Housing Market Mess? Blame Mike Milken

The founder of every new business hopes that what he or she creates will eventually become not just a business, but an industry. They want their business to scale -- to get as big as possible as fast as possible. But sometimes businesses are forced to scale when they really shouldn't. That's what I have come to realize is at the heart of the current home ownership crisis. And I blame it all on legendary 1980s white-collar criminal Mike Milken.

Before Milken revolutionized the junk bond market at Drexel Burnham Lambert in the 1980s, banking was both more regulated and more sedate -- precisely the attributes being called for in bankers lately from both sides of the aisle in Washington. But with President Reagan working back then to reduce regulation and guys like Mike Milken pushing the envelope on what was possible (ethical, even legal -- remember Mike went to prison), the world of finance quickly changed. Milken was master of a killer new financial technology, the phone bank, and used it to sell enough junk paper in 1987 to score himself a salary and bonus of $550 million (more than $1 billion today), setting in every way the trend we see now.

That trend is using technology to force increases in both supply and demand -- increases that, absent the enabling technology, would have appeared absurd on their face.