By William K. Black
August 23, 2016 Kansas City, MO
The reporting of Susanne Craig of the New York Times and David Cay Johnston, who won a Pulitzer Prize for his reporting when he was with that paper, and has recently published The Making of Donald Trump, combine to allow us to draw a critical insight about Trump and Goldman Sachs. From Susanne Craig, we learn:
[A]n office building on Avenue of the Americas in Manhattan, of which Mr. Trump is part owner, carries a $950 million loan. Among the lenders: the Bank of China, one of the largest banks in a country that Mr. Trump has railed against as an economic foe of the United States, and Goldman Sachs, a financial institution he has said controls Hillary Clinton, the Democratic nominee, after it paid her $675,000 in speaking fees.
Goldman Sachs is infamous for two things, both of them relevant here. Its senior managers encourage the most incestuous of relationships between the government and the firm. The revolving door is an exclusive penthouse elevator that rockets Goldman executives back and forth from positions of immense power in government and the firm. As the then President of the Federal Reserve Bank of Kansas City (now, Deputy Chair of the FDIC) told a small group of us several years ago: “For the last 20 years we’ve been holding an auction to fill the position of U.S. Treasury Secretary – and of late Goldman Sachs has been winning.”
Second, Goldman is infamous for ripping off its clients. It is the place that structured deals like Abacus to deceive and rip off its customers. Matt Taibbi aptly dubbed them the Vampire Squid.
Trump is infamous for an infamously long list of glaring faults. For my purposes, I only have to discuss two of those faults. First, and requiring no citation, Trump is arrogant and vainglorious and chooses sycophants who prosper by feeding his vanity and narcissism. As a white-collar criminologist and former financial regulator when we successfully prosecuted hundreds of large real estate developers, I have dealt with scores of arrogant real estate developers.
Second, Trump is not very bright and he is lazy. He cannot be troubled to learn and he is so arrogant and surrounded by sycophants that he thinks he is a genius in everything, particularly the complicated things where his ignorance is the greatest and most dangerous.
Here is how David Cay Johnston described Trump in a recent interview.
A: I met Donald Trump within days of arriving in Atlantic City (where Trump owned several properties) to cover the casino industry in 1988, and in our very first encounter I sized him up as a P.T. Barnum. His competitors and even his own people started telling me Donald doesn’t know anything about the casino business — he doesn’t know the games, the odds, customer relations, he doesn’t know anything. In an interview with Donald, I asked questions that he tried to bull his way out of and I did something investigative reporters sometimes do — I deliberately said something that was false. Donald, like a television psychic, immediately incorporated my false statement into his answer and that told me this guy is essentially at heart a con artist who tells you what you want to hear.
It was eerie for me to read this passage because Johnston used the exact technique on Trump that financial and real estate leaders used to test our federal banking examiners – in exactly the same time period – to see whether they were people of competence and intellectual integrity. The most dangerous fraudsters are sophisticated and shrewd at reading human weaknesses. Because accounting fraud makes it a “sure thing” that the sophisticated executives running the frauds will report record earnings. Because the business press typically abases itself to praise such CEOs, the worst fraudulent leaders are typically labeled “geniuses.” Government bank examiners and regulators are all too human and often want to be viewed positively by such geniuses. All the fraudulent bank officer has to do is slip a clear technical error into his talk with the regulator. If the regulator agrees with him the bank leader knows that the government regulator is a bullshit artist who doesn’t actually have the technical abilities to do his job.
A senior regulatory colleague and I, for example, exchanged a look of mutual recognition when one of our top technical staffers with expertise in capital markets rhapsodized at length about how classy the wood and leather appointments were for the interior of one of the private jets that made up Lincoln Savings’ air force. His report on the frauds Keating was running was shorter and devoid of passion. Need I tell you that the technical expert dressed about four times better than we, his bosses did?
Trump Reminds Me of Charlie Keating
Keating was a failing real estate developer who purchased Lincoln Savings and Loan in order to have a captive lending cow that he could milk whenever he needed cash. But Keating didn’t really have all that much wealth and he hated risking his own money so he borrowed every penny of the acquisition price of Lincoln Savings from what was then the world’s hottest investment bank – Michael Milken’s Drexel Burnham Lambert. Drexel was also the most fraudulent large investment bank, and therefore reported the highest profits in its industry. Keating ran the biggest fraudulent operations, so Lincoln Savings reported it was the most profitable firm in its industry. Like Goldman and Trump, Milken and Keating were made for each other.
But I am not describing equal partnerships. Goldman and Milken play the role of the dominatrix. Keating was only one of roughly a dozen CEO “captives” in Milken’s harem. There is no one easier to con than an arrogant blowhard like Keating or Trump. Milken and the Goldman guys are about 20 times cleverer about financial manipulation than were Keating and Trump. Milken played Keating for a chump, causing hundreds of millions of dollars in losses to the Treasury. Milken made sure that Keating repaid the entire Drexel loan before Lincoln Savings collapsed and became the most expensive federally insured banking failure in our history. Keating ripped off tens of thousands of widows who were Lincoln Savings depositors. He deliberately targeted retirement communities to induce them to buy the worthless, uninsured bonds of his insolvent holding company. Keating used the cash to repay Drexel, so the widows bailed out Milken. Goldman has doubtless been charging Trump such large fees that he has served for years as their golden goose. Goldman will flatter and fatten Trump right up to the point that it decides that his projects are so sick that he can no longer provide them with years of golden eggs. At that point they will dine on his carcass.
Trump Supporters Should Watch Fiddler on the Roof
Tevye, in his song “If I Were a Rich Man,” explains the secret of Trump’s success.
The most important men in town will come to fawn on me
They will ask me to advise them
Like a Solomon The Wise
“If you please, Reb Tevye”
“Pardon me, Reb Tevye”
Posing problems that would cross a rabbi’s eyes
Yah dee dee da da
Yah dee da da
Yah dee da da
And it won’t make one bit of difference
If I answer right or wrong
When you’re rich, they think you really know
What Trump forgets is that the Goldman guys make their money by fawning on and fleecing clients that are vastly wealthier and considerably smarter than Trump. There is no one at Goldman that thinks that Trump “really knows.” To Goldman, Trump has always been a useful idiot, and like an ant lion they will suck him dry and toss the husk of his “real estate empire” out of their killing pit as soon as he ceases to be useful to Goldman.