Drexel Burnham Lambert's junk-bond collapse

Through the 1980s, Drexel Burnham Lambert's high-yield desk in Beverly Hills, run by trader Michael Milken, turned high-yield 'junk' bonds from a marginal asset class into a market worth roughly $200 billion, financing the decade's wave of leveraged buyouts and corporate raids. Regulators eventually caught up with the firm's aggressive tactics: in April 1990, Milken pleaded guilty to securities and reporting violations and was later sentenced to prison, fined, and banned from the securities industry for life, while Drexel itself pleaded guilty to six felony counts and agreed to pay a $650 million fine. Weakened by legal costs and a wave of defaults across the junk-bond market it had built, Drexel defaulted on $100 million in short-term loans in February 1990 and filed for bankruptcy days later, becoming the largest Wall Street firm to fail since the Depression. Many of its traders went on to found or lead major private-equity and credit firms, spreading Drexel's playbook across the industry even after the firm itself was gone.