President Biden: The NEW one and only politics thread

The really long thing the NY Times did a year ago covered all of this, and it was all kind of corroberated by Michael Cohen.

I'm not sure why it would have been that big of a question about how Trump got people to lend him money. The first thing is that the world was being filled with ridiculous loans due to zero percent interest rates and trillions of dollars of quantitative easing, and that had nothing to do with Donald Trump. He was just a player like lots of other risks were players when they shouldn't have been.

But for his part. ... inflating the value of collateral and lying about income is way more common than people are assuming. Even the tax half of the NY State allegations isn't that uncommon, because the value of a real estate portfolio isn't marked to market the way a liquid asset like a stock is, so people play really fast and loose with the numbers and there isn't an easy way to challenge them.

People lie about their income when they take out mortgages, and if they can get an appraisal that overvalues the home, they do that too. So is it that surprising that Donald Trump -- someone who is more dishonest than anyone else -- would essentially do the same thing on a larger scale?

It's not so much that it takes two to tango, the way you said, it's that the banks were completely incentivized to take on huge risks when many of these loans were originating, including Deutsche Bank, which had been burned by Trump in the past. He borrowed a ton of money from them around 2012, 2013, I believe, and it was a time that the Fed Funds rate was pinned to zero and the Fed had already done two rounds of asset purchases and were starting QE3. It pushed banks -- like the private bank that decided to loan money to Trump -- into risky behavior in order to be able to earn anything. Trump wasn't even all that risky compared to some of the things they were doing, because at the time his underlying finances weren't that bad -- he had limited debt (from having been a deadbeat) compared to other real estate speculators, and he had cash pouring in from TV royalties and licensing deals to stick his name on buildings. Trump told them he would personally guarantee the loans, so they figured they could foreclose on him and take assets if he defaulted. Although those personal guarantees in the past had never prevented him from fighting off a foreclosure. Still, I think you are mostly right. ... Deustsche Bank knew who they were loaning to (he had publicly burned them just a few years earlier), they chose to do business with him, knowing exactly who he was and how he operates. They had done their own due dilligence, went through all of his personal and corporate records and knew that he overstated his fortune and assigned ridiculous valuations to assets. The NY Times piece said that there was one property in Westchester that he had bought for $7 million and was valuing for $291 million, and they reduced the valuation for the purposes of their loan by 70 percent.

Nobody was really "tricked" per se. This kind of shit was rampant in the environment of zero interest rates. It forced banks, insurance companies, pension funds to do things that aren't prudent, and to me "aren't prudent" describes lending money to Donald Trump to a T.

 

I agree with you and I disagree with you (sorry).

I am sure he used that Forbes list to try to insulate himself from his bullshit and it helped create a "brand" that he then profited from it. From what I understand, he would call them every year and argue that he was worth more than he was, sometimes pretending to be someone else on the phone.

But in the case of the private bank at Deutsche Bank that was really the source of the loans we are talking about (other Wall Street Banks wouldn't touch Trump because he had stiffed them and they had had enough of him by then), I can bet with 99 percent certainty that they knew exactly what he was really worth (and they knew his history of stiffing banks on repayments of loans, too). It's not like they googled the Forbes list and made hundreds of millions of dollars of loans based on it. They had full access to his personal and corporate records, had access to exactly how much he earned in royalty and licensing income, and they were able to do their own independent appraisals of the buildings he owned. The fact is that Deutsche Bank had to have had an idea about how much he was really worth. ... and they chose to loan him money. You need to put it into more context than Donald Trump having later become president or the level of his constant lying and dishonesty having had a spotlight put on it. Deutsche Bank (and all the other banks) were loaning way larger amounts of money in even riskier ways than this.

 

People tend to not understand how these companies operate and they think there is a coherent connection between things. Deutsche Bank should have gone belly up as a result of the financial crisis, but the world chose survival of the unfittest, and they rewarded sales malpractice of epic proportions at great cost to the world as a whole. DB's balance sheet has been weighted down by toxic assets (still is) that have been carried along by the ECB allowing them to roll over larger and larger amounts of debt at no cost.

The flip side of that what keeps them from drowning in their debt is also making it impossible to profit from traditional banking businesses, because there are no net interest margins in the manipulated environment we have had to live with. That has left Deutsche Bank in the position of dodgier and dodgier behavior in order to earn enough to be able to just take in something to service their debt.

That aspect of Deutsche Bank's business had nothing to do with the Trump loans we are talking about, though. After the financial crisis, at first Deutsche Bank actually sought out safer ways to earn money, and they started a private bank to service the uber rich with personalized service. It's a relatively safe business. But that part of the business soon got sucked into the pressure Deustche Bank as a whole is facing in the era of no net interest margins, and they ended up differentiating themselves by taking on the customers that Brown Brothers Harriman or Goldman Sachs wouldn't touch. And that led them to Trump. When the investment banking division at Deutsche Bank, which had been burned by Trump, found out that the private bank was going to start doing business with him, they were apoplectic. But these things were kept so separate that it was almost like two separate companies, and you had an odd situation where an investment bank that was not above laundering billions of dollars of shady money was the voice of reason in the room with regard to Trump, but they had no power to veto the private bank that was set on doing business with him.