Editor's note: The following story ran Oct. 28, 1991, on last day of the nine-day "America: What went wrong?" series published in the Inquirer.
* * *
In Washington, where 11,000 organizations are lobbying Congress, there is an old adage:
Successful lobbies are measured by the legislation they stop, not by the laws they get passed.
By that yardstick, the Alliance for Capital Access was phenomenally successful.
Let's watch the Alliance in action in 1985, the year it stopped a big one. At the time, pressure was building on Congress to do something about the wave of hostile takeovers, leveraged buyouts and corporate mergers that were sweeping America.
Rep. Timothy E. Wirth (D., Colo.), then chairman of a House subcommittee, was concerned that "shareholders, companies, employees and entire communities have been harmed in these battles for corporate control. " He wanted hearings to "assess the fairness" of the takeovers.
To schedule witnesses and set the agenda for the hearings, which were expected to lead to new legislation, Wirth turned to a close aide, David K. Aylward, the subcommittee's staff director and chief counsel.
Aylward indicated that the hearings would go beyond a probe of the tactics used by raiders and explore the role that high-yield (junk) bonds were playing in financing corporate takeovers.
"We really don't know where this money is coming from, and whether it could be better used for something else in the long term," Aylward told the New York Times on Feb. 18, 1985.
Shortly after the hearings convened, Aylward resigned from Wirth's staff and took a new job.
He joined a lobbying company whose first clients would include the newly formed Alliance for Capital Access. Its sole aim: to block any legislation that would restrict junk bonds.
Describing itself as an organization of high-yield bond users, the Alliance was in reality a Washington lobby for Michael R. Milken, Drexel Burnham Lambert Inc.'s junk bond chief, who helped create the group just as junk bonds came under mounting criticism.
Over the next few years, the Alliance became one of the capital's most successful lobbies - wining and dining lawmakers, passing out checks to House members and senators to make speeches, testifying before congressional committees and extolling the benefits of junk bonds.
In the end, its success could be measured by a simple standard:
Congress never enacted legislation that scaled back the virtually unlimited deduction for interest on corporate debt - the engine that had driven the junk-bond movement.
The Alliance was so successful in turning back every congressional attempt to curb the deductibility of interest on corporate borrowing that last month it disbanded, its job done.
"I charge people money when there is something I can do for them," Aylward said. "There's no legislative activity on the horizon that would justify people contributing to that kind of organization any more. "
That's good news for supporters of the Alliance.
But it's bad news for you - if you're a middle-class man or woman, family or single parent, child or senior citizen, factory worker or middle-level manager, homemaker or career woman.
For successful lobbies like the Alliance for Capital Access have helped to frame the content of the government rule book, the agglomeration of laws and regulations that direct the course of the American economy.
As The Inquirer has reported over the last eight days, that rule book is responsible for the decline of America's middle class, for the triumph of special interests.
It affects whether you have a job that pays $15 an hour or one that pays $6; whether you have a pension and health-care insurance; whether you can afford to own a home.
It governs everything from the tax system to imports of foreign goods, from the bankruptcy system to regulatory oversight.
But just as important as the laws and regulations that make up the rule book are the potential changes that are never enacted by Congress, never implemented by regulatory agencies - owing to the influence exercised by lobbies like the Alliance for Capital Access.
It is because of such lobbies that Congress has failed to rewrite the laws that permit foreign-owned companies in the United States to pay taxes at a lower rate than American-owned companies.
It is because of such lobbies that Congress has failed to rewrite the laws that permit companies to escape their financial obligations to employees and retirees, suppliers and customers, by seeking sanctuary in U.S. Bankruptcy Court.
It is because of such lobbies that Congress has failed to rewrite the laws that permit wealthy citizens to pay combined income tax and Social Security taxes at a rate well below that paid by individuals and families earning less than $20,000 a year.
It is because of such lobbies that Congress has failed to do anything about 40 million Americans who are going without health-care insurance and millions more who have insurance that provides only limited protection.
It is because of such lobbies that Congress has failed to rewrite the laws that permit wealthy foreign investors to pay taxes on their U.S. income at a rate well below that paid by individuals and families earning less than $30,000 a year.
It is because of such lobbies that Congress has failed to rewrite the laws that permit banks to deduct most of their bad loans, thereby shifting the cost of flawed business decisions from themselves to the American taxpayer.
