Wednesday, July 6, 2016

Trump: Baron of Bankruptcy

Trump's business success, such as it is, rests on two prongs: i) deception  ii) default. 
Mr. Trump created his business empire using what the economist Hyman Minsky called Ponzi financing. In that arrangement, debt is supported by rising asset prices; when those prices come down — in Mr. Trump’s case, the value of real estate — then creditors discover that the debt will not be repaid.
Professor Minsky wrote that Mr. Trump’s lenders “failed to recognize that the arithmetic of his cash flows was virtually identical with that of” developing countries. (my bolding)
Bankruptcy has been the building block for Mr. Trump’s wealth accumulation. Indeed, looked at in light of the presidency, Mr. Trump’s record in real estate development is almost entirely based on financing methods that are contrary to the laws governing the nation’s debt.
Few industries have as much direct contact with government as real estate. Public agencies issue building permits and certificates of occupancy and enforce zoning and environmental regulations. The typical developer tries to minimize government interference since it can slow down projects with requirements for community involvement, worker safety and sustainable construction.
In his dealings with government agencies, Mr. Trump has a long history of misleading public officials. One of his earliest deals involved the Commodore Hotel, next to Grand Central Station. When the hotel’s owner, the Penn Central railroad, went bankrupt in the 1970s, Mr. Trump, with the aid of his father’s political allies, acquired the right to redevelop the hotel.
As Wayne Barrett points out in his book “Trump: The Greatest Show on Earth,” banks were unwilling to provide financing for Mr. Trump to redevelop the Commodore unless New York gave him a tax abatement. The only way to get the abatement, Mr. Barrett wrote, “was to mislead the city into believing he already had the elusive financing.”
Mr. Trump displayed his agility with the truth when, as Michael D’Antonio notes in his book “Never Enough,” Mr. Trump deliberately sent city officials an agreement stating that Penn Central had designated him to acquire the hotel as developer. But it had only his signature, not that of the railroad.
Mr. Trump used this partly signed agreement to win the city’s support for his project, which he then used to get the Hyatt Hotel to invest in a new hotel (what’s now the Grand Hyatt New York). Mr. Trump later took pride in his manipulation and said, as Mr. D’Antonio reported: “They only asked to see an agreement. They didn’t say it had to be signed.”
After decades of deception and default, of incompetent management, of pulling his own money out of his deals after luring investors in, his many bankruptcies, screwing his investors and creditors, his refusal to pay contractors and vendors, I am mystified why anyone would do any business with this man, much less invest in one of his projects. Or why anyone would vote for him. Maybe his supporters figure that the US is heading to third worldom, and figure with Trump driving that train, at least the trip will be quicker and more entertaining. 

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