The following is an excellent excerpt from the book “THE MAKING OF DONALD TRUMP” by David Cay Johnston from Chapter 11: “Government Rescues Trump” on page 85 and I quote: “In the years between 1986 and the spring of 1990, Donald Trump took in at least $375.2 million from his business enterprises. He got cash from real estate deals. He made profits through greenmailing. He took $90.5 million out of Atlantic City, stripping cash from his Trump’s Castle and Trump Plaza casinos. His recorded cash flow averaged $1.6 million per week for 233 weeks. That’s $230,000 per day, nearly $10,000 per hour, $160 per minute, or $2.66 per second.
Yet, in the spring of 1990, Donald Trump could not pay his bills. How could a man who had convinced the world he was a multibillionaire fail to pay contractors on his new Trump Taj Mahal–which opened April 5, 1990–for months after they had completed their work? How could he lack the resources to make a $73 million mortgage payment on Trump’s Castle Casino Resort by the Bay?
The $375.2 million was not pure profit, by any means. Out of it came fees to lawyers and investment bankers, and interest paid on stock acquired with borrowed money. But neither does the figure include cash generated by his other investments–for which no reliable public figures exist. For example, independent observers in 1990 said Trump had received millions of dollars in developer fees and operating profits from three Manhattan buildings–the Grand Hyatt Hotel, Trump Tower, and Trump Parc–but no one knows just how much. All we have to go on are Trump’s many and often conflicting claims.
Despite Trump’s tremendous cash flow over those four years, Manhattan bankers occupied a Trump Tower conference room for more than a month in 1990 as he dickered with them for more loans to keep his empire afloat. Trump’s inability to pay his debts had put him at risk of losing his casinos. The New Jersey Casino Control Act required that a casino owner be able to pay bills as they came due. If an owner could not pay a bill, he or she was out. If an owner could not pay cash, but could convince a creditor to extend the payment date, that was fine. Old loans could be paid off with proceeds from new loans. But unpaid bills were cause for the Casino Control Commission to cancel the casino ownership license, take control of the casino, and have it run by trustees until a buyer was approved.
The law put the onus on Trump to establish his financial stability by “clear and convincing evidence.” Nearly two decades before Congress decided that America’s top banks were too big to fail, New Jersey debated whether the same applied to one self-proclaimed multibillionaire. If the answer was yes, then Donald Trump needed a government rescue to keep his empire intact.
At the time, Trump told me and everybody else that he was worth $3 billion. It was a dubious claim for a simple reason: in February 1990, Trump had quit paying many of his personal bills.
A few weeks later, I got my hands on Trump’s personal financial statement, which showed that he expected his income to fall to $748,000 in 1992 and to $296,000 in 1993. That’s a lot of money to most people, but not to a “billionaire” with a personal jet to maintain.
My Philadelphia Inquirer piece broke the news that whatever Trump was worth, he was no billionaire, much less the multibillionaire he repeatedly claimed to be. Soon after that news story, casino regulators publicized a document showing that Trump was down to his last $1.6 million. Yet payments on more than $1 billion worth of bonds on his three Atlantic City casinos came due every ninety days.
About a hundred vendors at the newly opened Trump Taj Mahal casino took legal action to protect their interests, filing liens and other debt-protection documents. The Trump Shuttle airline that ferried passengers between Boston, New York City, and Washington was burning cash at a furious rate. Trump said the planes had gold sinks and seat-belt buckles, but the Shuttle was down to $1 million cash. That was not enough to pay employees, keep the fleet of Boeing 727s fueled, or pay for constant repairs (which were necessary, since all but one of the twenty-three airplanes were more than twenty years old).
Trump’s obvious difficulty complying with the financial stability requirements of the Casino Control Act raised a glaring question: Had the regulators been monitoring Trump’s finances since he got his casino license in 1982? The answer was no.
The regulators had been too busy with work they deemed more important. There was, for example, the predawn arrest of a cocktail waitress named Diane Pussehl, who was pulled from bed and charged with a felony for picking up a $500 chip on the floor of Harrah’s casino. A judge tossed the case out, so the casino regulators filed a misdemeanor charge. It also was tossed. Then they went after Pussehl’s license, arguing she was morally unfit to work in a casino. Pussehl kept her license.
The Division of Gaming Enforcement came down like a wall of bricks on little people like Pussehl, but when it came to high-level regulation–casino owners playing financial games with customers connected to the Medellin drug cartel, or accusations by Trump’s biggest customer, Bob Libutti, of manipulating financial reports on the purchase of gambling chips–the regulators remained willfully blind. It was the perfect environment for a Trump.
