An empire built on marshmallows

PERRYSCOPE

President Donald Trump must be one hell of a lucky guy.  At age eight, he made his first million, a gift from his rich dad.  By the time he’s an adult, he claimed he was a self-made billionaire.  In the nineties, he started building casinos in Atlantic City only to file bankruptcy, not once, but four times.  

Some say, he had filed a total of six bankruptcies!  Holy cow!  And he’s still around building, building, building.  Anything – hotels, golf courses, condos, and apartment buildings.  You name it; he will build it.

But what many didn’t realize is that Trump has been building an empire on marshmallows.  Yes, those are the cushy, soft little things that kids love to eat.  Kids also love to build anything of any shape and form connecting marshmallows with toothpicks.   They use their imagination and ingenuity to assemble structures or figures that could blow your mind. 

Well, Trump – who loves to construct buildings – had an outlandish idea, which is to build a financial empire, figuratively, on marshmallows and toothpicks.   Yes, they’re empires using what is known in the financial industry as “Other People’s Money” or OPM.  I call them “marshmallows.”

Spoiled brat

Trump started building empires using OPM when he was in his twenties.  His multi-billionaire dad, Fred Trump, was his financier.  Reports say that he may have borrowed at least $400 million from his old man, which by the way, he didn’t have to pay back.

What a dad, huh?  But the sad part was that Fred – who made his millions building and selling housing for American soldiers and their families in World War II -- didn’t realize that he had turned his son into a spoiled brat.

In 1982, after running his father’s firm for eight years, Forbes magazine estimated Trump’s worth at $200 million.  But Trump has his own version of how he got rich. He claimed that he parlayed an initial $1 million loan from his dad into a $10 billion empire or as I characterize it, “an empire built on marshmallows.” 

According to The New York Times (NYT) that investigated Trump’s financial dealings, it showed that when Trump was three years old, he was earning $200,000 a year in today’s dollars from his dad’s real estate empire.  He was a millionaire when he was eight years old.  When he was 17, his dad gave him part ownership of a 52-unit apartment building.  Trump got all that for doing nothing. 

After graduating from college, Trump started receiving the equivalent of $1 million a year from his dad.  All in all, Trump’s dad had given him at least $423 million from his empire.

Sham corporation

In its report, NYT said, “Trump and his siblings in part ‘set up a sham corporation to disguise millions of dollars in gifts from their parents.’”   In 1971, Trump took control of his father’s apartment rental company and later on renamed it, The Trump Organization, concentrating mostly on real estate investments.

In 1980, Trump teamed up with Holiday Day Inn, Corp. – parent company of Harrah’s Casino Resorts – to develop a $250 million hotel and casino complex in Atlantic City.  Later on, Trump bought out his partners and renamed it Trump Plaza Hotel and Casino.  

This was Trump’s first foray into the casino business.  Emboldened by the success of Trump Plaza, he purchased a second property in Atlantic City from Hilton Hotels for a sum of $320 million.  He renamed the casino, Trump Castle.  In 1988, Trump built the grandiose Taj Mahal Casino.  But this was the beginning of the end.

Trump continued building his real estate portfolio in New York. But he faced several setbacks including the Plaza Hotel.  Trump’s plans for a large condominium tower were curtailed by the city’s rent control programs.

In 1990, the booming real estate market began to decline; his company’s balance sheet began to hurt.   The following year, the Taj Mahal Casino and Trump Plaza Hotel and Casino filed for Chapter 11 bankruptcy.

From Russia with love

But it didn’t take too long for Trump to discover Midas’ gold… in Russia.  He sure had a knack for serendipity.  Penniless, he went to Russia to meet some potential investors in his empire-building endeavors.  Not only did he meet some rich Russians, he met the “oligarchs” – Russia’s exclusive group of powerful, well-connected, former KGB men who took over Russia’s state-owned industries when the Soviet Empire imploded in 1991.  He must have impressed the oligarchs including the up and coming strongman, Vladimir Putin, an ex-KGB officer.  

That same year, Trump started construction of the Trump World Tower in Manhattan, New York, a seventy-two story.  Before long, one-third of the units were “snatched up by individual buyers from the former Soviet Union, or by liability companies connected to Russia or countries that had been part of the Soviet Union.” [Source: House of Trump, House of Putin/Craig Unger]

“Over the next few years, roughly 20 percent of Trump-branded condos – more than 1,300 luxury condos in all – repeatedly went to anonymous shell companies.  Far from being a comprehensive tally, this number represents a conservative estimate of the amount of Russian flight capital that came through Trump property in the late nineties alone: $1.5 billion.” [Ibid]

Dubious tax schemes

The NYT investigation revealed that Trump “participated in dubious tax schemes during the 1990s, including instances of outright fraud, that greatly increased the fortune he received from his parents, an investigation by The New York Times has found.” 

The NYT also uncovered a vast trove of confidential tax returns and financial records, which revealed that Trump “helped his father take improper tax deductions worth millions more. He also helped formulate a strategy to undervalue his parents’ real estate holdings by hundreds of millions of dollars on tax returns, sharply reducing the tax bill when those properties were transferred to him and his siblings.”

When his dad passed away in 1999, and after divvying up the inheritance among his siblings, he was on his own, with nobody to turn to for ready cash to keep on building his empire.  Meanwhile, he started losing money on a number of bad investments on hotels and other construction projects.  Indeed, his empire built on marshmallows is beginning to crumble.

The Apprentice

With bankruptcy after bankruptcy, Trump thought that it was time to change direction: from borrowing to build and purchase assets, to licensing his name to others.  Yes, he was sick and tired of building an empire out of marshmallows and toothpicks.

In 2004, television producer Mark Burnett approached Trump about a new television reality show, “The Apprentice.”  Burnett proposed that Trump host the show and also appear as “himself, a successful businessman with a luxurious lifestyle.”  Trump liked it.  The show instantly became popular with Trump’s catch phrase, “You’re fired!”  The show ran for 14 seasons until he decided to run for President in 2016.

Trump went on to beat 16 rivals in the Republican primaries.  He captured the presidency in 2016 with majority of the Electoral College but lost the popularity vote to Hillary Clinton by three million votes.  But whoever wins the Electoral College, wins the presidency, and so Trump became the 45th President of the U.S. on January 20, 2017.

The presidency

But no sooner had he taken over the presidency, than protesters for various causes took to the streets – from women’s rights to immigration advocates to migrant children’s rights to protesters against Trump’s Supreme Court nominee. 

Then, on October 2, 2018, The NYT dropped a bombshell that stunned the nation.  The NYT reported that Trump and his family committed "instances of outright fraud" in order to transfer millions of dollars from the real estate empire of the president's father, Fred Trump, to his children without paying the appropriate taxes.  Immediately, New York state tax officials began investigating allegations detailed in the exhaustive NYT investigation into Donald Trump and his family's business dealings.

Indeed, the exposé couldn’t have come at the worst time when the midterm elections are just a few weeks away, which begs the question:  Can Trump help Republicans win in the midterms or are the financial scandals going to bring down the Trump presidency?

(PerryDiaz@gmail.com)