Mike Milken: Access to Capital, the American Dream, and Why Risk Is Misunderstood

Mike Milken · Milken Institute

Lower-rated high-yield debt has delivered higher risk-adjusted returns than investment-grade debt.

Milken cites research on the Depression era showing that the highest returns came from the lowest-quality debt, because risk premiums were too large. Adjusted for risk, investors earned more from non-investment-grade bonds. He says 99.99% of companies are non-investment grade, so the 'too risky' label applied to nearly all of them. He adds that after the 1974 stock crash, when the stock market fell 50% and rates doubled, buying straight non-investment-grade debt returned 100% by 1974-76.

“it showed that during the worldwide depression of the thirties, that the highest rate of return was the lower quality of the debt you bought. In other words, the risk premiums were too large.”at 2:45

Mike Milken · Milken Institute

Sovereign debt has been the worst credit in history, and its high ratings ignored the facts.

Milken argues that sovereign debt, long treated as riskless, was historically the worst credit. Regulators required no reserves against it, and most countries were rated triple-A regardless of their actual conditions. As an example, Venezuela was rated triple-A with 30% unemployment. He says officials at the Treasury and the Fed were saying things that were factually inaccurate about credit.

“It also showed that the worst credit in history was sovereign debt. ... Venezuela was rated triple a with 30% unemployment.”at 3:18

Mike Milken · Milken Institute

Securitization spreads credit risk, so borrowers pay substantially lower rates on loans.

Milken lists securitization as one of his six goals from the 1960s. Car loans, mortgages and credit cards are pooled with thousands or millions of others, so risk is spread across geographies and borrower types. Few borrowers realise this makes their rate substantially cheaper. Pooling also removes lender bias, since a lender pricing a securitized mortgage does not know who the borrower is.

“One of those was securitization to spread risk. And so very few people who get a car loan or a mortgage or credit cards really understand that the rate that they're borrowing at is actually substantially cheaper because all of these are securitized with hundreds or thousands or millions of others and the risk is spread.”at 12:08

Mike Milken · Milken Institute

Advances in healthcare and public health account for more than half of world economic growth.

Milken says that if you study growth closely, more than 50% of all economic growth in the world has come from advances in health care and public health. He grounds this in life expectancy. In 1900 average life expectancy was 31. Over the last 120 years it has risen by more than 40 years, and people also live healthier. He argues that medical research and breakthroughs are underappreciated, and that is why he has backed medical research through philanthropy and for-profit businesses.

“if you really study, more than 50% of all economic growth in the world has come from advances in health care and public health, more than 50%.”at 17:53

Mike Milken · Milken Institute

Heart disease and cancer side effects should be substantially reduced within a decade or two.

Milken notes that antibiotics and other developments eliminated the major causes of death at the start of the twentieth century. Heart disease and cancer are now the major causes of death in the Western world. He expects that their effects will be substantially reduced due to new medical developments, and he hopes this happens within the next decade or two. He frames this as part of the same argument that medical progress drives long-run growth.

“major causes of death in the Western world of heart disease or cancer are being effectively, and hopefully in the next decade or two, the side effects of these two, heart disease and cancer, will be substantially reduced due to new developments.”at 30:06

Mike Milken · Milken Institute

Non-investment-grade companies created far more US jobs than investment-grade companies over 30 years.

Milken cites job creation over the last thirty years of the twentieth century. Non-investment-grade companies created more than 60 million US jobs. Investment-grade companies lost about 4 million. He builds on this with a formula that access to capital multiplies human capital, social capital and real assets, which are the largest assets a country has. Without access to capital, ideas for mobile or AI need financing and a believer in the future.

“more than 60,000,000 jobs were created in the last thirty years of the twentieth century by non investment grade companies, and minus 4,000,000 jobs were created by investment grade companies.”at 9:18

Mike Milken · Milken Institute

Traditional TV depends on sports, and its viewership would collapse without them.

