At the end of history, Donald Trump appeared to be going bankrupt. As the Cold War came to a bloodless finale on the rubble of the Berlin Wall in 1989, the tycoon was presiding over a dissolving empire. Having entered the club of billionaires a year or so earlier, by August 1990, Trump owed $3.2bn to banks, $69.5m to subcontractors, and was involved in 111 court cases, as his Atlantic City casinos teetered on the brink.
It looked like a long face plant from the penthouse – except it wasn’t. Seeing how Trump rebounded from that loss sheds light on what he is doing now and prompts the thought: maybe his stubborn refusal to fully acknowledge his election defeat on 3 November – his numerous legal challenges and his accusations of fraud – is more like a bankruptcy than a (half-hearted) coup.
Since the 1970s, bankruptcy law has developed in a contradictory fashion in the US: while laws and norms against individual and national bankruptcy (also known as default) have grown more stringent and punitive, norms and laws governing corporate bankruptcy have become more lenient. Famously, in the US, one cannot default on student loans, but it is common for corporate leaders to walk away from business failure at a profit.
For decades, we have lived in an era of “strategic bankruptcy” which allows management to file for what is called “Chapter 11” to default on contracts and promises without foregoing leadership of the company itself. Bankruptcy is less a private apocalypse than a canny business move.
As one researcher at a brokerage described it in 1987: “When a company goes into bankruptcy, it enters sort of a state of grace. It pays no interest on all its debt, its contracts are unenforceable.”
This era birthed “business as usual” bankruptcies. You could walk by a shop and see no outward signs of commercial trouble even when purges were afoot. At the business end of the purge were always the workers. Funds intended for wages or pensions were consumed by costs during lengthy negotiations with creditors and bondholders and the high fees of so-called “distressed debt specialists”. The broken promises to workers had an evocative label: “Betrayal without remedy.”
Trump’s 1990 crack-up in Atlantic City was a banner example of the new bankruptcy. Even as workers and contractors went unpaid, Trump managed to retain control of the casinos. Thirty years later, he repaid the person who represented his creditors when he made Wilbur Ross, then known as “the King of Bankruptcy”, his commerce secretary.
What happened in Atlantic City in the early 1990s is happening again in Washington, DC as Trump uses the resources of the state and the donations of his supporters to carry out a legal crusade that would seem quixotic and pointless were it not for the fact that it could line the pockets of those involved.
The contributions Trump raises now will carry over to a future run for office. The longer the contestation of the election is dragged out, the more lucrative it is for the litigants. Reports suggest Rudy Giuliani, Trump’s lawyer, and the man most recently in headlines for speaking in front of an auto-parts shop, being hoodwinked by Borat, and sweating brown liquid from his scalp, may now become the most highly compensated attorney of all time. Presumably any level of humiliation would be worth $20,000 a day to carry out the task of what is called, in the jargon, “baby-sitting the debtor-in-possession”.
As the drama unfolds in the US, something strikingly similar is happening to its south. Venezuela also has two heads of state: Nicolás Maduro, who officially governs the country and Juan Guaidó, who does not, but enjoys recognition by most foreign governments.
The question of who is really in charge is being fought, as in the US, in the courts rather than at the ballot box as both leaders lobby for control of Venezuela’s overseas assets, and US bondholders lobby to seize these assets for themselves. In the process, the nation is approached the way a former fund manager such as Wilbur Ross would a company facing bankruptcy, stripping it of its valuable possessions which are then fought over by creditors: oil refineries in Louisiana, gold bullion in the vaults of the Bank of England, bank accounts in New York, real estate and aircraft in south Florida.
Trump has treated the nation like a distressed asset since the late 1980s when he first flirted with a run for the presidency. “If [the US] were a corporation, it would be bankrupt,” he said then. This US is “losing $200bn a year”, he said, “this country is essentially a bankrupt country”. Upon his election in 2016, he filled his cabinet with actors from the distressed debt sector including Steven Mnuchin and Gary Cohn from Goldman Sachs alongside Ross himself.
With Trump in office, there was much talk about his being a businessman but not enough about what he understood this to mean. Listen and you find it was less about prosperity through innovation or efficiency, than victory through the manipulation of debt and law. In his own words, he was the “King of Debt” but he was also, to use the term enjoyed by his commerce secretary, the King of Bankruptcy. This was bankruptcy without stigma, without guilt, without shame.
When pressed on his own trail of Chapter 11s, Trump insisted he “used the laws of the land” to his own benefit and to the detriment of suckers. The facts were on his side. In the Atlantic City fiasco, his stock and bondholders lost $1.5bn while he walked away with millions.
Attempts to tar Trump with the stigma of debt and bankruptcy have misfired and even boomeranged – his ability to be the self-described King of Debt and still thrive gave him an aura of corporate immunity. He embodies the bulletproof status that decades of legal change have granted him, sailing magically between the punitive territories of personal debt on the one hand and sovereign debt on the other.
The slow bankruptcy-ridden collapse of Trump’s casinos that began 30 years ago were dragged out over a decade. It’s been less than a month since the president’s latest apparent failure. We will have to wait until the moment, should it come, that he feels he has squeezed the last profits from his latest defeat, and stumbled over a new play behind the wall of lawsuits.
Only then will the King of Debt walk away from the wreckage, richer from another failure, his brand intact, a poster boy for 21st-century capitalism.
[See also: The last days of Trump]