The ‘Fraud’ Charges Against Trump Bring New Meaning to Bogus

As is well known now, former President Trump is presently on trial in New York. The accusations are that he fraudulently inflated the value of his assets in order to secure better lending terms from banks and insurance companies.

What a laugh. And the latter isn’t a partisan observation. If readers doubt it, feel free to Google“John Tamny” with “Donald Trump” to read commentary on him going back to at least 2009. Some was positive, some middle of the road, but the vast majority was negative.

Back to the lawsuit against Trump, it’s laughable on its face simply because Trump’s assets are never obscure. Think about it. He built a global brand called “Trump” by placing all things Trump on his various buildings, goods, services, etc. Regarding the buildings with his name on them, he wasn’t buying and/or building in Peoria or Pine Bluff, rather Trump was buying and building in the most major of major cities. Which means where he had and has assets there’s voluminous information and “comps” galore to check his internal valuations against actual market realities.

Consider also that because he’s Trump, everyone has a comment on what he owns. In which case any bank making loans to Trump could get all manner of rich and highly credible names in real estate on the phone to check Trump’s valuations. Not only do people in his space want to talk about Trump, those capable of analyzing his valuations are themselves always in search of financing for their own projects. To say that they would provide reasonable counters to Trump’s assertions in order to help banks they’re also courting is kind of a statement of the obvious.

Regarding Trump’s valuations, that he might put a higher value on them than his contemporaries or banks is yet another statement of the obvious. Figure that buyers of most anything are buyers because they see potential where others perhaps don’t. This disparity in perception is what makes markets actual markets. If there were unanimity about valuations then there logically wouldn’t be markets. Trump is Trump precisely because he sees (or thinks he sees) what others don’t. Will there be errors along the way? Yes, by definition. It brings to mind the line from the great Howard Marks about intense anxiety preceding all great investments, but realistically many bad ones too. Translated, there’s a big difference between buying an index fund versus buying a property, a sick company, an out-of-favor stock, or an in-favor stock.

Importantly, the fraud allegations against Trump imply a lack of agency on the part of banks. This is wrongheaded. For evidence, readers would be wise to pick up a copy of Robert Smith’s Dead Bank Walking. Smith was CEO of Security Pacific Bank (back in the 1990s the Los Angeles-based financial institution was one of the largest banks in the United States), only for Trump himself to come calling. Trump wanted to secure a loan to revitalize the old Ambassador Hotel (think Robert F. Kennedy), and walked into Smith’s office full of swagger, and what Smith described as charisma of the kind associated with former President Clinton. Trump proceeded to talk up the immense quality of his assets ahead of asking for a $50 million loan. Security Pacific’s house maximum was $10 million, but the more important truth was that Smith wasn’t fooled. Charmed as he was by Trump, he made plain to his associates that no loan would be made.

Later on a loan was made to Trump, and Security Pacific wound up writing it down. Still, and whatever the good or the bad of the loan made to Trump, the simple truth is that banks are in business to not lose money. Put another way, they generally lend to those who don’t need the money. Get it?

Applied to Trump, it really doesn’t matter what he reported to bankers about the value of his assets. Banks are banks not because they accept what would-be borrowers tell them, but precisely because they don’t. New York Attorney General Letitia James doesn’t seem to know this, but that’s why she’s Attorney General rather than working in the real world.

Which tells us something. James has no case, but she has lots of ambition. “Getting” Trump would make her career. The problem is that the basis of her case is laughable.

Republished from RealClear Markets


  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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