Have you ever asked a bank to forgive your loan because you couldn’t pay? The chances are that the thought never even crossed your mind because banks are known to be very hard-nosed and demand that you pay them back every penny you owe. That is because you are small fry and they will not even lend you any money unless you provide them with sufficient collateral that can cover the debt and that they can seize if you default.
A new report into Trump’s finances reveal that banks were willing to forgive $287 million in loans that Trump owed them.
More Donald Trump money news: a new New York Times report diving into Trump’s tax returns reveals that Deutsche Bank and other lenders have forgiven about $287m of the president’s debt that he failed to repay.
A large chunk of the money went toward constructing the Trump International Hotel and Tower in Chicago in 2008, a dream project that failed to meet Trump’s vision and has become what the Times describes as “another disappointment in a portfolio filled with them”, particularly because of slow construction and a lack of tenants.
The story gives an exhaustive look into how the story of the Chicago tower is just another part of a pattern often seen in Trump’s business playbook: “a cycle of defaulting on debts and then persuading already-burned lenders to cut him a break”.
But I still don’t really understand this. Why were the banks willing to forgive these loans? What benefit did they gain by doing so? What harm would they have suffered by demanding payment? And why did they keep giving him loans given his history of being a deadbeat?
ProPublica tried its hand at providing answers. It doesn’t quite get there because of the bank and Trump’s secretiveness but they do point to some disturbing coincidences that suggest that two of them may have had a relationship that went beyond the loans given to Trump.
The remarkably troubled recent history of Deutsche Bank, its past money-laundering woes — and the bank’s striking relationship with Trump — are the subjects of this week’s episode of the “Trump, Inc.” podcast. The German bank loaned a cumulative total of around $2.5 billion to Trump projects over the past two decades, and the bank continued writing him nine-figure checks even after he defaulted on a $640 million obligation and sued the bank, blaming it for his failure to pay back the debt.
…The bank was “laundering money for wealthy Russians and people connected to Putin and the Kremlin in a variety of ways for almost the exact time period that they were doing business with Donald Trump,” Enrich said. “And all of that money through Deutsche Bank was being channeled through the same exact legal entity in the U.S. that was handling the Donald Trump relationship in the U.S. And so there are a lot of coincidences here.”
So was the bank willing to deal with a deadbeat like Trump and lose money with him because it enabled them to gain access to shady people from whom they could get more money to offset those losses?
That certainly is more plausible than that the banks were gullible dupes taken in by a conman.
Obviously I don’t know any of the details here, but money-launderers are usually quite happy to take losses, even very large losses, in the course of their operations. It’s better to take a 75% loss and come out with 25% of your money clean than have 100% of it stuck because it’s dirty.
One of the interesting questions would be to track where the money went… Did it eventually end up in the pockets of other enterprises (e.g. construction companies) owned or controlled by shady Russian oligarchs? It’s not even a really a loss (except for tax purposes!) if you’re effectively loaning the money to yourself, via a bunch of intermediaries. Minus the bank’s cut, obviously…
With the caveat that I know nothing about these particular loans and these particular decision makers, I can say that these deals are often structured with multiple loans. Businesses make their money over time. If a business doesn’t have the money to pay you back everything, calling the loans due may cause the business to simply declare bankruptcy -- which it can typically only do if its liabilities are greater than its assets.
By forgiving a single loan so that the payments on the remaining loans take up less than 100% of the company’s net income (“net” before accounting for those debt payments) the company can ultimately repay the full amount of the other loans.
If Trump segmented his business so that a subsidiary with only one building holds all that debt, you can call all your loans due immediately and get nothing other than the building which might have been purchased (or financed) for an inflated price/value which cannot be fully recouped.
If you have a billion dollar project, but the project ended up so expensive because of cost overruns or construction mishaps, the actual value of the property might be $500 million. If you forgive a $100 million dollar loan to get their income to balance their payments, then eventually you recover $900 million. If you don’t forgive the $100 million then the business cannot continue to pay its employees, has no choice but to go into bankruptcy, and you get $500 million (or less), which is not anywhere near the $900 million you might have gotten.
If you’ve screwed yourself by financing a bad project, this can sometimes be the most money-efficient way to move forward.
Now, since Trump was always hyping his projects to the degree where his estimated income was too high to be realized in actual practice, he could end up in a similar situation without even having cost overruns. The project is done, loan payments need to be made, but the loan payments require more than you’re bringing in in income.
Again, they could foreclose if they thought that would net them the most money, but it’s also possible that even if the building was valued appropriately, the fees that would become the lenders’ responsibility upon foreclosure (legal fees, transfer & title fees, expenses related to marketing & reselling the building, etc.) can quickly add up to millions. If you think that it’s going to cost you $10 million to foreclose on the billion dollar building & turn it around & sell it off again, but the debtor says that shaving $8 million off the loan is enough to make the company solvent & guarantee future payments, you might shave that $8 million. But of course, it’s Trump. So he’s probably still being optimistic in his income estimates. So maybe later he comes back & asks you to shave another $8M.
