In 1993, I arrived one fall evening in the Romanian city of Cluj. The railway station was mysteriously full of people, and the city outside was crowded and frenetic. I was mystified. Why did this rather obscure Transylvanian outpost suddenly seem like New York City?
My contacts in Cluj eventually provided me with an explanation. Romanians were flocking to a “bank” based in Cluj called Caritas that was giving out eight to one on the investment. News that the payouts had turned several people into millionaires was attracting hordes of people eager to take advantage of this unprecedented opportunity. The upscale stores in town had difficulty keeping their luxury goods in stock for consumers flush from their payouts.
It didn’t last long. Caritas was a pyramid scam. The first investors received the promised return, but they were paid out of the receipts of the next round of investors. Ultimately, one in five households in Romania were invested in the scam. But like all pyramid scams – also known as Ponzi schemes – Caritas eventually collapsed, with nearly half a billion dollars in debt. This economic catastrophe fell hardest on the people with the least amount of money and the most desperate hopes of advancement.
The other insidious part of the story is that quite a few people invested in Caritas knowing that it was a fraud. But they calculated that they could get in and out before the pyramid disintegrated.
It is often said that Donald Trump is a confidence artist, a snake-oil salesman, a fraudster. The truth is much more disturbing. The U.S. president is a Ponzi scheme unto himself. He has gotten many hardworking people to invest their hopes and dreams in him.
But he has also attracted the support of the more calculating kind, those who smell an easy profit. These Trump supporters know that he is a scam (and will admit so at unguarded moments). But that hasn’t stopped them from getting in on the action, as quickly as possible, before the Trumpian pyramid begins to crumble.
Trump’s economic promises
At the end of August, Trump gave a speech in Missouri outlining his economic plan, which boils down to cutting taxes. He pledged to reduce the corporate tax to 15 percent (from the current 35 percent) and cut taxes by a certain amount for everyone else. He has also promised to eliminate the estate tax.
The trick of the president’s Ponzi scheme is to provide enormous payouts to the wealthy under the auspices of a presumably populist plan to benefit everyone. According to the Tax Policy Center, Trump’s proposed cuts would deliver a tax cut of $214,000 to the top 1 percent and a mere $1,000 to middle-income families. Repealing the estate tax, meanwhile, would only benefit heirs who inherit lump sums of more than $5.49 million.
The proposed cut in the corporate rate, Trump declares, would inject more capital into the American economy. That’s unlikely, as The New York Times points out, since corporations are enjoying record profits and currently hold nearly $2 trillion in cash. Also, as my colleague Sarah Anderson discusses in a new report, corporate tax cuts create fat compensation packages for CEOs, not jobs. The tax break would serve chiefly as a way to empty federal coffers into the pockets of the already wealthy.
You get the idea. Instead of helping out all the struggling Rust Belters who voted for him, Trump is dishing up hot, steaming piles of cash for people just like himself.
And Carl Icahn. After suggesting and then vetting a number of key administration officials, the wealthy financier then signed on as an advisor to the Trump administration. His chief aim, it appears, was to lobby for a change in the rules governing the use of ethanol and other biofuels in petroleum products. He had skin in the game – a controlling interest in a refiner that hadn’t invested in the technology necessary to do the blending required by law. Simply put, Icahn wanted to make the credits that he had to buy – which cost his company $200 million in 2016 – a lot cheaper.
After December 22, when Icahn assumed the role of informal advisor, stock in his refiner spiked, producing a profit (on paper) of more than half a billion in just one day. Talk about a dishonest dollar for a dishonest day’s work.
From a recent New Yorker profile of Icahn, from which I have drawn this story, you get the distinct sense that the financier doesn’t hold Trump in very high professional regard. But that hasn’t prevented him from trying to make a short-term killing while Trump is still king of the mountain. Icahn left his position shortly before the New Yorker article broke, but presumably he’s still lobbying for his preferred regulatory change.
