Hyman Minsky’s interpretation of Donald Trump

Abstract

Hyman Minsky’s interpretation of The General Theory by John Maynard Keynes has received renewed attention in recent years. This article draws attention to Minsky’s interpretation of another book by another author: The Art of the Deal by Donald Trump. The article begins by summarizing Trump’s interpretation of himself in his book. In Trump’s interpretation, he was an artist when it came to making deals, and appreciation in the value of his assets was proof of his deal-making artistry. Next, the article summarizes Minsky’s interpretation of Trump. In Minsky’s interpretation, Trump’s deal-making artistry was predicated on appreciation in the value of his assets because of the fragility of his financing. To conclude, the article argues that Minsky’s interpretation of The Art of the Deal is a point of entry into his body of work.

Keywords:

• Donald Trump
• Hyman Minsky
• Ponzi financing

Notes

¹Minsky began his talk by saying, “Almost immediately after his trip to the slammer for a five month vacation for tax fraud, the price of the Pete Rose rookie baseball card was reported to have fallen by 50 percent” (Minsky, 1990, p. 1). Rose was sentenced to five months in prison for tax fraud in 1990, but not until July 19 of that year.

²In Minsky’s talk, “cash flows” presumably referred to cash flows from continuing operations, and that is the sense in which this article refers to cash flows.

³The asset with the largest cash flow after debt service was the Trump Plaza in Atlantic City, which was a casino in a city where the gambling market was arguably saturated, yet Trump was opening another casino in the same city. The asset with the most negative cash flow after debt service was the West Side Yards in New York City, which was an undeveloped property (Stern and Connolly, 1990).

⁴This eponymous financing was named after Charles Ponzi, who ran a fraudulent pyramid scheme, although Ponzi financing is not necessarily fraudulent (Minsky, 2008 [1986], pp. 377–378). A special case of Ponzi financing, “Ponzi-squared” financing, was recently suggested. “A unit is Ponzi-squared,” according to the suggested definition, “if it has all the characteristics of a Ponzi unit and no capital at risk in the transaction” (Auerback et al., 2010, p. 122). Although Trump’s financing at least in the early 1990s may have been an example of Ponzi financing, it was not an example of Ponzi-squared financing because he had personally guaranteed debt (see, e.g., Trump and McIver, 2004, p. 7). As such, this article does not try to draw a distinction between Trump’s personal finances and those of his privately owned organization. That distinction would also be difficult to draw because of a lack of data.

⁵An unusual way in which Trump generated cash in order to service his debt was the following. Trump’s father bought $3 million worth of chips at one of his son’s casinos, without playing the chips or cashing them in. Trump used that “loan” from his father to make a bond payment (Blair, 2000, pp. 428–429).

⁶Trump’s need to restructure his debt might also be attributable to the value of his debts exceeding the value of his assets. Amid Trump’s debt-restructuring negotiations, it was estimated that he was worth anywhere in the range of about negative $294 million and positive $1.41 billion in current dollars, depending on whether he was forced to sell his assets in a fire sale or he could hold onto them until a hypothetical rebound in the real estate market (Barsky, 1990d). The value of Trump’s assets was a source of contention during his debt-restructuring negotiations. “Who can say what [my assets] are worth? It’s like [valuing] a painting,” Trump said at the time (quoted in Hammer and Friday, 1990).

Additional information

Notes on contributors

Kevin W. Capehart

Kevin W. Capehart is an Assistant Professor in the Department of Economics at The American University of Paris. The author completed this article while he was a graduate student at American University in Washington, DC.