I had the opportunity recently to catch up with legendary financier Michael Milken. For me, this was a chance to see my investing mentor, since I've spent most of my investment career in distressed securities.

Starting in 1969, Milken's central investment thesis was that many AAA-rated bonds would have a higher default rate than single B industrials. As an example, he would cite that AA-rated railroads defaulted at a higher rate than B-rated industrials from 1900 to 1970.

His investment theories — at the time radical — essentially created our $600 billion junk bond market. This innovative financing helped spawn new companies and develop entire industries like KinderCare, the first chain of day-care centers, MCI, the first low-cost telecommunications carrier, and Turner Broadcasting, which owns CNN.

In the interest of fair and balanced reporting, I need to mention Milken's felony conviction for violating securities laws in 1990, for which he served almost two years in prison and paid a $900 million settlement. But that is not the whole story.

In a book review in the Wall Street Journal on July 18, 1995, Jonathan R. Macey, currently a Yale law professor, referred to the prosecution of Milken as "the vengeful response by American's business and regulatory establishment to Mr. Milken's phenomenal success." He compared the prosecution of Milken by Rudy Giuliani, who was then U.S. attorney, to another black period in American history — Joseph McCarthy's persecution of supposed Communists.

The world would have been a much better place if Milken had been allowed to innovate.

In light of the current turmoil in the AAA-rated credit markets, Milken's theories look particularly prescient. Despite all the hysteria and handwringing in bond land, the rating agency Moody's has announced that there have been only 17 announced defaults this year, compared with 26 in 2006.

During Milken's speech, I learned why he started out as a math and science major at the University of California at Berkeley and then switched to business: the civil rights movement.

"I came to realize that civil rights meant more than where you could sit on a bus, or eat lunch. ... It also encompassed the chance to start a business and succeed or fail on your own merit. So I changed my major to business and began studying ways to increase access to financial capital for people and companies that had traditionally been excluded from the capital markets."

When Milken started his career on Wall Street in 1969, access to capital for growing businesses was limited. Financial technology — which includes securitization, derivatives and a liquid bond market — is an important component of prosperity. Milken was one of the first to democratize capital.

He explained, "In the course of my work at Berkeley, and later at Wharton, I developed a formula to explain the components of prosperity. The formula ... says that prosperity in any society equals the effect of financial technologies acting as a multiplier on the total value of human capital, social capital and the real assets that are typically found on balance sheets."

Nobel economics prizewinner Gary Becker defined human capital as "the knowledge, skills and experience of people."

Milken stated, "In my own career, it has been the most important factor in determining which entrepreneurs to finance."

Although Milken refused to speak to reporters, I was able to glean from his associates some acorns of sage investment advice that I can pass on to you. I had always wondered why Milken preferred bonds over stocks.

Nick Mitsakos, now a private investor in San Francisco, said, "When I asked Mike why he preferred bonds over stocks, he told me that you could be right about a company but still not make money on the stock because of the market. With a bond, you will always make money if you were right about the company."

Milken did not let obstacles stand in the way of a good investment. Nick said, "When I brought him a good investment except for the tax obligations, he did not say no to the investment. He told me, a 26-year-old junior employee, to go and change the tax law."

When stricken with prostate cancer, Milken did not let obstacles stand in the way. Now in remission, he has turned his razor-sharp intelligence to revolutionizing healthcare. If anyone can cure cancer and heart disease, it is he.

Laura Goldman worked on Wall Street for more than 20 years. She now runs her own investment advisory, LSG Capital, from Tel Aviv, Israel.

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