Since debt was invented in ancient Sumeria, there have certainly been people who have gotten 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 worth it in the end, you can reap the profits. But if the investments fail, if you’ve written your credit smartly or managed to convince your creditors not to claim your other assets, you might be able to get away with it and leave others to perish. dead. That is, he wins if the tail is heads and the creditors lose if the tail is tails. He could also redirect some of the borrowed money, for example by making casinos or companies he owns pay large amounts for various services before they go bankrupt.
As readers may have guessed, this is not a hypothetical example. It’s the story of Donald Trump’s New Jersey casino empire, a business that ended in multiple bankruptcies and was a disaster for outside investors even though it was apparently quite profitable for Trump. The problem for someone who wants to play this game is convincing lenders to join in. Why would anyone risk their money on such shady companies?
Well, there are several ways to achieve this. One, perhaps the main argument in the case of casinos, is the sheer power of persuasion, perhaps aided by a cult of personality: convincing creditors that these shady deals are actually good investments or that you are an exceptionally competent businessman who is the straw in something can transform gold. Another option is to try to convince the guarantors that they are not at risk by offering them guarantees that seem sufficient to protect them but are not because of the value of the assets you are providing and may also have increased your personal wealth, giving the impression that he is both a brilliant businessman and a reliable paymaster.
For this reason, it is illegal to make false statements about the value of the assets you control. And last Tuesday, Judge Arthur Engoron in New York ruled that Trump had indeed perpetrated fraud by possibly overstating his wealth by as much as $2.2 billion. As I read, Trump and his lawyers have made three main arguments against the fraud allegations.
First, they argued that the value of real estate is to some extent subjective. In fact, if you own a building, you won’t know exactly how much it’s worth until you try to sell it.
Although there is some leeway in property valuation, this leeway is limited. And Engoron ruled that Trump had far exceeded that limit, creating a “fantasy world” of untenable assessments. For example, the Trump Organization considered rent-controlled apartments to be equivalent to non-rent-controlled apartments. The judge placed particular emphasis on Trump’s claim that he owned a 2,787-square-foot residence in New York, even though the actual size was only 1,022 square feet; Square footage is not subjective.
Second, Trump’s lawyers claimed that he had fully repaid the money lent to him by the banks, so there was no harm. Of course, that didn’t apply to the lenders involved in Trump’s previous bankruptcies. In general, the game of heads wins, tails loses based on fraudulent scores is not legal, even though the coin sometimes lands on heads.
Finally, Trump explained on social media that he had been stripped of his civil rights and that the money had been loaned to him by “experienced Wall Street banks” who were unlikely to be easily fooled by fraud. Given Wall Street’s attitude toward Trump, the argument is funny. For years, only one major financial player, Deutsche Bank, was willing to do business with him, raising many questions about that bank’s motives. And in the end, Deutsche Bank also turned off the tap and claimed that it had suspicions about its financial investments. Trump managed to pay off this debt, although where he got the money is a mystery. But as I just explained, happiness is no excuse for cheating.
The most striking thing about Engoron’s ruling that Trump committed wholesale fraud (now it’s a ruling, not a mere accusation) is what it says about the man who became president and the voters who supported him supported. Back in 2016, some observers warned mainstream political analysts that they were underestimating Trump’s chances 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. [El aprendiz]. What we now know is that the old joke in Trump’s case was the simple truth: He was not a true business genius; He only played one on TV. But the truth is that this was clear to anyone willing to look from the moment Trump began his political rise.
I would like to be able to predict that this ruling will ultimately destroy Trump’s public image, although in reality his supporters will likely ignore this ruling, partly because they see it as the product of a left-wing conspiracy and partly because at this point few of his supporters will be willing be to admit that they were 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 is a Nobel Prize winner in economics. © The New York Times, 2023. Translation of news clips
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