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# US Stock Market 1989: I, junk bonds, acquire everything ## The era of careerists begins In the 1980s, American enterprises as a whole showed a trend of privat

2026-07-25·x-repost-20260725-164509
US Stock Market 1989: I, junk bonds, acquire everything ## The era of careerists begins In the 1980s, American enterprises as a whole showed a trend of privatization and centralization.

The reason is that the liberalization reforms of the Reagan administration promoted business deregulation and reduced the tax burden and policy barriers to mergers and acquisitions. This is an era of "careerists".

This wave of restructuring and mergers and acquisitions is characterized by high leverage, financialization, and hostile takeovers, which has profoundly reshaped the corporate landscape and financial market in the United States. In 1987, the value of M&A transactions exceeded US$200 billion, and in 1988 it further exceeded US$300 billion.

Throughout the 1980s, M&A transactions totaled more than $1.3 trillion. Where do M&A funds come from? The entire M&A funding is highly dependent on debt financing. Borrowing money for mergers, especially financing through the issuance of high-yield bonds (junk bonds), has become mainstream.

The acquirer usually only contributes 10% to 20% of the capital, and the remaining 80% to 90% is raised through bank loans and the issuance of junk bonds. The value of U.S. leveraged buyout transactions surged from $4.5 billion in 1983 to $76.6 billion in 1989. More than 50% of junk bond issuance is associated with leveraged financing.

From 1981 to 1989, a total of about 1,400 "privatization" transactions through leveraged buyouts occurred. In the six years from 1981 to 1986, there were as many as 103 large-scale mergers and acquisitions with a transaction value exceeding US$1 billion. In 1988, KKR acquired RJR Nabisco for US$25 billion, setting a historical record at the time.

## This wave of mergers and acquisitions looks like this: 1/Traditional industries shrink, and market value frequently falls below intrinsic value , covering M&A activities in petroleum, chemicals, steel, automobiles, food, medicine, aviation, communications, cultural media and other industries.

Among them, mergers and acquisitions in the cultural media field are extremely active. For example, Metropolitan Communications Company borrowed Buffett's funds to acquire American Broadcasting Company (ABC) in 1985, General Electric acquired National Broadcasting Company (NBC) in 1986, and Time Group acquired Warner Bros. in 1989.

2/The prevalence of hostile takeovers: Financial institutions (such as KKR) and professional M&A companies often bypass the management of the target company and launch takeover offers directly to shareholders.

They are called "barbarians at the door." 3/ Mergers and acquisitions are mostly for the pursuit of short-term financial gains : Many mergers and acquisitions are not for industrial integration, but for the purpose of splitting and selling assets after acquisition, drastically laying off employees, and cutting costs in order to quickly repay debts and make profits.

This often causes damage to the long-term development of the company. This is Buffett's favorite early routine.

## A financial game with unequal benefits and responsibilities After all, in the 1980s, many traditional industries in the United States were "abandoned" by the stock market that liked to be forward-looking (just like the old stock market in 2026), causing the stock price to deviate far from the intrinsic value.

However, the 1980s were prosperous, and many assets entered a new round of revaluation cycle, which led to Many assets hidden in companies in traditional industries are being targeted by financial institutions, who are trying to use mergers, acquisitions and spin-offs for asset value arbitrage.

Since 80% of the purpose is to focus on financial investment, it is inevitable that 80% of mergers and acquisitions will use high financial leverage. No matter how high the interest rate is, as long as the one-time sale proceeds after the split are greater than the financial expenses, these transactions are cost-effective.

"Junk bonds" are called junk bonds because they are easy to "not repay", because many acquisition entities are often entities established specifically for this acquisition. If the acquisition cannot be completed, or if the sale of assets after the acquisition does not meet expectations, then the acquisition entity will be abandoned by the real traders.

This is the "advantage" of "limited liability". Ultimately, this is a financial game with unequal benefits and responsibilities. Like the acquisition of the century: KKR itself only invested US$15 million, and the other 99.94% was completed by borrowing money through the issuance of junk bonds.

What level of game is it that you invest 0.06% of your own money? Therefore, the three major rating agencies (S&P, Moody's, and Fitch) are not fond of it and rate it below BBB-/Baa3, that is, below "investment grade".

In 1990-1991, when the subsequent bubble burst, annual default rates soared to over 10%, well above investment grade bonds (which are typically closer to 0%). ## Why is anyone still willing to buy it? After all, the interest rate is high enough.

During a period when the federal interest rate is 7%-8%, its coupon rate of 12%-15% or even higher is extremely attractive. Many institutions believe that as long as their investments are diversified, their overall "risk is controllable." Who is buying it? In other words, who is willing to lend money to these M&A entities for high-risk M&A?

The earliest buyer was the Savings and Loan Association , their business began to be robbed by large cross-state commercial banks. The interest rate difference between deposits and loans was not competitive, so they could only use high returns to make up for their assets.

This is followed by insurance companies, bond mutual funds, speculators and arbitrageurs who also frequently enter and exit arbitrage. Michael Milken, known as the "King of Junk Bonds," and his firm Drexel Securities, provided unprecedented financing channels and amounts for this wave of leveraged buyouts, and were the key financial promoters of this wave.

