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Donald Trump’s bankruptcies reveal how fat cats win

Robert Reich says sharp operators like Trump are able to keep their fortunes and spread the pain of a failed business to others.

Donald Trump speaking at a campaign rally in Keene, New Hampshire, on Wednesday.
REUTERS/Gretchen Ertl

Donald Trump has declared bankruptcy at least four times. No, that sentence isn’t exactly true. Four times during his business career, Trump has availed himself of the protection of the bankruptcy laws so that businesses he owned could continue operating without paying all their debts. The businesses went bankrupt and the people to whom they owed money got screwed. Very likely Trump could have paid the debts from his own multi-billion-dollar fortune, but the deals were structured so that his fortune was not at risk.

This pattern came up early in his candidacy and Trump — accurately — blew off the suggestion that he had ever gone bankrupt. In fact, this fact is consistent with Trump’s claim that he is a sharp businessman who knows how to do a deal, in fact how to do a heads-I-win-tails-you-lose deal so that his fortune was not at risk.

What should we make of this?

In a post on his eponymous blog and an article in Politico, former Labor Secretary Robert Reich suggests what we should make of it. Bankruptcy was designed so a person who couldn’t pay his debts could start over, Reich writes. The creditors would get a portion of what they were owed, the debt would be cleared, the bankrupt person could avoid debtor’s prison and try to make a life despite the blot on his credit record, which would shadow him for years.

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The Constitution explicitly puts Congress in charge of legislating bankruptcy law for this purpose. Nowadays, sharp operators like Trump have expert help who can structure deals so they get to keep their fortunes and spread the pain of a failed business around to others. Reich goes further, suggesting that this is another prime example of how big business, through its lobbyists and money, has rigged the game, freeing them up to take risks with the shareholders money and avoid consequences. Wrote Reich:

“In the last few decades, these changes have reflected the demands of giant corporations, Wall Street banks, big developers and major credit card companies who wanted to make it harder for average people to declare bankruptcy but easier for themselves to do the same.”

He illustrates it with the way things worked when Wall Street crashed the economy in 2007-8:

“The real burden of Wall Street’s near meltdown fell on homeowners. As home prices plummeted, many found themselves owing more on their mortgages than their homes were worth, and unable to refinance. Yet chapter 13 of the bankruptcy code (whose drafting was largely the work of the financial industry) prevents homeowners from declaring bankruptcy on mortgage loans for their primary residence.”