And it is because of such lobbies that Congress has failed to even consider rewriting the laws to impose taxes on dealings that have long gone untaxed.
Like, say, a 1 percent excise tax on the trading of stocks, bonds, futures and options.
That's the kind of tax that middle-class families pay every day.
Look on your telephone bill. See that 3 percent excise tax added onto your charges?
Look at the gas pump the next time you fill up the car. See the 14-cent federal tax? That's an excise tax - at a rate of 17 percent.
But the idea of an excise tax on securities transactions has been blocked each time it has come up in Congress.
Lobbyists asserted that such a tax would fall on pension funds - the largest pools of money that are presently untaxed.
Listen to what a few members of the House Ways and Means Committee - the committee responsible for writing all tax legislation - had to say in response to an Inquirer survey about a 1 percent levy:
Rep. Bill Archer, a Texas Republican:
"I would not support the enactment of such a tax. . . . A (transfer tax) would cause investors to shift financial transactions to foreign exchanges which do not impose (them). "
Rep. Dan Rostenkowski, Illinois Democrat and committee chairman:
"I am on record as being generally unsympathetic to such taxes in the past. . . . Given the globalization of financial markets and the international trading patterns that now exist, such a tax would raise serious questions about the ability of our nation to compete. Such a tax could reduce the price of shares, thereby increasing the cost of capital and actually discouraging investment and innovation. "
And an aide to Rep. Charles Rangel, New York Democrat:
"He is against it. His reasons are very simple: He represents New York City, which represents the center of the securities industry. There have been a lot of studies which indicate the city would lose a lot of business. . . . It is a very simple, parochial, provincial view."
* * *
If Wall Street poured billions of dollars into leveraged buyouts, hostile takeovers and mergers in the 1980s, it invested just as enthusiastically in Washington.
Witness the speech-making income of perhaps the most powerful member of Congress, the one lawmaker who more than any other determines the structure of America's tax system - Dan Rostenkowski.
From 1980 through 1990, Rostenkowski collected $37,000 in speaking fees from the Chicago Board of Trade. And $22,500 from the Public Securities Association. And $20,000 from Citicorp-Citibank. And $19,500 from the American Stock Exchange. And $18,000 from the American Bankers Association. And $15,500 from the Securities Industry Association.
He picked up $15,000 from the National Venture Capital Association. And $15,000 from the CLGlobal Partners Securities Corp. And $14,500 from the Futures Industry Association. And $13,500 from the American Council for Capital Formation. And $13,000 from the Midwest Stock Exchange. And $10,000 from the Exchange National Bank of Chicago.
Add up the honoraria and the total comes to $213,500 for the 11 years. And that's just from 12 organizations - all with a direct stake in the Internal Revenue Code in general and the imposition of new taxes, such as an excise tax, in particular.
Over the 11 years, Rostenkowski pulled in $1.7 million in speaking fees or honoraria from businesses and organizations with an interest in tax legislation.
To put that sum in perspective, consider this: The $1.7 million that Rostenkowski received from groups seeking favored treatment was double the amount of money that he received for serving in Congress.
He couldn't keep it all, of course. Federal law required that any amount above a fixed percentage had to be turned over to charity.
While Rostenkowski may have been the largest recipient of honoraria during the 1980s, the groups that contributed to him were also generous with other lawmakers.
Throughout the period, investment bankers, banks, trade groups, stock exchanges and brokerage houses gave millions in campaign contributions and speaking fees to senators and House members on crucial committees that write the rules by which the economic game is played.
Over the last six years, according to reports filed with the Senate Records Office, the Securities Industry Association, for example, gave $26,000 in speaking fees to nine members of the Senate Finance Committee.
During that period, the American Stock Exchange gave $19,000 in speaking fees to seven senior members of the committee.
Paine Webber Group, the Wall Street investment company, gave $18,500 to five senior members of the committee.
Congress has now banned honoraria. In exchange for a pay increase - to $125,100 a year - lawmakers are prohibited from accepting fees for speeches.
But not to worry. There is a replacement: The personal congressional foundation or related tax-exempt organization.
Now, contributions may be made directly to the Dole Foundation of Sen. Robert J. Dole (R., Kan.). Or to the Derrymore Foundation of Sen. Daniel Patrick Moynihan (D., N.Y.). Or to the University of Utah's Garn Institute of Finance supported by Sen. Jake Garn (R., Utah).