You probably wouldn’t do it that time because the building’s value is now $8M more compared to the value of the debt, so even if you incur $10M in expenses, you only suffer $2M of them -- the rest was equity in the building that got forfeited to you to cover the mortgage and expenses of foreclosure. BUT if Trump is an evil jerkface (which he is), he can plan in advance to ask you to shave off that next $8M when there’s a downturn in the local real estate market (and there always are downturns every so often). If he hits you up for debt forgiveness during that downturn, it might again look like the most economical decision is to just give him the $8M.
That’s $16M of forgiveness for that one billion-dollar project. If you have 10 large projects and keep pulling this shit, that’s $160M. 18 such projects would produce a value very close to the $287M from the NY Times story. Now it’s probably not as regular as that (some projects, despite Trump’s worst efforts, might actually have been well timed and thus made money), but this is just to show that in theory someone involved in multiple large projects could rack up that much in debt forgiveness if they were actively trying to game the system.
Why were the banks willing to forgive these loans? What benefit did they gain by doing so? What harm would they have suffered by demanding payment?
In theory, there might be a client who is such a rain-maker that it’s worth giving up a bit of short-term in order to keep them in the long term. But the numbers in Trump’s case simply don’t add up -- he’s a serial loser with a history of leaving his creditors empty-handed.
What is probably happening is that some officer at DB wrote the loan because they were suckered by Trump, and they’d rather write off the debt in the column of “it just didn’t work out” rather than in the column of “the loan officer needs to be fired.”
This is, of course, highly corrupt activity. The loan officers have tremendous leeway in what choices they make and when. Which means that they can be racist, sexist, or some other form of bigoted -- or they can personally be influenced with off-the-books bribes. When you are dealing with organizations like the Trumps, there are shell companies all over the place; it is not out of the question that a loan officer was granted some shares in a shell company that they forgot to report (because the shell company is in Grand Cayman and, oh, I dunno…)
I don’t want to appear to be appealing to any stereotype but there is a reason that financial wheeler/dealers are often considered to be corrupt and corruptable -- it’s because that field appeals to people who are flexible in their morals and who really love money. So it’s not hard for Trump to find people who are like him in the banking community; it’s a den of thieves.
Oh, one more thing.
You’ve probably noticed how Trump does his taxes: he monetizes his profits or he monetizes his losses. The global capital system is rigged so that it’s possible to win by winning, and win by losing. So much winning! Sure, winning by winning is better, but winning by losing just means a big write-off and a loss that you pass on to your investors.
The reporting about Trump doesn’t generally touch on the question of where the big banks get their money. Well, some of that money may be your retirement account. It’s illegal but difficult to prevent: a bank can place its bets with money from one pool, but if it turns out to be an awkward pool to take a loss in, they assign the loss to another. That, by the way, is how Hillary Clinton’s commodities trading was so successful: they put winning trades in her account (after they knew they were winning) and the losing trades went in some commercial account like a corporate 401K. That’s illegal now but there are similar tricks and there always will be. The reason Hillary Clinton’s commodities trading was briefly news then went off the radar screen is because everyone in Congress does that and it quickly became an un-story. It’s a way for an investment bank to give bribes so they are hard to trace. In a movie, it would be: the congressman sits down at the baccarat table and wins 5 hands in a row, pocketing a huge pile of chips, cashes out and leaves. The next player up gets skint and it covers the payout that went to the congressman.
In the 90s I was on the board of directors of a publicly traded company. Investment bankers take you out to dinner at very nice restaurants and mention casually that they can put you in a few “friends and family” shares of some IPOs. Since IPOs are basically a sure thing, they’re flat-out handing you money since the shares you buy are unrestricted and you can flip them the day after the IPO. Of course, they want something in return: eventually your company may need to do some financing, or do a secondary stock offering, and you want to remember them as being nice guys, who took good care of you. [I did not take friends and family bribes but as far as I could tell I was the only one who didn’t.] Directors, congresspeople, representatives, and company officers should not be allowed to play the market, period. Although (as we see with the Trumps) there are people who’ll just give the regulations the finger. Corruption is too attractive.
Unlikely. Trump is just an incompetent real estate developer. If he was laundering money, and he almost certainly was, he was doing it by selling various people bits of rear estate and he was taking his cut. That’s probably where he got enough money to invest in another piece of real estate.
There was an interesting report, I think back in 2015 or 2016 that suggested the Trump was laundering money for the Iranian Revolutionary Guards do some kind of a deal, I think in Kazakistan or Kyrgyzstan.
The thing to remember is that in terms of money laundering someone like Trump is a penny-ante type. A few million here a few million there, no big deal. Generally speaking it looks like if you are a laundering large sums you probably need a bank, probably one in Cyprus if you are Russian, and their international banking links.
The IRS treats forgiveness of a debt as income for the one who has the debt forgiven. I wonder if Trump’s returns reflect this. It probably got lost in interlocking corporate ownerships.
There is more to this.
That bank is in a bad shape, a really bad shape, as in should have been bankrupt already but is to large to fail/systemically important.
Trump and (other) the shady figures is the bank basically gambling with high risk high return accounts. Note that that doesn’t preclude the conclusions made by ProPublica.
And in case people are wondering how in how bad a state the Deutsche Bank is. This is a bit outdated but around June/July 2019 the price for junk rated risky bonds for corporations in the EU was around 3.5%. DB was paying 6% on (some of) its bonds, which is nuts seeing the size and that it is a bank in Germany.