Drexel underwrote approximately $80 billion in junk bonds in the 1980s, earning $550 million in 1987 alone. Milken's total personal income during the entire wave was likely well over a billion dollars. ## The junk bond bubble bursts In order to combat inflation and save the U.S. dollar, the Federal Reserve began an interest rate hike cycle in 1987.

During the interest rate hike process, the cost of mergers and acquisitions increased again. The price of original junk bonds plummeted, and the average market price fell to 66% of the face value.

In the context of macroeconomic tightening and economic slowdown, the operations of entities involved in over-leveraged acquisitions have deteriorated, the return-to-risk ratio of mergers and acquisitions has declined, and default risks have risen sharply. Of the 83 large junk bond M&A transactions between 1985 and 1989, 26 companies defaulted.

Many well-known companies such as Eastern Airlines, Pan American Airways, United Department Stores, etc. are in trouble. The Financial Institutions Reform and Recovery Act of 1989 prohibited savings and loan institutions from holding junk bonds and forced them to sell them.

The largest buyer was forced to liquidate his positions, triggering a wave of selling. In 1989, Milken was indicted on 98 counts including securities fraud. In 1990, Drexel Securities went bankrupt.

Milken pleaded guilty to six felonies and was sentenced to 10 years in prison (actually serving 22 months), paid a $600 million fine, and was banned from the securities industry for life. Despite the heavy fine, Milken remained wealthy through investments, consulting and philanthropic activities after his release from prison.

The 2026 Hurun Global Rich List shows that his wealth is 37 billion yuan (approximately US$5.2 billion), ranking 845th in the world. ## Smart Buffett During the junk bond craze in the late 1980s, Buffett was sharply critical of it, believing that it was essentially a dangerous financial innovation; But Buffett himself was also involved.

When ABC faced a hostile takeover by the market using junk bonds, MetLife teamed up with Buffett to make a direct equity investment and acquired ABC. Moreover, when the market collapsed and prices were extremely undervalued, he showed the flexibility of a value investor and made contrarian investments.

Between 1989 and 1990, Buffett purchased approximately $440 million in RJR at a significant discount to face value. Nabisco junk bonds, he believes the company's credit profile is better than the market panic thought, the high yield (about 14.4%) and potential capital appreciation more than compensated for the risk.

In 1991, RJR Nabisco announced the redemption of most of its bonds at par value, from which Buffett received approximately $150 million in proceeds.

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# US Stock Market 1989: I, junk bonds, acquire everything ## The era of careerists begins In the 1980s, American enterprises as a whole showed a trend of privat

# US Stock Market 1989: I, junk bonds, acquire everything ## The era of careerists begins In the 1980s, American enterprises as a whole showed a trend of privatization and centralization. The reason is that the liberalization reforms of the Reagan administrati