But Trump’s unpaid bills and the presence of all those bankers in Trump Tower made it impossible for the Division of Gaming Enforcement to keep its blinders on. As more and more news reports showed the financial stress Trump was under, the DGE said it would investigate.
The seventy banks whose massive loans were about to sour insisted that Trump install a man they trusted in his headquarters: Steven F. Bollenbach, who would later head Hilton Hotels and become chief financial officer at Disney. Bollenbach had experience with Trump. In 1987, on his first day as chief financial officer at the Holiday Corporation–the owner of the Holiday Inn brand and Trump’s original partner in the Trump Plaza casino–Trump attempted to greenmail that company. Bollenbach directed Holiday’s successful effort to fend off Trump.
Bollenbach spent days in a Trump office reading through contracts, loan papers, and other documents. To use phrases that Trump would employ a quarter century later on the campaign trail, Bollenbach’s duty was to “figure out what the hell is going on.”
In March, Trump filed a sworn statement with the Casino Control Commission listing his net worth at $1.5 billion, half of his previous public proclamations. Meanwhile, the seventy banks hired the Kenneth Leventhal & Co. accounting firm to go over Trump’s books. An independent evaluation of Trump’s finances was crucial. While the big New York banks agreed to advance Trump $69 million to avoid a fire sale of his assets, not all the banks were on board. Three Japanese banks–Sumitomo, Mitsubishi, and Dai-Ichi Kangyo–plus the German Dresdner Bank were balking, as were two smaller New Jersey banks, First Fidelity and Midlantic. The agreement required every bank to go along or the deal would fail. Ultimately all but Dresdner did. Since none of the banks trusted Trump, the objective Leventhal evaluation was central to understanding the actual state of Trump’s finances.
The Leventhal report showed that Trump was no billionaire; he had a net worth of minus $295 million. My story on that report ran across the front page of the Philadelphia Inquirer with the headline: “Bankers Say Trump May Be Worth Less Than Zero.” The lead sentence was, “You may well be worth more than Donald Trump.”
Trump hated that line and the traction the story received. The story ran at a critical moment in Trump’s bid to keep his casinos. He could have been swept into the dustbin of history if the DGE prosecuted high-level offenders with the same rigor as it did the Diane Pussehl of the industry. Instead, the Casino Control Commission listened to a less than vigorous challenge to Trump’s financial stability. Thomas Auriemma, the DGE lawyer, asked Trump’s representatives easy and irrelevant questions to gloss over the growing gap between the revenue Trump was taking in and the bills he had coming due. The Leventhal accounting firm’s report that Trump’s financial situation was deteriorating rapidly. Instead of ending the year with $24 million in cash, Trump was expected to run dry before year’s end.
The DGE prepared its own 111-page report. It noted that Trump owed (not owned, but owed) $3.2 billion. Of that, he had personally guaranteed $833.5 million. Absent an agreement by all creditors, Trump could face an uncontrolled, domino-effect chain of bankruptcies. If just one creditor moved against one Trump property, the others would follow, creating chaos.
More than one thousand lawyers working for Trump and his creditors had hammered out a “fragile” deal to keep him going, hoping to minimize losses on the loans they had expended without checking his finances carefully. The lawyers had already billed almost $11 million for their services.
Part of the deal was putting Trump on an allowance. He would have to get by on $450,000 per month, down from his May 1990 spending of $585,000 (the equivalent of more than one million 2016 dollars). The allowance was so astonishingly large that The New York Times quoted one billionaire as saying, “I would have no idea how to spend $450,000 a month. It’s just phenomenal.”
In order to prevent the legal chaos that would result from a complete collapse of the debt-laden Trump empire, the deal required fast approval by at least four of the five Casino Control Commission members. When two commissioners began asking skeptical questions, Trump attorney Nick Ribis called for a break. The dozen reporters in the front row stood up as the commission adjourned, a few looking bewildered. Why were they taking a break now instead of finishing?
“They’re rehearsing the answer to the next question,” I advised my colleagues. “When they come back, they’ll have the witness say Trump will be torn apart by the bankers unless the commission votes immediate approval of his deal with them.”
The one word I knew would not be spoken was bankrupt. That’s why they needed to rehearse: to convey the idea of bankruptcy without staying the word, which Trump had prohibited. The press-savvy Trump knew that the word bankrupt would provide easy headlines for his two favorite New York papers–Post and the Daily News–but subtle wording would pass over the heads of most journalists. He was soon proved right.
After the recess, Thomas Cerabino, a Trump lawyer at the center of the private bankruptcy negotiations, took the stand.
“What would happen if the commission delayed approving the deal between Trump and his bankers?” asked the DGE’s lawyer, Thomas Auriemma.