However worthy the cause of the tax-exempt organizations, contributions to them, like the speaking fees, bring something beyond the reach of middle-class Americans - access to the people who write the rule book.
So, too, do campaign contributions.
Many of the same lobbying groups that handed out speaking fees also contributed to the campaigns of members of the tax-writing committees.
Morgan Stanley & Co.'s political action committee, the Better Government Fund, made contributions in 1989-90 to Sen. Max Baucus (D., Mont.), Sen. Bill Bradley (D., N.J.), Rep. Beryl F. Anthony Jr. (D., Ark.), Rep. Thomas J. Downey (D., N.Y.), Rep. Barbara B. Kennelly (D., Conn.), Rep. Robert T. Matsui (D., Calif.), Rep. Charles B. Rangel (D., N.Y.) and Rep. Guy A. Vander Jagt (R., Mich.).
The Public Securities Association's political action committee contributed to the campaigns of Sen. Lloyd Bentsen (D., Texas), Sen. Thomas A. Daschle (D., S.D.), Sen. Robert Dole (R., Kan.), Sen. Steve Symms (R., Idaho) and Rep. Byron L. Dorgan (D., N.D.).
The Chicago Mercantile Exchange's political action committee gave to Sen. Dave Durenberger (R., Minn.), Sen. Charles E. Grassley (R., Iowa), Rep. Fred L. Grandy (R., Iowa), Rep. Sander M. Levin (D., Mich.), Rep. Donald J. Pease (D., Ohio), Rep. Martin A. Russo (D., Ill.) and Rep. Donald K. Sundquist (R., Tenn.).
When Congress isn't busy taking care of such contributors, it's busy taking care of itself.
In 1950, members of Congress received annual salaries of $12,500. That was six times the $2,065 salary earned by a department store clerk. Today, members of Congress, who have enthusiastically endorsed America's shift from a manufacturing to a service economy, are doing much better.
Now, their annual salaries of $125,100 are 12 times the $10,480 earned by a department store clerk.
But that higher salary is important because, without it, ordinary workers who would like a seat in the Senate would be unable to afford a life of public service. That, at least, is the way Sen. Robert C. Byrd, the West Virginia Democrat, sees it.
He said so in July, when he introduced legislation providing for a 23 percent pay increase to bring the salaries of senators in line with that of representatives. Said Byrd:
"We must not perpetuate an arrangement which effectively shuts people out of serving in the Senate. To continue down this road means there will not be any welders that come out of the shipyards in Baltimore and stand in this place.
"There will not be any more meatcutters that come out of the coalfields of southern West Virginia or Indiana or Illinois or Kentucky or Alabama to stand in this place.
"There will not be any garbage boys that come out of the hills of West Virginia, or produce salesmen or even small, very small, small business operators that will come here to give of their talents. . . .
"That is what I am fighting for here tonight. . . . Let us open the doors to a few poor folks who may aspire to run for the U.S. Senate. . . . "
There was no talk during the debate about the exploding pay gap between middle-class workers and lawmakers, which happens to parallel the pay gap between factory workers and corporate executives - a gap that Congress has made possible.
Nor was there any serious talk of Congress doing anything about the wave of buyouts, takeovers and corporate restructurings that had cost the jobs of so many middle-class Americans.
* * *
Robert Trent was born and raised in Clarksburg, W. Va., served a stint in the military, then followed the path of his father and uncles.
In October 1962, he went to work at the Anchor Hocking Corp. glass- manufacturing plant, the largest employer in Clarksburg.
Over the next 25 years, Trent progressed through a series of jobs, eventually becoming a personnel supervisor at the factory, which turned out such familiar objects as the Star Wars and Camp Snoopy glasses distributed by McDonald's during promotional campaigns.
In the fall of 1987, Trent found himself out of work for the first time in his life when the Clarksburg plant was closed after an unfriendly takeover.
Trent likes to say that "just about every meal that I've ever had has come out of this plant. " He worked there 25 years. His father worked there 44 years. His brother worked there 37 years. Even his mother worked there briefly.
There were uncles and cousins and altogether, he said, "the Trent family's logged about 200 years in this plant. There were many families like that. "
For Trent and 900 other workers, it all came to an end in the summer of 1987.
In July of that year, Anchor Hocking (1986 revenue of $758 million) was acquired by a smaller company, Newell Co. of Freeport, Ill. (1986 revenue of $401 million).
