Trump, the bad, bad businessman
The greatest scoop of my journalism career started at a poker table with a tip from an agitated banker. It was a Thursday night in late May 1990. I was a 32-year-old Wall Street Journal reporter who had written dozens of articles about Donald Trump’s business affairs. I was closing in on the biggest one of all — Trump was on the brink of financial ruin. He was quietly trying to unload his assets. His Atlantic City casinos were underperforming, and prices for his casino bonds were plummeting, suggesting that he would have trouble making interest payments.
“Donald Trump is driving 100 mph toward a brick wall, and he has no brakes,” the banker told me. “He is meeting with all the banks right now.”
The next day, I called sources at the four banks I knew had large Trump exposures. The first three calls yielded “no comment,” but the fourth hit pay dirt, and I was invited to visit the bank late that afternoon.
Behind a large mahogany desk sat the bank’s chief lending officer. He explained that all of the banks would have to agree to a huge restructuring of Trump’s loans or Trump would have to declare personal bankruptcy. Unknown to the banks when each had lent him money, Trump ended up personally guaranteeing a staggering $830 million of loans, which was reckless of him, but even more so for the banks.
In a front-page Wall Street Journal article on June 4, 1990, I wrote: “Donald J. Trump’s cash shortage has become critical. The developer is now in intense negotiations with his main bank creditors that could force him to give up big chunks of his empire.” One banker said, “He will have to trim the fat; get rid of the boat, the mansions, the helicopter.”
Amid all the self-made myths about Donald Trump, none is more fantastic than Trump the moneymaker, the New York tycoon who has enjoyed a remarkably successful business career. In reality, Trump was a walking disaster as a businessman for much of his life. This is not just my opinion. Warren Buffett said as much this past week.
Between 1985 and 1991, working mainly for The Daily News and The Wall Street Journal, I covered Trump’s travails and interviewed him dozens of times. On several occasions, he threatened to sue me, though he never did. But he didn’t hide his opinion of me. In “Trump: The Art of the Comeback,” his 1997 book, he wrote: “Of all the writers who have written about me, probably none has been more vicious than Neil Barsky of The Wall Street Journal.”
At the time, he was a glamorous New York City personality and an Olympic-level self-promoter who had persuaded banks and bondholders to extend him billions of dollars of credit to buy everything from a yacht to the Plaza Hotel to the Eastern Air Lines Shuttle.
He was also a skilled negotiator with an almost supernatural ability to pinpoint and attack his adversaries’ vulnerabilities, as several of his Republican primary opponents discovered. Since his financial emergency in the 1990s, he appears to have sworn off taking on large amounts of debt, and instead has used his brand to collect fees on real estate and other projects. This has greatly limited his downside risk, but has also capped the amount he can earn, since he often does not own the underlying equity on the projects that bear his name.
Since leaving journalism in 1993, I have been a Wall Street real estate analyst and a hedge fund manager. I have studied how businesses thrive and why they fail. Trump’s political rise has been maddening for me to watch, and I sometimes feel like the character played by Kevin Bacon in the movie “Diner” who screams the right answers to a TV quiz show as the contestants get them wrong.
“The issue isn’t that he’s crass,” I want to shout. “It’s that he’s a bad businessman!”
Hanging on my office wall is a letter written on goldleaf stationery, dated March 22, 1990. “Dear Neil,” it reads. “From your first incorrect story on Merv Griffin — to your present Wall Street Journal article, you are a disgrace to your profession! Sincerely, Donald J. Trump.” (Griffin was a Trump rival.)
The article I had just written took a skeptical look at the ability of Trump’s newly opened Trump Taj Mahal Atlantic City casino to make the interest payments on its bonds. I quoted an analyst saying, “Once the cold winds blow from October to February, it won’t make it.” Trump complained to the man’s employer. Within days, the analyst was fired. But his prediction would prove prescient.
