In the first three parts of this series, we covered Michael Milken building the high-yield bond market, Ross Johnson triggering the RJR Nabisco bidding war, and KKR winning the biggest LBO in history. But there is a missing piece to the puzzle: where did all the money come from?
The answer leads us to Fred Carr, a largely forgotten figure who may be the most important person in 1980s finance that almost nobody has heard of. A scrappy outsider from Watts, Los Angeles, he first rose to fame as the hottest mutual fund manager in America during the go-go years of the late 1960s before flaming out spectacularly with the Enterprise Fund.
His second act was even bigger. In 1974, Carr took over a near-bankrupt life insurance holding company called First Executive Corporation and transformed it into a powerhouse. He pioneered single premium insurance products that offered higher yields than competitors, built a revolutionary sales incentive model, and earned top-tier safety ratings that unlocked massive institutional capital flows from pension plans and municipalities.
First Executive became the largest buyer of high-yield bonds in America, participating in 90% of all Drexel underwritings between 1982 and 1987. But when the junk bond market collapsed, the same concentration that fueled Carr’s rise became his undoing.
Along the way, we explore how insurance companies work, why the end of the Great Inflation broke every financial business model in America, how regulatory gaps allowed risk to build invisibly, and why the California aftermath of First Executive’s collapse became very relevant to one of the biggest financial institutions in modern finance.
Chapters
(01:36) Set up to sources of capital for the junk bond boom
(07:11) Fred Carr’s origin story: from Watts to Wall Street outsider
(12:16) The go-go years and the Enterprise Fund’s meteoric rise and fall
(19:30) First Executive: taking over a near-bankrupt insurer and starting over
(23:23) The Great Inflation breaks insurance: why old business models stopped working
(27:22) The Milken-Carr flywheel: high-yield bonds meet single premium insurance products
(39:03) First Executive becomes a junk bond giant: growth, ratings, and warning signs
(48:56) The collapse: Drexel’s bankruptcy and its consequences for the junk bond market
(1:03:15) Seizure, conservatorship, and the wild aftermath with Apollo and Credit Lyonnais
References
The Fall of First Executive: The House That Fred Carr Built by Gary Schulte
Perceptions and the politics of finance: Junk bonds and the regulatory seizure of First Capital Life, Journal of Financial Economics, 1995 (link)
Dangerous Dreamers: The Financial Innovators from Charles Merrill to Michael Milken by Robert Sobel (link)
Junk Bonds: How High Yield Securities Restructured Corporate America by Glenn Yago (link)
Sponsors
Big thanks to EQT Corporation for helping us bring you the stories of market history and how they apply today. To learn how EQT is unlocking energy to power AI, go to PoweredByEQT.com.
Note: this show is for informational purposes only and isn’t investment advice. Backtest hosts and guests may have investments in the companies discussed.