A manufacturer and marketer of a variety of household products, Newell had been growing through acquisitions.
In the process, Newell was fashioning a reputation as a takeover company that, once it completed an acquisition, moved swiftly to eliminate jobs, reorganize the operations it intended to keep and sell off or shut down the rest.
An unsuspecting Clarksburg discovered how swiftly Newell could move.
On Aug. 10, 1987 - just 40 days after it acquired Anchor Hocking - Newell announced it was closing the West Virginia factory, eliminating the jobs of 900 workers. It cited excess production.
Robert Trent remembers it well: "We were really excited about some Newell people coming down and looking at our facility, because we thought we were doing very well.
"They came in about 10 in the morning. We saw them come in. They went to the plant manager's office . . . and told him they were closing this facility Nov. 1, 1987. And that was it. They were out of here by 10:30. "
For the employees, it was painful.
"One of our supervisors right now is working in a local store at minimum wage," Trent said. "It's a shame. He was one of our best supervisors. A very knowledgeable person. Again, in his mid- to late 50s, working for minimum wage now. That's a shock. "
Victor M. Cunningham, the manager of the West Virginia Department of Employment Security office in Clarksburg, said many of the workers moved into ''service and retail jobs, which are low-paid, short weekly hours and little or no benefits. "
"It's so hard to convert someone who packed glass for 20 years to manage a convenience store," he said. "You don't know what kind of a struggle it is for them to think and apply themselves (to something new). I don't know what the answer is."
* * *
More than 3,000 miles to the west, in another small town, in another industry, excessive debt produced a similar result.
Ira G. March watched it happen.
A husky, full-bearded outdoorsman, March spent most of his working life at a sawmill in Martell, Calif., in the foothills of the Sierra Nevadas. He rose from laborer to sawyer, the highest classification among the hourly workers.
During that time, the mill had four owners. The first was a lumberman, Walter Johnson, who founded the mill's parent company, American Forest Products, in 1925.
"Johnson didn't care whether you were the cleanup guy or who you were," said March. "He would come into the mill and stop and talk to you. He knew all the old guys. That was the kind of guy he was. "
The company, with more than a dozen sawmills, box factories and plants scattered throughout the Sierras, remained under Johnson's control for 45 years, until Bendix Corp., the defense contractor, bought American Forest Products in 1970 as part of a diversification plan. That was a time when Wall Street was profiting by putting together conglomerates.
In 1980, when Wall Street began profiting by taking apart conglomerates, Bendix sold the Martell mill and other American Forest properties to an investment partnership headed by New York buyout specialists Kohlberg, Kravis, Roberts & Co.
March recalls an immediate change at Martell. Now, there was great pressure to work harder as the new owners struggled to cut costs to pay the interest on the debt.
"The debt was the problem," said March. "It seemed to be known throughout the plant. That's why they were pushing the plant so hard. So we had to struggle, and we did struggle here for years trying to pay off that debt and make a profit. "
But in vain. Even though American Forest Products posted a larger operating profit in 1987 than in the late 1960s when it was an independent company, it recorded a loss for the year. The reason: Most of the company's operating profits went to pay interest on its debt.
Kohlberg, Kravis began selling off pieces of the company. In 1988, it sold the mill to Georgia-Pacific Corp., a manufacturer of forest and building products.
Georgia-Pacific itself faced a corporate debt spiraling toward $2.5 billion, with interest due in 1989 alone of $272 million.
To help raise cash, Georgia-Pacific, with annual sales of $8.6 billion in 1987, cut expenditures and dipped into the paychecks of workers at the Martell mill.
It could do so because in the 1980s, the National Labor Relations Board ruled that new owners could scuttle existing contracts, making it easier to reduce the pay of employees of companies being acquired.
In the past when one company bought another, it usually inherited the obligations of the selling company, including labor agreements.
But before the Martell mill changed hands, Kohlberg, Kravis fired all the workers and sold the assets to Georgia-Pacific.
This effectively terminated the labor contracts that had been in place, allowing Georgia-Pacific to reopen the mill and rehire some of the fired workers - at wage cuts of 10 percent to 15 percent.
For longtime mill workers at Martell, the wage cut was another setback in working conditions at a plant that had once been a good place to work.
Ira March took early retirement. Pablo Iturri, a native of the Basque region of Spain who had worked at the mill for nearly three decades, stayed on briefly, but was disillusioned.
