The Donald Runs for President

There is a rather well-worn maxim that says politics makes strange bedfellows. The gist of this statement is that often what seems like competing interests find themselves on the same side of individual issues and thus become temporary partners in pushing an agenda they mutually desire even if their core values are diametrically opposing. We are seeing this played out on the national presidential stage today with Donald Trump. Trump is a rather bombastic entrepreneur that is the epitome of what my dad used to call a snake oil salesman. He has made and lost several fortunes in some rather shady business dealings. Buying, building, and selling casinos is as akin to what most Americans consider business as loan sharking is to banking. It is a rough and tumble business historically prone to investment by organized crime and fantastically unsavory characters of every stripe.

Trump leveraged a middle end residential real estate business that his father started into a commercial real estate business aligned toward aggrandizement of his own name. The one thing Donald Trump has always been excellent at is self-promotion. He started out with some very large no money down projects that he leveraged into successful buildups with the help of 40 year tax abatements he was able to finagle from politicians in New York. He then leveraged a right-to-buy payout from the city government into a tidy fee for himself when the city built the Javits Convention Center. By the late 1980’s in a boom economy Trump acquired the Taj Mahal Casino by going heavily into unsecured debt. Massively expensive upgrades by Trump left him even deeper in debt. In 1989 he financed the building of another Taj Mahal casino with high interest junk bonds to the tune of another 1 billion dollars in debt that he couldn’t repay. On the verge or corporate and personal bankruptcy Trump filed Chapter 11 bankruptcy on his corporate debts. Investors lost hundreds of millions of dollars but Trump was able to convince them that it was better than losing everything by fiscal blackmail. At the same time he was able to restructure and extend his personal debt. This was Trump’s first experience with corporate bankruptcy but it was not to be his last. He never again involved his own personal fortune directly in financing his business ventures. It was much safer to use other people’s money to finance his schemes.

By 1991, the restructured Taj Mahal emerged from corporate bankruptcy when Trump ceded 50% ownership in the casino to the original bondholders in exchange for a lowered interest rate and more time to pay. The contracts that Trump had made with vendors were restructured during this time. In order to understand what this means it is necessary to understand that a Chapter 11 bankruptcy gives a debtor shelter from creditors. Trump used this shelter to renegotiate contracts with vendors so that they received pennies on the dollar for services they had already rendered. With the shelter of the court Trump pointed out that they could either accept reduced payment or nothing at all because they had no leverage to force him to pay and the only other option would be that no one would get paid anything. This is how Chapter 11 bankruptcy works. The small creditors get the shaft and the large creditors extend their terms out until they can get paid. Trump is a master at this game. Besides personal aggrandizement and pompous arrogance it is probably his strongest skill.

Chapter 11 has worked so well for Trump that he has done it four times altogether. Trump’s casino property and real estate boondoggles filed for Chapter 11 bankruptcy in 1991, 1992, 2004, and 2009. Each time Trump received a huge personal salary while he negotiated the bankruptcy payments down by refusing to pay contractual debts his companies compiled. He has successively used less and less of his own personal money to finance his deals so his personal wealth has increased with each succeeding bankruptcy. Trump, true to his nature, sees nothing wrong with this business model.

“I’ve used the laws of this country to pare debt. We’ll have the company. We’ll throw it into chapter. We’ll negotiate with the banks. We’ll make a fantastic deal. You know, it’s like on “The Apprentice”. It’s not personal. It’s just business.” To be fair, Trump is not the only so called entrepreneur to utilize Chapter 11 laws to build a huge personal fortune while refusing to pay back other people’s money. The last Republican presidential candidate did the same thing for his personal fortune although he wasn’t so brazen about it.

You might notice that Trump doesn’t like to use the “B” (bankruptcy) word in his explanations. It has a negative connotation. Borrowing other people’s money and then not paying it back as a business model is frowned upon by most honest Americans who believe they are obligated to pay the debts they sign their name to. It’s a basic tenet of something called integrity.

What is most amazing about Trump’s run for the highest office in the land is who is supporting him. Conservatives and grass roots Tea Partiers love Trump’s brash posturing. The same people who lecture everyone on fiscal responsibility are supporting someone who has made an extravagant living borrowing and spending obscene amounts of money that he can’t pay back. I have a standard response now when I hear someone saying how Trump is a great business man. He bankrupted a casino. Casinos are business designed to skillfully separate people who don’t understand the concrete science of odds from their money in a foolproof manner and Trump has managed to bankrupt four of them.