# US Stock Market 1989: I, junk bonds, acquire everything ## The era of careerists begins In the 1980s, American enterprises as a whole showed a trend of privatization and centralization. The reason is that the liberalization reforms of the Reagan administration promoted business deregulation and reduced the tax burden and policy barriers to mergers and acquisitions. This is an era of "careerists". This wave of restructuring and mergers and acquisitions is characterized by high leverage, financialization, and hostile takeovers, which has profoundly reshaped the corporate landscape and financial market in the United States. In 1987, the value of M&A transactions exceeded US$200 billion, and in 1988 it further exceeded US$300 billion. Throughout the 1980s, M&A transactions totaled more than $1.3 trillion. Where do M&A funds come from? The entire M&A funding is highly dependent on debt financing. Borrowing money for mergers, especially financing through the issuance of high-yield bonds (junk bonds), has become mainstream. The acquirer usually only contributes 10% to 20% of the capital, and the remaining 80% to 90% is raised through bank loans and the issuance of junk bonds. The value of U.S. leveraged buyout transactions surged from $4.5 billion in 1983 to $76.6 billion in 1989. More than 50% of junk bond issuance is associated with leveraged financing. From 1981 to 1989, a total of about 1,400 "privatization" transactions through leveraged buyouts occurred. In the six years from 1981 to 1986, there were as many as 103 large-scale mergers and acquisitions with a transaction value exceeding US$1 billion. In 1988, KKR acquired RJR Nabisco for US$25 billion, setting a historical record at the time. ## This wave of mergers and acquisitions looks like this: 1/Traditional industries shrink, and market value frequently falls below intrinsic value , covering M&A activities in petroleum, chemicals, steel, automobiles, food, medicine, aviation, communications, cultural media and other industries. Among them, mergers and acquisitions in the cultural media field are extremely active. For example, Metropolitan Communications Company borrowed Buffett's funds to acquire American Broadcasting Company (ABC) in 1985, General Electric acquired National Broadcasting Company (NBC) in 1986, and Time Group acquired Warner Bros. in 1989. 2/The prevalence of hostile takeovers: Financial institutions (such as KKR) and professional M&A companies often bypass the management of the target company and launch takeover offers directly to shareholders. They are called "barbarians at the door." 3/ Mergers and acquisitions are mostly for the pursuit of short-term financial gains : Many mergers and acquisitions are not for industrial integration, but for the purpose of splitting and selling assets after acquisition, drastically laying off employees, and cutting costs in order to quickly repay debts and make profits. This often causes damage to the long-term development of the company. This is Buffett's favorite early routine. ## A financial game with unequal benefits and responsibilities After all, in the 1980s, many traditional industries in the United States were "abandoned" by the stock market that liked to be forward-looking (just like the old stock market in 2026), causing the stock price to deviate far from the intrinsic value. However, the 1980s were prosperous, and many assets entered a new round of revaluation cycle, which led to Many assets hidden in companies in traditional industries are being targeted by financial institutions, who are trying to use mergers, acquisitions and spin-offs for asset value arbitrage. Since 80% of the purpose is to focus on financial investment, it is inevitable that 80% of mergers and acquisitions will use high financial leverage. No matter how high the interest rate is, as long as the one-time sale proceeds after the split are greater than the financial expenses, these transactions are cost-effective. "Junk bonds" are called junk bonds because they are easy to "not repay", because many acquisition entities are often entities established specifically for this acquisition. If the acquisition cannot be completed, or if the sale of assets after the acquisition does not meet expectations, then the acquisition entity will be abandoned by the real traders. This is the "advantage" of "limited liability". Ultimately, this is a financial game with unequal benefits and responsibilities. Like the acquisition of the century: KKR itself only invested US$15 million, and the other 99.94% was completed by borrowing money through the issuance of junk bonds. What level of game is it that you invest 0.06% of your own money? Therefore, the three major rating agencies (S&P, Moody's, and Fitch) are not fond of it and rate it below BBB-/Baa3, that is, below "investment grade". In 1990-1991, when the subsequent bubble burst, annual default rates soared to over 10%, well above investment grade bonds (which are typically closer to 0%). ## Why is anyone still willing to buy it? After all, the interest rate is high enough. During a period when the federal interest rate is 7%-8%, its coupon rate of 12%-15% or even higher is extremely attractive. Many institutions believe that as long as their investments are diversified, their overall "risk is controllable." Who is buying it? In other words, who is willing to lend money to these M&A entities for high-risk M&A? The earliest buyer was the Savings and Loan Association , their business began to be robbed by large cross-state commercial banks. The interest rate difference between deposits and loans was not competitive, so they could only use high returns to make up for their assets. This is followed by insurance companies, bond mutual funds, speculators and arbitrageurs who also frequently enter and exit arbitrage. Michael Milken, known as the "King of Junk Bonds," and his firm Drexel Securities, provided unprecedented financing channels and amounts for this wave of leveraged buyouts, and were the key financial promoters of this wave. Drexel underwrote approximately $80 billion in junk bonds in the 1980s, earning $550 million in 1987 alone. Milken's total personal income during the entire wave was likely well over a billion dollars. ## The junk bond bubble bursts In order to combat inflation and save the U.S. dollar, the Federal Reserve began an interest rate hike cycle in 1987. During the interest rate hike process, the cost of mergers and acquisitions increased again. The price of original junk bonds plummeted, and the average market price fell to 66% of the face value. In the context of macroeconomic tightening and economic slowdown, the operations of entities involved in over-leveraged acquisitions have deteriorated, the return-to-risk ratio of mergers and acquisitions has declined, and default risks have risen sharply. Of the 83 large junk bond M&A transactions between 1985 and 1989, 26 companies defaulted. Many well-known companies such as Eastern Airlines, Pan American Airways, United Department Stores, etc. are in trouble. The Financial Institutions Reform and Recovery Act of 1989 prohibited savings and loan institutions from holding junk bonds and forced them to sell them. The largest buyer was forced to liquidate his positions, triggering a wave of selling. In 1989, Milken was indicted on 98 counts including securities fraud. In 1990, Drexel Securities went bankrupt. Milken pleaded guilty to six felonies and was sentenced to 10 years in prison (actually serving 22 months), paid a $600 million fine, and was banned from the securities industry for life. Despite the heavy fine, Milken remained wealthy through investments, consulting and philanthropic activities after his release from prison. The 2026 Hurun Global Rich List shows that his wealth is 37 billion yuan (approximately US$5.2 billion), ranking 845th in the world. ## Smart Buffett During the junk bond craze in the late 1980s, Buffett was sharply critical of it, believing that it was essentially a dangerous financial innovation; But Buffett himself was also involved. When ABC faced a hostile takeover by the market using junk bonds, MetLife teamed up with Buffett to make a direct equity investment and acquired ABC. Moreover, when the market collapsed and prices were extremely undervalued, he showed the flexibility of a value investor and made contrarian investments. Between 1989 and 1990, Buffett purchased approximately $440 million in RJR at a significant discount to face value. Nabisco junk bonds, he believes the company's credit profile is better than the market panic thought, the high yield (about 14.4%) and potential capital appreciation more than compensated for the risk. In 1991, RJR Nabisco announced the redemption of most of its bonds at par value, from which Buffett received approximately $150 million in proceeds.

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