"They cut everybody's wages," he said. "That was a big mistake. A lot of people had worked here their whole lives. This was no good."
* * *
While debt was undermining companies like American Forest Products, Anchor Hocking and hundreds of others, Congress stood by - watching and listening.
It listened more often than not to financial experts who said that everything was all right - that the dizzying round of mergers, buyouts, takeovers and corporate restructurings was a healthy, natural process for the economy.
To turn back any challenge in Congress, the money industry relied on spokesmen to articulate the new values. One such value was the theory that debt is a positive force in corporate management.
Advocates contended that debt forced executives to manage more efficiently and pay closer attention to the bottom line.
Among those who held this view was John A. Pound, an assistant professor of government at the Kennedy School of Government at Harvard University, and a principal in a Cambridge-based consulting firm called the Analysis Group. It did work for a number of takeover artists, such as the Belzberg family of Canada.
In one report, Pound's Analysis Group extolled the benefits of leveraged buyouts, calling them "part of the ongoing restructuring of corporations that is necessary for the economy to remain competitive. "
High debt-load levels were, in fact, a positive force, the report argued, because they made companies "more efficient. "
As proof, the report cited as an example the Campeau Corp., headed by Robert Campeau.
Campeau had run up more than $7 billion in debt in 1986 and 1988, acquiring a Who's Who of American retail establishments, including Bloomingdale's, Brooks Brothers, Jordan Marsh, Abraham & Straus, Ann Taylor, Garfinckel's, Bonwit Teller and Filene's.
By September 1989, Campeau Corp. was unable to make a payment on its debt.
With default looming, Campeau's financiers intervened and arranged what Pound described as a "fix for the credit crisis. " They curtailed Robert Campeau's power and took steps to rescue the troubled retailer.
To Pound, the swift action of Campeau's backers was proof of how high debt loads compel the financiers holding the purse strings to step in before bankruptcy becomes inevitable. The result was a "more efficient and informal way to monitor corporate performance" than having to declare bankruptcy. Pound wrote:
"Default no longer necessarily means bankruptcy or even signals severe or prolonged financial distress. The Campeau liquidity crisis was resolved with a dispatch unimaginable a few short years ago. Most important, the resolution led to a significant shift of corporate control and corporate strategy.
"In the past, prior to LBOs (leveraged buyouts), such a shift in strategy and management would have been virtually impossible to accomplish until performance had slid to a terrible degree. "
Pound's report on the Campeau rescue was dated Nov. 28, 1989.
Forty-eight days later, on Jan. 15, 1990, Campeau's Federated Department Stores Inc. and Allied Stores filed for bankruptcy protection. It was the largest retail bankruptcy ever and it remains the sixth largest corporate bankruptcy in U.S. history.
* * *
Sometimes, the lobbyists extolling debt are the moneymen themseves.
Men like Bruce Wasserstein, who with his partner Joseph Perella made a fortune buying, selling and restructuring businesses through their investment banking firm, Wasserstein Perella & Co.
In September 1987, during an appearance before a House Energy and Commerce subcommittee, Wasserstein discussed corporate debt and the unique abilities of sophisticated financial advisers to determine which companies are capable of carrying large amounts of debt.
He cited as an example Harcourt Brace Jovanovich Inc., the book publishing company that had expanded into other areas, including Sea World theme parks and insurance.
In May 1987, Robert Maxwell, a British publisher, sought to buy Harcourt for about $2 billion. To fend off the bid, Harcourt took on $2 billion in debt and distributed cash to stockholders.
Wasserstein approved: "The shareholders have every reason to be ecstatic over what happened at Harcourt because the offer that came in for the company was at something in the mid-$40, and the total value of the package . . . shareholders received was something over $60 a share.
"We are confident that Harcourt will do very well, and that is reflected in the marketplace today. "
Notwithstanding the sophisticated financial advice Harcourt received, the company was unable to meet the interest payments on a staggering $2.5 billion debt without selling off properties, closing certain operations and laying off employees.
For 1987, the year it took on the new debt, Harcourt reported net income of $83.4 million. In 1988, the year after, the company lost $53.5 million.
In 1989, Harcourt reported net income of $12.4 million. But that was due to the sale of its theme parks for $1.1 billion. Without the sale of assets, Harcourt would have lost $242.2 million on its operations.
