Goldman Sachs (GS) made a huge mistake: it earned too much money when too many others lost large amounts. While the economic circumstances were somewhat different, this is very reminiscent of when Drexel Burnham Lambert made the error of profiting from deals no one else could have done, and then had the audacity to pay the genius behind the deals, Mike Milken, a great deal of money. Those howls of moral righteousness that brought down Drexel and Milken are echoing in the halls of Goldman Sachs.

This post is part of a feature in which he wonder whatever happened to some notorious financial felons. See all 17.

Mike Milken turned the market for bonds issued by less creditworthy companies into a gold mine for himself and his firm, Drexel Burnham. As I posted, this did not end well. But in the past several years, Milken has worked hard to rehabiliate his reputation -- putting money into prostate cancer research and talking about the economy.

Who is Milken and how did he get here? Mike Milken was an academic star. He used to take the bus back and forth to classes at Wharton and came in to school before dawn with a miner's hat on his head because the bright light helped him read annual reports. Milken and I studied with the same management professor at Wharton.

That professor predicted that Milken would either make a huge amount of money or go to jail. He did both -- eventually agreeing to pay $650 million in fines and plead nolo contendere to six felonies -- three counts of stock parking and three counts of stock manipulation. Milken went to jail from March 1991 until January 1993. But that's ancient history. Where is he now?

This post is part of a series on some of the most memorable companies that have disappeared.

Drexel Burnham Lambert (1935 - 1990) spent its last decade accumulating money and power. The key was junk bond impresario Mike Milken, who used to take the bus back and forth to classes at Wharton and came in to school before dawn with a miner's hat on his head whose bright light helped him read annual reports.

Drexel's driving force, Milken, realized the potential of our shared management professor at Wharton. That professor predicted that Milken would either make a huge amount of money or go to jail. He did both. Milken made money by selling junk bonds to takeover artists who threatened companies by buying up their shares and proposing to throw out their managers. In many cases the companies bought out the takeover artist's shares at a premium to make them go away.

Milken was feared by the business establishment, and he had a contempt for the law. So he did himself in -- eventually agreeing to pay $650 million in fines and plead nolo contendere to six felonies -- three counts of stock parking and three counts of stock manipulation. Milken went to jail from March 1991 until January 1993. Drexel hemorrhaged capital; fired 5,000 people; and eventually filed for bankruptcy in 1990.

The lesson? If you can't achieve wealth within the law, you will pay the price.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Let us know in the comments what you remember about Drexel. And be sure to check out other Companies That Have Vanished.

It seems strange to invest in a security that is called "junk." But it's a huge business that can be quite lucrative. Hey, it made Mike Milken a billionaire. What's more, junk bonds have become a key financing mechanism for growth companies as well as leveraged buyouts.

The market for junk bonds has been particularly strong over the past few years, with a large spread between junk and high-quality securities was. That is, until the "credit crunch" hit Wall Street in August.

Now, Edward Altman – a professor and a finance guru – is predicting some grim news for junk bonds for this year. Basically, he thinks the default rate will spike to 4.64%, according to a piece in the Wall Street Journal [subscription required]. Keep in mind that the default rate was a paltry 0.51% in 2007.

From Sunday to Tuesday, the private equity firm Apollo Group struck $37 billion in deals, buying Realogy and Harrah's. This is the subject of an excellent piece in today's New York Times.

The master of the universe at Apollo is Leon Black. And he is a veteran. During the 1980s, his mentor was Mike Milken. If you look back into the 1980s, Milken did some big deals in the casino industry (he was the key backer for gaming mogul Steve Wynn). So it makes sense that Apollo is gravitating to the gambling space with its big play for Harrah's.

Black has a knack for finding value. When the junk bond market imploded in the late 1980s, he was there to buy the gems. He is also has lots of experience with distressed companies and understanding the intricacies of bankruptcy.

If the boom in private equity deals falls apart (which seems inevitable), Black will probably know how to capitalize on that situation too.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates DealProfiles.com.