“I think there would be an imminent risk of the collapse [of the deal],” Cerabino responded.
One of the two skeptical commissioners asked for clarification: what would happen if the commission delayed immediate approval?
Cerabino testified in slow, deliberate words: “The banks will move apart and take whatever steps they think are appropriate to protect their interests and that is a very unhealthy state affairs for the Trump Organizations.”
With the lawyer’s subtle language, Trump avoided the “B” word but made clear to the commissioners that an uncontrolled bankruptcy was one day away. The Philadelphia Inquirer again bannered the story, this time with the headline, “Trump Empire Could Tumble Today, Casino Panel Told.”
All but two of the other reporters who had been told what testimony to expect missed the story. Because the word bankruptcy went unsaid, these reporters did not allude to it.
Many reporters accurately quote what they are told, but don’t know much about the underlying issues. For Trump and others like him, this makes it easy to manipulate most of the press. Those who see through that manipulation and make connections themselves get a different response: complaints to editors, threats of litigation, and occasionally public denunciations. That latter strategy was on display the next day before the hearings resumed.
When I arrived, several reporters rushed up to me, one clutching my big front-page headline, asking when I would retract my story. They said that Ribis, Trump’s casino lawyer, had just told them my story was wrong, completely wrong. I marched over to Ribis, asked a series of short questions whose answers established that my story was correct, and had him confirm to my peers that no retraction or even correction would be requested.
When the commissioners entered the room, they faced a choice. They could approve the “fragile deal” with the banks or go with the evidence showing that Trump was financially unstable and rescind his license.
Four of the five commissioners, all political appointees, used their power to take Trump’s side. The commission told the bankers they were free to foreclose on Trump. However, the casino licenses would not ride with the foreclosures. Without the casinos, the banks would repossess gigantic hotels with no reason to stay in business, leaving them far worse off than if they went along with the deal. That deal would 1) allow Trump to pay them back less than he owed and 2) advance him $69 million to keep going.
Donald Trump was saved–saved by the government, deeming him too big to fail–from getting his just desserts for reckless spending. The state of New Jersey had favored the interests of Trump over those of his bankers and the people who invested in those banks.
Years later, running for president, Trump would make remarks that seemed to harken back to this day, although he did not mention it specifically. In the spring of 2016, Trump told CNBC: “I’ve borrowed knowing that you can pay back with discounts. And I’ve done very well with debt. Now, of course, I was swashbuckling, and it did well for me, and it was good for me and all that.”
Even with the official favoritism that forgave many of Trump’s debts, he was still in financial trouble. As Christmas 1990 approached, Trump was again running out of cash. Many of the Taj Mahal contractors remained unpaid, as they would for years or, in some cases, forever. It was the beginning of Trump being forced to relinquish his stakes in a host of enterprises.
In 1991, the Trump Taj Mahal entered Chapter 11 bankruptcy, the first of his business bankruptcies. He later sold stock in his casinos, where investors lost their shirts (while Trump kept getting paid millions of dollars in salary, bonuses, and money to pay off his bad debts). During the fourth bankruptcy case, creditors successfully demanded that Trump get lost.
Today, Trump shrugs off the four bankruptcies in which investors lost more than $1.5 billion, saying it’s a standard business tactic to restructure debt. In truth, there were actually six bankruptcies. The last was in 2014, when Trump was a very minor investor in the Trump Taj; he had already been removed from any active role in the last casino bearing his name.
In 1990, Trump feared the word bankruptcy as he now fears damning questions from Hugh Hewitt or Megyn Kelly, the Fox News host. If government hadn’t saved him by taking his side against his bankers, we almost certainly would not be imaging the prospect of Donald Trump living at 1600 Pennsylvania Avenue. Instead, he would have drowned in a sea of red ink.”
(LIKE DONALD TRUMP SAID, EVERY TIME HE WENT BANKRUPT, HE MADE MONEY AND HE WAS PROUD OF IT. GRANTED, THE GOVERNMENT MADE IT LEGAL TO GO BANKRUPT TO HELP OUT A PERSON WHO WAS A SLOW LEARNER AND MAYBE THAT’S REASONABLE THAT FIRST TIME BUT WHEN HILLARY CLINTON SAID DONALD WENT BANKRUPT SIX TIMES, WHICH HE DIDN’T DENY, THAT MADE HIM A PERSON WAY BEYOND COMMON SENSE AND REASONING. I WOULD SAY TO THE POINT OF BEING RIDICULOUS. THAT DOESN’T SOUND LIKE THE QUALIFICATIONS TO BE PRESIDENT OF THE UNITED STATES.
LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran