The Trump Business

A Trump Branded Hotel

Donald Trump professes to be one of the best businessmen in existence.  A large part of his presidential campaign and appeal to voters was that Trump, by becoming financially successful, learned how to successfully operate a large business, and that this would translate to successful political leadership.  So what is Trump’s business?  How did he run it?  And what are the implications for all of us now that he has moved from business to political leadership?

Trump started out in New York City refurbishing old hotels and building new ones.  Before he did so, he got “tax abatements” from the city for what he was to build.  This meant that the properties would not be taxed for forty years.  So, he got $400 Million from the city (over the 40 years no tax was collected) for a hotel it cost him $120 Million to build.

This is how Trump constructed and profited from his initial Manhattan property empire. He was guided and aided by none other than Roy Cohn, the infamous Senator McCArthy attorney, who was later represented most of the heads of New York’s mafia families.

He then became a big player in Atlantic City, building Trump Plaza and then Trump Castle.  He then went too far, borrowing and bonding heavily to build the Taj Mahal.  This last casino was so big, and required so much debt to build, that Trump couldn’t afford the interest payments (let alone payments to construction contractors).  At this point, banks stopped lending him additional funds.  So he went public.  He sold stock in “Trump Hotels & Casino Resorts”.  Around the same time, he moved all of the personal and company debt he could into the already over-leveraged Taj Mahal.

Years ago, I played a computer game called “Railroad Tycoon”.  After some experience, I found that there was a foolproof way to win the game every time.  You started off the game owning one of many different rail lines, let’s call it “MyRR”.  To win, the best strategy was to take control of a faltering competitor, call it “SadRR”.  Once you controlled SadRR, you would have them borrow all the money that banks would lend them.  You then transferred the borrowed funds from SadRR to MyRR.  Then you had SadRR declare bankruptcy.  The banks could only go after SadRR, as that is who borrowed the money.  MyRR pocketed a windfall.

Trump developed a similar business model, using the Taj Mahal as “SadRR”.  Money was transferred from the public company to other Trump owned entities, by paying for goods and services.  A company or a hotel doesn’t have to prove that it has hired the best supplier or the best management firm, and it pays those it chooses what they ask.  This way Trump was able to get out from under mountains of debt, yet leaving his investors and contractors in ruin.

In the end, the banks stopped lending to Trump properties and projects.  They had been burned too many times.  But Trump had been doing something else during the 1980’s and 90’s.  He had been making himself famous.  He became known for wealth and opulence, among other things.

So when he could borrow no more, he changed his business model.  Instead of building a project himself, he leased his NAME to others.  This way he did not have to borrow, or even build the project.  While those doing so branded it a “Trump Property” by paying him for the use of his name.

Evidently, many of the people paying for his name are doing so for nefarious purposes.  In the old days, mobsters would launder their money from illegal operations (gambling, prostitution) through restaurants.  It was impossible to tell how much a restaurant was really bring in, as it used to be a cash business.  Mobsters could then say that their money came from their “restaurant business”.

Real Estate is a much better way to launder money.  A lot more money is involved in the construction, sale, and re-sale of real estate than in the operation of an eatery.  Trump may or may not be involved in such dealings.  If he was, that would have been a crime.  We will all have to see what the Mueller investigation finds out.

I don’t believe that Trump is any kind of super successful businessman.  I think that he figured out how to game the system, nothing more.  He has produced little of anything of lasting value.  He is, however, a master showman.  He showed very early on that he knows how to get his name in the media and keep it there.  He knows how to work a crowd.  And he knows how to tell people things they want to hear.  So he’s a very good politician.

 

What to Do

It is difficult to get past all of the current bluster concerning Trump.  Many of the accusations against him (like the use of Russian Influence, see the post “Red Russian Herring”) are incorrect.  Many of the attacks against him, like making fun of his hair or his hands, are insulting and mean spirited to the extreme.

On the other hand, he has proven himself to be a quite amoral person, and has said things about women that are extremely demeaning.  However, there are no laws against this, and it was well known before the election.  And he was elected anyway.

However, should evidence be uncovered that he engaged in unlawful activity, such as fraud, money laundering, or illegal campaign practices, Trump should be held legally accountable.

And if no unlawful activity is uncovered, voters should at least hold him accountable for his actions and results as President in the next election.

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