As for the company's stock, in 1986 - the year before the money industry moved in - it traded at a high of $104 a share. Today, it goes for 63 cents.
Ever since the restructuring Wasserstein oversaw, Harcourt has been losing money, selling assets, scrambling to make ends meet.
The company is expected to become a division of General Cinema Corp., a Newton, Mass., retailer and movie theater operator, in a $1.5 billion merger next month. When that happens, Harcourt will disappear as an independent company.
When the company's final chapter is written, the casualty list will be long:
There have been business casualties, of companies sold, jobs lost.
There have been financial casualties, among holders of Harcourt's stocks and bonds.
There has been a corporate casualty, the story of a once-strong company brought down by debt.
And then there are the human casualties.
One of them, Robert L. Edgell, is worthy of special note.
* * *
A charismatic man, Edgell headed HBJ Publications, the business magazine and school supplies division of Harcourt.
Under Edgell, HBJ Publications grew from 16 magazines in the early 1970s to more than 100 in 1987, making it one of the nation's largest business publication companies.
But to pay off some of the huge debt it took on to defeat Maxwell, Harcourt in 1987 had to sell assets fast. One was HBJ Publications.
Fearful that an outsider might buy the company and split it up, Edgell and other top executives bought HBJ Publications themselves on Dec. 31, 1987, in a $334 million leveraged buyout. The division was renamed Edgell Communications Inc., with Edgell as chairman and top executive.
Despite the large debt, Edgell said no layoffs or other cost-cutting measures would be implemented. He predicted that the company's revenues and profit would continue to grow at a rate of 12 percent a year. That would enable the company to make more acquisitions and start new publications, he said.
"It will be business as usual, only better," Edgell told a reporter at the time.
Wall Street liked the deal, too.
Ivan Obolensky, a publishing analyst with the New York brokerage house of Josephthal & Co., saw only sunny days ahead:
"The future is a beautiful thing for Edgell. This is a fire sale," Obolensky was quoted as saying about the $334 million acquisition cost.
Despite the optimism, the company had problems from the start.
The projections to pay off the debt were based on growth in advertising lineage among the business publications. They did not factor in a downturn that began in 1988. The company lost $65 million that year.
The biggest problem was making payments on the company's debt. Interest costs were staggering - $42.1 million in 1988 and $38.5 million in 1989.
To make those steep payments, Edgell Communications, for the first time, began eliminating jobs. The company also sold publications to raise cash, a move that Robert Edgell found especially distressing.
By early 1990, the company was in grave financial condition. Edgell had recorded another large loss in 1989 - $35.3 million.
In March, Standard & Poor's Corp. lowered the rating on Edgell's corporate bonds and said the company faced "potential violations of senior debt financial covenants. "
All of this took a heavy toll on Robert Edgell. Not only was the company he had built coming apart, but the investment of many who worked for him and had joined him in the buyout was rapidly evaporating.
On May 6, 1990, Edgell resigned and left the company. Richard B. Swank, a former executive with Dun & Bradstreet Corp., was brought in as Edgell's new chairman.
Edgell tried to put the firm's troubles behind him. On Aug. 3, 1990, he and his wife, Yvonne, bought a luxury condominium on Florida's Gulf Coast, near Sarasota, seemingly far away from the troubled Edgell empire.
The Edgells chose a corner apartment on the seventh floor of a new building on Longboat Key, overlooking the Gulf of Mexico. From the balcony, one could take in dazzling sunsets.
The Longboat Key Club called the new development "Sanctuary. "
But for Robert Edgell this idyllic setting was not a haven.
The Edgell Communications debacle would not go away. When the company failed to make a $7 million interest payment, the default set off a frenzied effort to restructure the debt.
Seven business magazines were put up for sale. Rumors were rife that the company might soon have to seek Bankruptcy Court protection.
On New Year's Day 1991, the Edgells had lunch in their condominium with old friends from out of town. After the two couples had finished the meal, Edgell excused himself from the table.
At 2 p.m., while his wife and friends were in another part of the apartment, Edgell quietly stepped out to the balcony. In full view of several people, he jumped seven floors to his death.
Edgell left tape-recordings to his family and a suicide note. Although the contents of the note were not disclosed, the Longboat Key police chief said the note indicated Edgell was distraught over the reversal of the company's fortunes.
