13 February 1990: Drexel Burnham Lambert goes bankrupt
Drexel Burnham Lambert, the investment bank that made junk bonds famous and financed the 1980s takeover boom, filed for bankruptcy after running out of cash. Its star banker Michael Milken had been indicted the year before. Drexel's collapse sent shudders through the high-yield market. Yet junk bonds survived and became a mainstream asset class. The firm died; the idea it popularized did not.
The lesson: A financial innovation can outlive the firm that invented it, and the scandal that surrounded it.
What it meant for investors
$1,000 in US junk bonds at the start of 1990 → $13,500 today, vs $19,429 in the S&P 500.
We start the clock at the start of 1990, the year it happened. That is 13.5 times the money, but $5,929 less than a plain index fund made over the same years.
What US junk bonds teaches: High-yield bonds behave more like equities than bonds in a crisis, so they add income but little protection to a portfolio.
| Bought in | Price then | Worth today | S&P 500 would be |
|---|---|---|---|
| 1990 | $100 | $13,500 | $19,429 |
| 1995 | $170 | $7,941 | $14,783 |
| 2000 | $240 | $5,625 | $4,626 |
green = beat the S&P 500 · red = lost money
What if you bought US junk bonds? Every starting year and the full story →
Could you have called it at the time? The wheel picks the year, you pick the position, ten seconds a pick.
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