At 70, Trump is 12 years older than I am. As I watched his career soar in the 1980s and the inordinate amount of press attention he attracted, I was struck by two things: His list of real estate accomplishments were minuscule compared with those of more successful New York developers who garnered far less publicity, and he lied a lot. He made up the prices he was getting for his condominiums, the value of bids he had turned down for various properties and his prospects for luring corporate tenants to his buildings. And, of course, he lied about his wealth. Then and now, we in the media helped enable the Trump myth. He made great copy. Early on, I noticed that any article I wrote about him — whether for the tabloid Daily News or the serious Wall Street Journal — would get great play. This invariably led me and others to dig deeper for Trump news.
Oddly, he seemed less interested in making money than in creating the perception that he was wealthy. This is why, I believe, he continually floated plans to build the world’s tallest building. People would notice. His feuds with Forbes magazine over his net worth were legion.
Once, in April 1990, as I was trying to glean the extent of his financial distress, he produced as evidence of his financial strength a letter from an accounting firm saying he had close to $400 million in cash and cash equivalents. The letter did not include liabilities, however, and less than two months later, Trump was negotiating a lifeline with his bankers.
Ultimately, the banks decided Trump was “too big to fail,” and extended further credit. When the dust settled, he retained some important assets, like Trump Tower, and gave up control of others, including the Eastern Air Lines Shuttle. Under bankers’ orders, he altered his high-spending lifestyle.
More than a year has passed since Trump announced his candidacy, and the media has begun to chip away at his checkered business record. Still, the image of the self-made billionaire remains. He has yet to release his tax returns. Amazingly, we still don’t know exactly how much he inherited from his father’s real estate empire, valued at $250 million to $300 million when his father died in 1999, and probably worth multiples of that today.
This disconnect between the public’s perception of Trump as a self-made mogul and the reality of his being a rich kid who lost other people’s money and made far less for himself than he claims is still his Achilles’ heel.
Things did not end well between us. One day in early 1991, one of Trump’s senior executives, Nick Ribis, invited me to a boxing match that his boss was sponsoring in Atlantic City. I declined at first, but my editor encouraged me to go. Then, in an act of bad judgment, I accepted free tickets for my brother and father.
Weeks later, after I wrote a tough article about Trump’s finances, his public relations representative called The New York Post’s Page Six and said, as I was told later by a senior Post reporter, “How would you like to destroy the career of a Wall Street Journal reporter?” The story that resulted made a series of wild and bogus accusations, saying I had extorted the tickets, asked for a suite at the Taj, and that out of anger that I hadn’t received more favors, had written negative articles about him.
My editors stood by me, but they and I agreed that I would stop covering him. By then Trump had stopped being front-page news, but I had put my paper in a difficult position, and the episode stung.
Did he set me up? Did I set myself up? Several years later, I ran into a Trump executive who offered an explanation. A few months before the boxing match, I had reported that as Trump faced a cash shortfall, his father had bought $3.5 million worth of casino chips to help his son make an interest payment on the casino’s bonds. Trump was subsequently fined $30,000 by New Jersey’s gambling regulators for not reporting what was essentially a loan from his father. He was livid, the executive told me, and had vowed revenge. As Trump himself wrote in “The Art of the Comeback,” he told Nick Ribis to give me the tickets, then added, “but the next time he writes anything I’m going to blast him like he never got blasted before.”
I last met with Donald Trump in 2007, by which point I had been managing a hedge fund for a decade. He was a reality television star, and his financial troubles were behind him. I was sponsoring a golf tournament at his club in Westchester County to raise money for a foundation that supported a Miami youth center.
Concerned that we might bump into each other, I called to see if he might want to meet first, and he invited me to his Fifth Avenue office. He couldn’t have been nicer. He boasted about a recent golf club purchase and said he was “bigger than ever.” He complimented me on my decision to go into finance. I asked him for a major donation for the youth center, and soon the conversation turned to our past squabbles.
“You hit me, then I hit you,” he said, with the wistful air of a nostalgic boxer. “As far as I’m concerned, we’re even.”
A week later, someone at the foundation told me it had received a check for $5,000