As was the case for Cluj and Caritas in 1993, people are flocking to Washington, DC to invest in Trump’s Ponzi scheme. Consider what the Trump family has already made at its Trump International Hotel in Washington, DC. In the first four months of 2017, it raked in a profit of nearly $2 million. Perhaps that doesn’t sound like a huge amount, but the Trumps actually expected to lose over $2 million in the hotel’s first four months. Not surprisingly, with Trump as president, those who want access are willing to pay top dollar (and the hotel is DC’s most expensive). The president has monetized his presidency even before he has left office.
Then there are the lobbyists who are setting up shop in DC to skim some cream off the top. Forget all that nonsense about “draining the swamp.” Like most false populists, Trump wants to kill of all the swamplife he doesn’t like and replace it with the swamplife he does. “The smart money in Washington – K Street and K Street’s clients, the big corporations and trade associations – didn’t quite know what to expect,” writes Nicholas Confessore in the latest New York Times Magazine. “But mostly, they didn’t know whom to call.”
Enter a new class of Trump whisperers who’d been close associates or even distant hangers-on of the new president, people like former campaign manager Corey Lewandowski. They were early investors in the Trump scheme, and now they want to be rewarded for their bet on the long shot – at least until they get subpoenaed and the Justice Department begins to pull the bricks from Trump’s pyramid.
Unlike domestic opportunists, foreign governments have to deal with the United States regardless of who happens to be in the White House. But some countries are clearly hoping to get whatever they can from Trump’s Ponzi scheme before it crumples.
The usual suspects in this regard are the governments in the Middle East that expect to translate the Trump administration’s pro-Israel stance, anti-Iran positions, and indifference to human rights into short-term gain. Saudi Arabia has already pushed hard to expand its influence at the expense of Iran (and Qatar). Israel is pushing ahead with settlements to reduce Palestinian influence to an absolute minimum. And Turkey is angling for as much influence in post-Islamic State Syria as possible.
Outside of the Middle East, human rights abusers like Rodrigo Duterte in the Philippines, those with autocratic tendencies like Viktor Orban in Hungary, and sectarian strategists like Narendra Modi in India are all hoping to turn their good personal relationship with Trump into a geopolitical asset.
But even some unlikely suspects are hoping to make gains with Trump. New Zealand, to which so many disappointed Clinton voters fantasized about relocating, made an all-out effort to influence the incoming administration, even to the point of holding a must-attend inaugural ball with celebrity guest Jon Voigt. Of course, New Zealand is now ruled by a center-right party, but still, Kiwis, have you no shame? Even Emmanuel Macron, who had some choice things to say about Trump, invited him to spend Bastille Day in Paris. Quelle horreur!
These countries are holding their noses and engaging. But given how Trump handles free-trade agreements, perhaps they should reconsider their positions. Trump holds no foreign relationship sacred. He’ll play hardball with America’s closest allies, even our North American neighbors. According to Trump, foreigners can’t by definition help make America great because they’re always in it for themselves.
Consider the growing crisis with Korea: that is, South Korea. Trump has chosen precisely this moment, when North Korea is testing missiles and nuclear devices right and left, to call into question the most important economic agreement with South Korea. The latter, to put it mildly, is freaking out.
Whatever you might think about free-trade agreements, Trump is not going after them for principled reasons. He doesn’t care about labor provisions or environmental considerations. Nor, ultimately, does he care about trade imbalances, which he doesn’t quite understand, or creating jobs. What Trump seems to want is to put into place agreements that benefit himself and his friends, regardless of the consequences.
After all, that’s what a Ponzi scheme is all about. It has nothing to do with economics, even though its creators often employ the jargon of the profession. It is designed to take the money out of your pocket and put it into the pockets of others. Only when people lose confidence in the scheme – either the ones who truly believe in it or the ones who don’t but figure they can score a quick buck – does it collapse.
Most Ponzi schemes run through the available pool of capital relatively quickly, and then the organizers try to abscond with the loot and leave the debt behind. Unfortunately, Trump has at his disposal a huge amount of capital, and he can cause enormous damage as he implements his scheme. The question is not if but when, and whether the president attempts to pardon himself just before he steps out the back with his Capitol gains.