"Are the vultures still out there?"
-- Drexel staffer, sneering at reporters as she walked out the door
"Vultures? Look who's talking."
-- Security guard
The final plunge of the most powerful and dreaded firm on Wall Street in the Roaring Eighties came with astonishing speed. Like the abrupt fall of the Berlin Wall thousands of miles away, the collapse suddenly confirmed what everyone in the financial world could already feel in the wind: a new era had arrived. After a desperate three-day search for cash in which it was spurned by its bankers, Drexel Burnham Lambert Group filed bankruptcy papers an hour before midnight last Tuesday.
While only the parent company sought protection under Chapter 11, no one expected the investment firm to rise from the ashes. In an industry that operates on trust and good faith, Drexel had exhausted its reserves. The move meant that Drexel, whose financial wizardry reshaped corporate America and ushered in an age of runaway debt and excess, will swiftly liquidate its business. The 152-year-old titan -- with 5,300 employees and $3.6 billion in assets -- will vanish almost overnight in the biggest failure in Wall Street history.
Drexel's staff got the word in a terse statement from chief executive Frederick Joseph over the firm's intercom. Joseph refused to take questions and quickly signed off, leaving stunned employees to hunt for scarce jobs in an already depressed Wall Street market. Drexel's layoffs, which began Friday, will add thousands more workers to the 37,000 already dismissed by investment firms in the past two years, almost 10% of Wall Street's work force. In a final bitter send-off, the firm's employees, who owned 54% of Drexel's stock, saw the value of their holdings evaporate with the bankruptcy filing.
In the firm's lobby at 60 Broad Street in New York City, security guards searched bags to prevent workers from carting away computers and company records. "People are in a state of shock. They're laughing and crying," said bond salesman Taylor Greene. Retorted a young broker as he stepped into a limousine with one last show of '80s bravado: "I'll enjoy reading about all this from Hawaii."
The echo carried that far and beyond. Drexel's notorious junk bonds -- debt instruments that pay high rates of interest because of the relative shakiness of the ventures they fund -- turned the financial world topsy-turvy and helped set the tone for the money lust that gripped America in the '80s. Armed with the bonds, corporate raiders swiftly raised the money they needed to attack even the largest companies. At the same time, investment bankers raked in billions of dollars by advising the raiders and selling junk bonds to eager borrowers. In what corporate America saw as a glorified protection racket, Drexel and its imitators sold services to targets as well, to help them keep raiders at bay.