Q. Many people feel that Drexel Burnham Lambert epitomized raw greed in the 1980s and that there is poetic justice in its demise.
A. That's primarily the result of how we were depicted in the press, and I think it's outrageous. The press has to capsulize things that people can absorb. The fact is, Drexel became the major source of capital for industrial companies in the country. Even our worst enemies think only a handful of people did anything wrong, so it's unfair to the vast majority of people at Drexel to lump them into a two-word tag line. The damage that's been done is absolutely unjustified. We grew quickly and we stepped on toes. But we did no more than other investment banks did when they hit periods of unusual competitive advantage.
Q. In the end, who killed Drexel? Was it the Government, your colleagues, or even you?
A. The destruction of Drexel at some point became inevitable. I'll accept the responsibility, and if I knew we had done things that were wrong, I would accept blame. What happened was a confluence of events, starting with the federal investigation ((of Drexel's junk-bond department)) and hitting a climax when the firm was forced to plead guilty and pay what we thought were unnecessarily high penalties (($650 million)). Congress then changed the rules by requiring savings and loans to sell their high-yield bonds, and the market for those securities fell. Then Drexel faced yet another rule change, when the regulators suddenly raised our capital requirements. Literally overnight, they said we could no longer touch the $300 million in excess capital in our brokerage subsidiary.
Q. Shouldn't you have known there was impending doom?
A. We had cut costs 50%, and we believed the firm was going to operate profitably in 1990. The problem is that one day you have $300 million and the next day your banker tells you that you can't use it. That's troublesome. Within a day we were totally shut out of the capital markets.
Q. With a little nudging, couldn't the regulators have got the banks to save Drexel?
A. It's a capitalistic system. The banks and regulators are not charged with saving us, and we never asked for direct Government intervention. We did argue aggressively with the regulators, and there were moments when I was angry. I had hoped that the regulators would give some encouragement to the banks, which I don't think happened. I think Drexel's lack of friends -- as perceived by the world -- might have made it easier for a midlevel official in one of those agencies to not help us. In their eyes, we were lacking in political constituencies.
Q. Do you have any final words for Rudolph Giuliani, the former U.S. Attorney who launched the Drexel investigation?
A. The federal racketeering law, as applied to financial institutions, is a devastating nuclear bomb. The penalties we paid ended up doing material long- term damage to the firm, costing 11,000 people their jobs and costing the markets what most people will admit was a creative, innovative force for financing companies. All this because of alleged wrongdoing by a handful of people. It just seems unfair.
Q. Drexel was criticized for doling out more than $200 million in cash bonuses * just weeks before its collapse.