MERCHANTS OF DEBT: KKR AND THE MORTGAGING OF AMERICAN BUSINESS, by George Anders (Jonathon Cape, $175). SEVERAL years on, as the United States continues to struggle with recession, the financial excesses of the 1980s seem like a bad dream. Two books were the best chronicles of the times. Liar's Poker wittily exposed the outrageous behaviour and uncontrollable egos of the world of New York bond traders. Barbarians at the Gate dealt with the drama behind the biggest deal of the decade, the US$26.4 billion leveraged buyout (LBO) of tobacco and food firm RJR Nabisco. So is there anything left to say about those hedonistic days? The well-researched and readable Merchants of Debt deals with the fortunes of the firm that put together the RJR Nabisco deal, Kohlberg Kravis Roberts & Co. Wall Street Journal reporter George Anders deals with the rise of KKR and the fervour for LBOs in the '80s. The real interest is what happened to KKR and the buyout phenomena after the Nabisco buyout. The deal proved the zenith of LBO-mania. It was so massive (the value of several Chek Lap Kok airports, to put it into perspective) the activities of Wall Street were fully exposed to the public and the government regulators. And they did not like what they saw. LBOs worked by dealmakers borrowing heavily to do takeovers, the ideology being that indebted companies had to work harder to pay back the debt, shedding workers, closing factories and becoming leaner and meaner. Meanwhile, the financiers and top management of the leveraged company grew mean but certainly not lean due to huge financial charges and performance fees. The public outrage after RJR Nabisco ensured no other deal of that size could be done. It meant the end of the LBO and almost led to the end of KKR. Anders misses none of the drama of the crisis when it arrives, making the book a lively contribution to the library of modern business history.