Whatever the cause of Robert Edgell's suicide, there is no mistaking the cause of Harcourt's demise: excessive debt made possible by a tax code that provides for a nearly unlimited interest deduction. It was this deduction that the Alliance for Capital Access lobbied so intensely to preserve.
The Alliance, incorporated on Aug. 8, 1985, in Washington was a trade association representing companies dedicated to blocking any changes in the rules on junk bonds.
Its top officers had close ties to Michael Milken and dozens of the companies that paid membership dues to the Alliance owed, if not their existence, at least their temporary prosperity, to Milken, who had peddled junk bonds on their behalf.
Two of its three directors - Carl Lindner, president of American Financial Corp. in Cincinnati, and Richard Grassgreen, president of Kinder-Care Learning Centers in Montgomery, Ala. - headed companies that had been part of Milken's junk-bond network.
The incorporation papers were filed by Craig Cogut, a lawyer with Cambrent Financial Group, an offshoot of Milken's financial empire, which had offices in the same Beverly Hills building where Milken ran Drexel Burnham's junk-bond operation.
Over the next five years, more than half of the 120 companies that contributed to the Alliance had ties to Milken.
Like all successful Washington lobbies, the Alliance lined up a politically well-connected lawyer to do the actual lobbying.
He was David K. Aylward, fresh from a stint as a top aide to Wirth when he was chairman of the House telecommunications, consumer protection and finance subcommittee.
As executive director of the Alliance, Aylward began to sing the praises of junk bonds.
"High-yield bonds . . . have become a critical financing source for some of the fastest-growing, most dynamic . . . companies," Aylward said in August 1987 when releasing a survey of high-yield bond financing.
His main job for the Alliance was "combating misunderstandings" about high-yield bonds and educating the "media and government officials" about the type of companies that used such bonds, Aylward said.
To get this point across, Aylward said Alliance members often went to Washington to pay personal calls on members of Congress.
"The messenger is as important as the message," he said. "The best thing was for these people to come to Washington and tell congressmen why they should be left alone. Very simple basic lobbying. "
While the Alliance lobbied on a number of legislative issues, most centered on efforts to scale back or limit the deduction for interest paid on corporate debt.
"If you wanted to fool with junk bonds," said Aylward, "the way you did it was interest deduction. "
At the start, the Alliance estimated "monthly expenses at nearly $11,000 per month to paid lobbyists. "
In fact, the organization raised and spent much more - $4.9 million from 1985 through 1990.
With this war chest, the Alliance became a familiar organization on Capitol Hill. Lobby reports from 1985 to 1989 tell the story:
"Mayflower Hotel . . . Breakfast Meeting with members of Congress. "
"Joe and Mo's . . . Lunch with Congressional Staff. "
"Cafe Berlin . . . Lunch with Senate Staff. "
"The Washington Palm . . . Lunch with Senate Staff. "
"U.S. Senate Restaurant . . . for Congressional staff luncheon. "
"Refreshments for reception with Members of Congress and Congressional Staff. "
"Gifts to Congressional and Senate Staff. "
"Limousine services for members of Congress and staff. "
"Bird's Florist . . . Floral arrangements for Congressional Dinner. "
On May 20 and 21 of 1986, the Alliance catered two receptions at a cost of $1,115 in the House of Representatives restaurant in the Rayburn House Office Building.
On the night of May 20, the Alliance sponsored a dinner at the Hyatt Regency Washington for members of Congress.
The events came at a time of rejoicing for the organization and its members.
The tax-writing committees in both houses had just completed preliminary work on the massive Tax Reform Act of 1986. In that historic legislation, the tax writers repealed numerous tax breaks - from IRA accounts to the deduction for most consumer interest. But they left intact the deduction for corporate interest on debt.
The Alliance had been in the forefront of the drive to oppose limitations on the deductibility of interest or any other measure that might restrict mergers, acquisitions or takeovers.
When a House subcommittee weighed legislation in 1987, Alliance representatives urged lawmakers to leave the system intact.
Nelson Peltz, chairman of Triangle Industries in New York, praised junk bonds before a House subcommittee on June 11, 1987, and urged lawmakers to refrain from enacting any measures "limiting high-yield bond financing. "
Peltz went on to say that high-yield (junk) bonds were crucial to America's industrial future - that they would help finance companies to "rebuild our manufacturing base. "
"They are a vital source of financing for those firms that are creating and saving jobs and helping to push America back to prominence in all the world markets," Peltz said.
