Washington Post Runs Story on Donald Trump’s Use of Junk Bonds for Trump Taj Mahal
Donald Trump threatened to sue The Washington Post if it ran a story on his junk bond dealings with the Trump Taj Mahal. The Post ran a story on Monday which told the story, which showed Donald Trump saying one thing and doing another. The story also belies Trump’s narrative of whether he is a winner or not. No one in the Trumnp camp has said whether the former casino developer would follow through on his threats of a lawsuit.
The Washington Post article discussed what led up to the 1991 Trump Taj Mahal bankruptcy. In particular was his use of junk bonds to complete work on the resort-casino. Three years earlier, the famed businessman had told the New Jersey Casino Control Commission (forerunner to the Division of Gaming Enforcement) that his reputation as a “dealmaker” meant he could get prime loans.
At the time, Trump was critical of junk bonds and high-critical loans. He told the Control Commission his reputation along would have financiers “lining up to lend him money at prime rates“.
What Are Junk Bonds?
Junk bonds are high-yield, high-risk bonds. According to Investopedia, such non-investment grade bonds “are fixed-income instruments that carry a rating of ‘BB’ or lower by Standard & Poor’s, or ‘Ba’ or below by Moody’s. Junk bonds are so called because of their higher default risk in relation to investment-grade bonds.”
Traders buy junk bonds based on the reputation of the company or the reputation of the one issuing the bond, but the bonds themselves are graded as a significant risk. Because the issuer offers huge dividends in exchange for the elevated risk, many people take the risk. In some cases, they pay off beautifully. In many cases, they are a disaster for the trader. When a company manages to turn around its performance, their credit rating is increased and usually has a substantial price appreciation, which pays off handsomely for the investor.
Asked about Financing in GOP Debate
When FoxNews debate moderate Chris Wallace pressed Trump about his bankruptcies in the first Republican Presidential Debate back in August 2015, Trump had a pat answer for the audience. He characterized the people harmed by his bankruptcies as New York financial institutions who had made plenty of money from Donald Trump’s success. Saying his companies had declared bankruptcy only 4 times on over 400 projects, he told Wallace, “These are total killers.”
The newspaper published excerpts from the transcripts of Trump’s hearing before the Control Commission. In the documents, Trump told officials, “I’m talking about banking institutions, not these junk bonds, which are ridiculous. The funny thing with junk bonds is that junk bonds [are] what really made the companies junk.”
1991 Junk Bond Issuance
Trump said that when he was trying to get the permit for his ambitious new casino. By 1991, the project was facing cash flow problems and the loans with the prime rates had not materialized. To assure the casino was built, Trump turned to the one form of financing left to him — junk bonds. Thus, he contradicted himself and used the same financial shell game which he had criticized only 3 years before. In publishing Trump’s comments, the Washington Post made the 2016 presidential candidate look duplicitous, underhanded, and ineffective — somewhat like the politicians Trump criticizes on the campaign trail.
From reading the Washington Post article, one gets the idea Donald Trump floated junk bonds in 1991 knowing they were worthless. Six months after floating junk bonds, Donald Trump’s development company declared Chapter 11 bankruptcy, leaving his bond investors holding the debt from the completion of the Trump Taj Mahal.
Steven P. Perskie, the former chairman of the Casino Control Commission, came to see the Trump Taj Mahal deal as a sham. In reference to the fake Crimean towns built by Catherine the Great’s favorite general for one of her visits, Perskie famously called the casino a “Potemkin village.”
Trump: “I Would Do It Again”
For his part, Donald Trump takes no responsibility for what happened in 1991. He told the Washington Post in an earlier interview about the casino, “I didn’t want to have any personal liability, so I used junk bonds. I accept the blame for that, but I would do it again.”
Donald Trump might not lose sleep over the 1991 bankruptcy, but American voters might. While non-Americans who watch the U.S. media might get the impression that selfish, narcissistic behavior is a virtue in the United States, a majority of Americans believe in honesty and hard work. Taking out loans when you know you’ll never pay back the debt is a black mark on a person’s character to many of the voters Trump needs to sway.
Trump: “This Was Not Personal”
That is why Donald Trump has characterized the deal as taking place between business people who viewed the junk bonds as a part of doing business. He told the Washington Times reporter in the earlier interview, “This was not personal. This was a corporate deal.”
But Donald Trump also had the sense to know that answer would not suffice for many of the Post’s readers. That is why he threatened the Washington Post representative. He said, “If you write this one, I’m suing you.”
The Washington Post’s editors chose to publish their article, anyway. Now it is time to see if Donald Trump’s threatened lawsuit was an idle threat or not.
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