Milken argues that to survive, traditional media such as television and cable depends heavily on sports. If sports or other live events were taken off traditional TV, viewership would plummet, and whether those networks survive is in question. He points to the Academy Awards as one of the few events with high US viewership, and notes that YouTube will broadcast the Academy Awards from 2029. He argues that new industries are always seen as risky, and that people underestimate the risk in established industries.

“in order to survive traditional media today, television, cable, is highly dependent on sports. There is risk to historical media today if those sports or other events are taken off what we think of as traditional television, their viewership will plummet.”at 13:10

Mike Milken · Milken Institute

Private credit is essentially no different from public non-investment-grade debt, and its credit risk is historically low.

Milken compares private credit to the 1950s-60s, when insurance companies were the largest lenders, and says investors are 95-99% long-term holders. Quarterly redemptions are a small share of assets, about 1%, so funding is stable. He says credit risk is real, which is why there is a spread, and that it has historically been very low. He warns that lenders must build reserves for credit losses. He also notes that the 2007-10 crisis losses fell mainly on investment-grade real-estate securities rated AAA, AA or A that carried more risk than their ratings implied. He flags that managers have an incentive, since they can charge three to five times as much for private credit as for public credit.

“Well, private credit is really not much different than public non investment grade debt.”at 19:59

Mike Milken · Milken Institute

Silicon Valley Bank and Republic failed from rate rises on short-term funding, not from credit losses.

Milken argues that the key risk in financial markets is a maturity mismatch between assets and liabilities. Silicon Valley Bank and Republic both held US government securities but funded them overnight or with short-term liabilities. Their failures came from a sharp rise in interest rates, not from the credit quality of their assets. Schwab's stock fell 40% when it was found to hold intermediate-dated government securities that were losing billions a year as rates rose. He concludes that lenders should fund long-dated assets with long-term liabilities so they can ride out rate volatility. In the 1970s, rate swings caused many financial failures for the same reason.

“They both failed not because of the value of their assets in a credit sense, but a dramatic increase in interest rates.”at 22:18

Mike Milken · Milken Institute

Europe is losing entrepreneurs and wealthy residents, so future companies may not be born there.

Milken points to the continued movement of entrepreneurs and wealthy individuals from Europe to Greece, Italy and the UAE, and says the UK is losing considerable numbers. The UAE was the top destination for millionaires in 2023-24, with the US second and Singapore third. He asks whether the new companies of the future will be based in these countries and whether they will be born there at all. The argument is framed as a question, so the view is tentative.

“when I look at Europe today and the continual movement of entrepreneurs and wealthy individuals to Greece or Italy, UK losing considerable, or The UAE ... You wonder, are the new companies of the future going to be based in those countries?”at 24:35

Mike Milken · Milken Institute

California is losing companies and jobs to Texas and Florida, costing it tens of billions.

Milken points to people leaving California for Texas, Florida, Nevada and Tennessee. Palantir moved its headquarters from California to Florida. He estimates Elon Musk's departure from California has already cost the state $10-20 billion, and perhaps $100 billion over time. Musk's expansion in Texas has created many new employees who are now millionaires through SpaceX. He argues that activities that might have occurred in California are now occurring in Texas.

“Elon Musk leaving California has not only cost California 10 or 20,000,000,000 already, maybe 100,000,000,000 over time.”at 25:26

Mike Milken · Milken Institute

Damaging America's appeal to entrepreneurs could push the best and brightest to other countries.

Milken argues that the US has long been the place wealthy and talented people want to move to. They would pay millions of dollars for green cards, which allowed them to stay without paying tax on foreign earnings. If the US hurts its social capital and its image as the best place for an entrepreneur to move, that willingness to come would change. The best and brightest might then stay in or go to a different country. He notes that the 20 most valuable companies are almost all American, which he links to this talent flow.

“if we hurt the views that this is the best place for an entrepreneur to move, it would change the ability of people to want to come to The United States, and the best and brightest might stay in a different country.”at 26:52