Just what were these entrepreneurial companies that were "creating and saving jobs"?
They were, it turns out, not exactly the kinds of enterprises likely to rebuild America's industrial base or to make products that could compete with goods from abroad.
They were companies such as SuperCuts Inc. of San Rafael, Calif., the nation's first discount hair-cutting chain. And Fair Lanes Inc. of Baltimore, the nation's largest independent operator of bowling alleys. And LivingWell Inc. of Houston, the nation's largest owner and operator of fitness salons.
And they were companies like Public Storage Inc. of Glendale, Calif.
Public Storage is the nation's largest owner of mini-warehouses. The company's orange "Public Storage" logo is a familiar sight along interstate highways.
Of all the Alliance members who contributed to the lobbying effort that blocked rules changes, Public Storage best illustrates the fallacy that junk bonds created jobs.
Founded in 1972, the company grew spectacularly in the 1980s with the help of Drexel Burnham Lambert, its investment adviser.
Drexel helped the privately held company raise millions of dollars through limited partnerships that acquired land and built mini-warehouses, then leased the facilities back to Public Storage. Today, the company and its partnerships have 233 installations in 35 states.
And virtually no employees.
Once a mini-warehouse is built, staffing requirements are minimal, a Drexel Burnham report pointed out. Users get in with an ID code that opens a computer-locked door.
Some of the facilities have caretakers, but as an investment report of Frederick Research Corp. stressed, those jobs are low-paying:
"Usually the properties have a man and wife employee living free in the facility but at minimum-type wages to keep an eye on things. "
In addition to fitness salons, mini-warehouses, bowling alleys and hair- cutting salons, Alliance members sold tax shelters (Integrated Resources), bought junk bonds (Centrust, Columbia, Imperial and Lincoln Savings), sold annuities (Executive Life Insurance), provided day care (Kinder-Care), owned a professional hockey team (Delaware North Cos.), built retirement villages (Forum Group Inc.), arranged retail displays (Action), operated ice cream shops (Brigham's Inc.), sold insurance (Zenith National Insurance) and leased medical equipment (American Shared Hospital Services).
Whatever their business, companies that had used high-yield (junk) bonds were regularly portrayed before Congress as successful ventures that were creating jobs and building for the future.
They were, as Andrew G. Galef, chairman of MagneTek, described them in testimony before the House Ways and Means Committee on May 17, 1989, "the very companies leading America to economic renaissance. "
So how goes the renaissance?
Four savings and loan associations that contributed thousands of dollars to the Alliance lobbying blitz are insolvent and have been seized by federal regulators.
The four - Centrust Savings Bank, Columbia Savings & Loan, Imperial Savings & Loan and Lincoln Savings & Loan - collapsed when the junk bonds that propelled their rise sank in value. The parent companies of Imperial and Lincoln in turn were forced to seek Bankruptcy Court protection.
Now being run under close federal supervision, the four thrifts will cost American taxpayers billions to bail out.
Another group of Alliance members - Doskocil Cos., First Executive Corp., the Forum Group Inc., Integrated Resources, LivingWell Inc., Southmark Corp. and U.S. Home Corp.- have sought Bankruptcy Court protection.
The reason: inability to generate sufficient profits to cover the high debt service of their junk bonds.
Yet another group of Alliance contributors has verged on collapse.
Western Union is in such shaky financial condition that the board of directors changed the corporate name this year to New Valley Corp. "to minimize any negative impact that its financial condition may have on its operating business. "
Ingersoll Publications Co., which acquired a string of daily and weekly newspapers in this country and Europe with cash raised from junk bond sales, was forced to sell all of its U.S. publications earlier this year to stave off default on its bonds.
Kinder-Care Inc., the nation's largest day-care center operator, used millions of dollars in junk bonds to diversify into fields other than day care.
The company bought savings and loans and a hunting magazine as part of a strategy that left it saddled with so much debt that it had to be restructured.
So it is that many of the companies that bankrolled the lobbying of the Alliance for Capital Access have fallen victims of the very philosophy they embraced.
When David Aylward was asked how it had come to pass that Congress chose to preserve the interest deduction for junk bonds - a deduction that had resulted in the destruction of so many businesses, so much decline for America's middle class - he replied:
"There was not an organized constituency in favor of restrictions on these bonds."