed money had not funded those capital investments or “deals”?

Many companies were forced into bankruptcies or restructurings (this goes hand-in-hand with the first point about workers losing jobs). Sometimes, companies borrow money and make investments or “deals” that don’t work out as planned. If many companies try, some will fail. By their nature, borrowers resorting to high-yield bonds are on the riskier side. Without more data here, it’s impossible to know if the “many” companies that failed were a large percentage of the companies that used high-yield bonds or not, or whether the risk-reward calculations were responsible or irresponsible. . . .

Bondholders and shareholders lost many millions. Bondholders in high-yield notes are paid for the extra risk. If you maintain a broad portfolio, you can do very well despite some failures. Shareholders of a company that issued high-yield notes may or may not have been better off if the company didn’t borrow. The notion that the high-yield notes caused the company’s problems assumes it had better options.

It’s like he doesn’t know or care how basic elements of our financial markets work.