Since debt was invented in ancient Sumeria, there have always been people who got rich through bad investments. The trick is to make these investments with other people’s money.
Suppose a trader uses borrowed funds to make risky investments in casinos in New Jersey. If the investments are somehow worth it in the end, he can reap the profits. But if the investments fail, he may if he has complicated the wording of his loan agreements or manages to convince his creditors not to bother with his other assets walk away and leave other people with the problem. In other words: if heads he wins, if tails the creditors lose.
He could also redirect some of the borrowed money, for example by forcing casinos to pay him or withdrawing money from companies before they go bankrupt.
The picture shows former American President Donald Trump during a speech in Michigan on Wednesday the 27th. Republican is indicted for economic fraud. Photo: Mike Mulholland/AP
As readers may have guessed, this is not a hypothetical example. It is the story of the casino empire of Donald Trump in New Jersey, a company that ended in multiple bankruptcies was a disaster for outside investors but appeared to have been quite profitable for Trump.
The problem for those who want to play this game is convincing creditors to join in. Why would anyone risk their money on such dubious ventures?
Well, there are a few ways to do this. One of them, perhaps the main story of these casinos, is the sheer power of persuasion, supported by a cult of personality: convincing creditors that these dubious ventures are actually good investments and that you are an exceptionally successful businessman who can turn chaff into straw. Gold.
In addition, you can try to convince your creditors that you are safe by offering them guarantees that, although sufficient to protect them, do not do so because you have the value of the assets invested and possibly your personal ones too Have inflated assets to make it appear that you are a genius businessman. and a reliable borrower.
For this reason, it is illegal to make false statements about the value of the assets you control. And on Tuesday, Judge Arthur F. Engoron ruled new York that Trump actually committed ongoing fraud by potentially overstating his assets by as much as $2.2 billion.
From what I read, Trump and his lawyers have proposed three main defenses to fraud charges.
First, they argued that the value of real estate is to some extent subjective. In fact, as the owner of a building, you won’t know exactly how much it’s worth until you try to sell it.
Throwing heads I win, tails you lose based on fraudulent scores is not legal, even if the bets sometimes come up heads
There is a certain amount of leeway when it comes to property valuation, but it is limited. And Engoron decided that Trump went far beyond those limits, creating a “fantasy world” of untenable assessments. For example, the Trump Organization considered rentcontrolled apartments to be equivalent to nonrentcontrolled apartments. The judge paid particular attention to Trump’s claim that he had a 9,000squarefoot home in New York, although the actual number was only 3,000; Square footage is not subjective.
Second, Trump’s lawyers argued that the creditor banks had been fully compensated, so there was no damage. Of course, that didn’t apply to the creditors involved in Trump’s previous bankruptcies. In general, playing heads I win, tails you lose is not legal due to fraudulent scores, even if the bets sometimes come up heads.
Finally, Trump declared on social media, “My civil rights were taken away,” and he said he borrowed money from “sophisticated Wall Street banks” that probably wouldn’t have been so easily duped by fraud. If you know anything about Wall Street’s attitude toward Trump, it’s a real joke. For years, only one major Wall Street player, Deutsche Bank, was willing to do business with him, leading to much confusion about that bank’s motives. And Deutsche Bank also halted trading, citing concerns about its financial reports. Trump was able to pay off this debt, although where he found the money is a mystery. But as I just explained, happiness is no excuse for cheating.
The picture shows former American President Donald Trump giving a speech in Michigan on Wednesday the 27th. The Republican has been accused several times in the USA. Photo: Mike Mulholland/AP
What’s remarkable about Engoron’s discovery of Trump’s largescale fraud (it’s now a decision, not a mere accusation) is what it says about the man who became president and the support of his voters.
In 2016, some observers warned mainstream political analysts not to underestimate Trump’s chances of winning because they didn’t know how many Americans thought he was a brilliant businessman a belief based largely on his role on the reality show “The Apprentice.” We now know that the old joke in Trump’s case was the simple truth: he was not a true business genius; He just played one on TV.
But the truth is that this has been obvious to anyone who cared to see it since the beginning of Trump’s political rise.
I would like to predict that this decision will ultimately destroy Trump’s public persona. In reality, however, his supporters are likely to ignore this decision, partly because they see it as the result of a leftwing conspiracy, and partly because at this point few of his supporters will be willing to admit that they have been deceived by a charlatan. .
But they were. And the fact that so many Americans have been and continue to be deceived should prompt a serious national examination of conscience.
Paul Krugman has been an opinion columnist since 2000 and is also a professor at the City University of New York Graduate Center. He received the Nobel Prize in Economic Sciences in 2008 for his work on international trade and economic geography