William D. Cohan: What exactly is Donald Trump’s deal?
“At the same time, financial experts involved in those bankruptcies say that lenders to your companies lost billions of dollars,” Wallace replied. “With that record, why should we trust you to run the nation’s business?”
“I have used the laws of this country just like the greatest people that you read about every day in business have used the laws of this country, the chapter laws, to do a great job for my company, for myself, for my employees, for my family, et cetera,” he said.
Trump was right. He and his family have made out well, but at the expense of others. Each time a company declares bankruptcy, it sheds debt—in other words, someone who it owes money loses some or all of their stake.
Start with the first bankruptcy, in 1991. When Trump built the Trump Taj Mahal in Atlantic City, he bragged he didn’t have to use then-hot junk bonds to finance the project. He was lying. He did use junk bonds, and within three years he’d fallen behind on interest payments, even in a business famous for always earning cash. When he declared bankruptcy, he was forced to sell off some treasured assets—his yacht, his airline—but he owed the banks so much that they opted to work with him rather than take everything. In other words: They took a big loss. The following year, another casino, the Trump Plaza, failed. This time, Trump lost his stake and control of the company, but kept his CEO title.
By the mid-1990s, Trump was toxic enough that practically no bank would lend him money, figuring there was a good chance they’d end up losing it. One exception was Deutsche Bank, which, as The New York Times Magazine put it, had developed a reputation “as a reckless institution willing to do business with clients nobody else would touch.” But in 2008, amid the financial collapse, Trump couldn’t make debt payments, and turned around and sued Deutsche Bank to forestall it from collecting. (Why Deutsche Bank continues to loan Trump money is an intriguing question.)
Trump also sought alternative ways of financing projects. For example, Trump turned to Russian investors as a new source of cash. (You know how that story ends.) He also simply issued bonds to the public, trading on his name, which may have been tarnished on Wall Street but had been burnished by his TV show and other projects. In 2009, when the Trump Organization again declared bankruptcy, these small investors took the hit.
“People knew who Donald Trump was and for that reason were willing to trust the bonds, and they got burned,” the bankruptcy expert Lynn LoPucki told ABC in 2011. “The people who invested with him or based on his name lost money, but he himself came out pretty well.”
At the same time, Trump was also leveraging his celebrity for other projects. He licensed his name to several developments at the height of the real-estate bubble, attracting buyers who (erroneously) viewed his name as a gold standard. When the projects failed, it became clear that Trump had no personal stake, having simply taken a fee for the use of his name.