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On Wall Street the debt-propelled takeover binge gave rise to the era's get- rich-quick mentality. Michael Milken, the deposed Drexel guru who pioneered junk bonds and nurtured them into a $200 billion market, was paid $550 million in 1987 for his unrivaled expertise. In a perverse version of the trickle-down theory, lower-echelon bankers raked in multimillion-dollar salaries, and new recruits with two years' experience earned six-figure sums. The fantastic payoff created a brain drain as the best and the brightest from top colleges and business schools across the U.S. flocked to Wall Street. In 1986 nearly half the senior class at Yale applied for jobs at First Boston, a leading Wall Street investment banker.
Thanks in part to Drexel, the 1980s became the decade of the deal. In 1986 alone, 3,973 takeovers, mergers and buyouts were completed in the U.S., at a record total cost of $236 billion. While some takeovers shook up overly complacent managers and led to useful restructuring, much of the raiding served only to distract corporate America from its real work of improving products and services. In the view of Wall Street's critics, hundreds of deals were done for the sake of the fees and stock payoffs they would generate. This was not the way Wall Street traditionally operated, but in that hotly competitive environment many firms followed Drexel's lead. The resulting riches created a whole new spending culture as Wall Streeters found new ways to dispose of their wealth, buying multimillion-dollar Manhattan apartments, building lavish estates in Connecticut and on Long Island, commuting to work in limos, seaplanes and helicopters.
But now Wall Street's merger machine has run out of gas, largely because corporate America has loaded up with all the debt it cares -- or dares -- to take on. Wall Street is suffering a dearth of deals, but no one is shedding tears for it. The flashy wealth displayed by investment firms has created a backlash on Main Street, which watched with mounting fury as Wall Street got rich through paper-shuffling deals that manipulated companies at the expense of workers and communities. "There's a lot of pent-up anger and disgust with behavior on Wall Street," says Samuel Hayes, an investment-banking professor at the Harvard Business School.
In a TIME/CNN poll taken last week by the firm Yankelovich Clancy Shulman, 63% said Wall Street bankers and brokers could be trusted "somewhat" or "a little" to do what is best for the U.S. economy while 30% said "not at all." Regarding mergers and takeovers, 68% viewed them as "not a good thing" for the U.S. economy and 56% saw the need for more government restrictions on such deals. The corporate debt piled up in the 1980s will be a problem in the next decade, according to 74%, who saw it as "serious" or "very serious."