Donald Trump, Pop Star

Donald Trump has always been good for coming up with “creative” rationalizations for his failures and his apparent successes. His creativity has been the foundation of his career as a pop star. There has always been a serious question, however, whether he should be taken seriously as a business person. Trump’s real estate empire, begun on an already substantial fortune built by his father’s real estate exploits, has been for a considerable amount of time founded more on debt than on his own assets. But he continues to draw front page attention, as in today’s New York Times, which discusses a “lawsuit filed by Mr. Trump, the real estate developer, television personality and best-selling author, in an effort to avoid paying $40 million that he personally guaranteed on a construction loan that Deutsche Bank says is due and payable.” Mr. Trump argues that he is excused from his obligation to pay back the loan under a “force majeure” clause in the construction contract “that allows the borrower to delay completion of the building if construction is hampered by such things as riots, floods or strikes. That clause has a catch-all section covering ‘any other event or circumstance not within the reasonable control of the borrower.’”

“Would you consider the biggest depression we have had in this country since 1929 to be such an event? I would,” [Trump] said in an interview. “A depression is not within the control of the borrower.” ”

it is a ridiculous argument. Quite plainly an investor bears the risk of a downturn in the real estate market. And one could hardly deem the downturn in the real estate market unforeseeable. People have been claiming the real estate market was overheated for years. If Trump were to prevail, it should piss off every foreclosed homeowner in the country, few of whom were as well positioned as Trump to genuinely understand the risk of borrowing money that, in the event of a downturn in a market (an inevitable event), they would be unable to repay.

But Trump gets his lawsuit and his front page coverage in the New York Times. Just wait, though: sooner or later he’ll go into bankruptcy. Until now, he’s had so much borrowed money his lenders could not afford to let him go into bankruptcy — it was better to lend him more money and keep him in business than to risk losing what they would lose if Trump went into bankruptcy. But now the banks don’t have any more money to lend him. Stay tuned.