REUTERS - November 14; By Richard Barley
LONDON, Nov 14 (Reuters) - Financier and philanthropist Michael Milken, regarded as the father of the high-yield bond market, warned on Wednesday that defaults would be higher on highly rated pools of mortgages than on highly indebted companies.
But he also argued that the subprime mortgage crisis was not the true threat to the U.S. economy, saying that preventable diseases linked to modern lifestyles posed a bigger problem.
"Many triple-A rated mortgage portfolios will have a higher default rate than single-B industrials," Milken said in an hour-long speech to the European High Yield Association annual conference in London.
He noted historical parallels -- in the first 70 years of the 20th century, double-A rated railroads had a higher default rate than single-B industrials, while in the late 1970s and early 1980s interest rate rises caused huge mark-to-market losses on triple-A bonds -- and quoted Mark Twain: "History doesn't repeat itself, but it does rhyme."
However, "subprime is not the challenge for the United States," said Milken, whose main focus is on boosting medical research.
Instead, echoing concerns raised by doctors and politicians, he said health problems such as obesity and diseases linked to weight problems as posing a greater threat.
"Eliminating cancer and heart disease would be worth $300 trillion to the world economy," Milken said.
He argued that financial innovation, such as securitisation, could help in combating these problems, however, as financial technology acts to multiply the effect of human effort and the assets that are available.
Milken has worked since 1972 to drive medical research into serious diseases -- work that began when he learned his mother-in-law had breast cancer, and led in 1982 to the creation of the Milken Family Foundation.
In 1989, the U.S. government charged him with securities and reporting violations. Milken settled the case without trial, paying a $200 million fine and serving a 22-month sentence.
