In my previous post, I made the case for medium-term pessimism about the US. One of my specifics was the $355 million judgment in Trump’s New York civil fraud case. As I explained, even disinterested legal experts have acknowledged that the Attorney General’s approach, in this case, is unprecedented: the anti-fraud statute in question was designed to protect actual victims of slick businesses where the naïve customers didn’t understand what was going on. In contrast, witnesses from Deutsche Bank itself testified in the trial that it performed its own due diligence on the Trump team’s statements of their property values (serving as collateral for loans), and “[i]n one instance, the bank adjusted Trump’s net worth down to $2.6 billion from the $4.9 billion he reported, Williams said, adding that such a revision was ‘not unusual or atypical.’”
Since I wrote that post, Daily Show host Jon Stewart jumped into the fray, mocking investor (and blunt Shark Tank judge) Kevin O’Leary’s complaints about the rule of law in New York State. Since Stewart’s bit is making the rounds on social media—and obviously resonates with typical progressive critics of Trump—I’ll spend this post explaining just how ludicrous Stewart’s critique is in this case. (Note that I’m a fan of the Daily Show, particularly when they went after Paul Krugman.)
O’Leary’s CNN Rant
In a 9-minute spot that was admittedly more of a rant than a discussion, O’Leary explained to CNN’s Laura Coates that in the wake of the Trump fine, investors in New York were asking, “Who’s next?” O’Leary matter-of-factly said that this episode was a “victimless crime,” to which Coates objected, claiming that there were laws on the books that Trump had violated. O’Leary responded:
[M]y point is, there’s never been a case like this in 75 years. Everything you just listed off is done by every real estate developer on Earth, in every city, this has never, ever been prosecuted. But here’s the real point, that everyone in New York should concern themselves with: You can put your money anywhere. I’m a real estate developer. Do you think there’s a chance I would ever take a chance on New York again? New York is turning itself into a fly-over state.
Just to spell out the obvious: O’Leary’s point is that both real estate developers and banks are not happy with the verdict. They are saying this is a victimless crime because the entity that was supposedly defrauded—Deutsche Bank who made loans based on the Trump organization’s declarations of their various property values—testified on behalf of Trump, saying they had no problems with what occurred, the loans were fully repaid with interest, and that they would do business with him again. It’s not in the banks’ interest if their potential customers are worried that their deals will be second-guessed by an overzealous New York attorney general, even if no one involved in the transaction has any complaints.
Jon Stewart’s Non Sequitur Gotcha
In a piece summarizing the affair, Jon Stewart first played a montage of clips from various left-leaning shows (on CNN and MSNBC) salivating at the prospect of the downfall of Trump’s real estate empire. Then he played an excerpt of O’Leary’s defense of Trump, where he claimed that it was victimless. Stewart thought he had a great “gotcha” by first setting the scene this way: “I’m surprised to hear that he’s so chill about overvaluing something that he thinks is victimless. Because when someone tries to do that to him…”
Then Stewart plays a montage from Shark Tank, with various short clips of O’Leary saying he’s going to “rip” various contestants for their “insane” valuations. Ha ha, what a hypocrite! Except, of course, this isn’t hypocrisy in the slightest. O’Leary as the potential investor is doing his due diligence, and rejects the intentionally overvalued estimates coming from promoters. This is exactly what happened with Trump, and with every other real estate developer seeking loans against their properties.
What would have been hypocritical is if O’Leary, upon hearing an inflated valuation from a promoter, invested nonetheless, made all of his promised money back plus interest, and then called the police to report fraud, hoping to ruin the people who appeared on Shark Tank. Did that happen? No, of course not, that would have actually been insane. But that’s what is happening with Trump, in an obviously politically motivated case that is designed to prevent his reelection, rather than uphold the integrity of the financial sector.
Just to drive home the delusional bit, later in the segment Stewart quotes O’Leary saying that Trump’s alleged fraud is committed by every real estate developer and has never ever been prosecuted, then says:
There is a theory in law that if enough people commit a crime, it automatically becomes legal…I don’t know if you know this, but most people can’t just commit fraud and expect to face no repercussions even if everyone’s doing it. Try getting a car loan by saying you have ten times as much money as you really do. Or claim 20 dependents when you have no children. Or say you make slightly less money to qualify for food assistance. I will guarantee you, there are not just financial consequences for those lies, but criminal ones. But don’t tell that to the investment community, because in their minds, in pursuit of profit, there is no rule that cannot be bent.
I don’t know how accurate Stewart’s claims are, regarding misstating your income to qualify for food assistance. But he is just making stuff up when it comes to the most analogous item in his list, namely, exaggerating your income when applying for a car loan. I have never heard of someone being prosecuted by an auto finance company for fraud in this respect, and when I asked on Twitter, people from the industry made the obvious point that the car itself serves as the collateral on the loan, so it’s rather a moot issue.
There’s also the example of the widespread fraud on mortgage applications that occurred during the housing bubble years in the mid-2000s, where an entire class of “liar loans” emerged. Those applicants weren’t prosecuted for fraud, and when the bubble burst, in 2010 Jon Stewart railed against the banks, not raising any concern for the lying borrowers. To be clear, I’m generally fine with Stewart’s 2010 segment, which largely criticized the fact that the taxpayers bailed out the banks for making dubious loans. My point is, back then Stewart knew that major banks should have been more careful before lending money to homebuyers who weren’t able to afford the payments. It’s only when it comes to Donald Trump, that suddenly Deutsche Bank is a dewy-eyed doe caught in the thicket, helpless in the face of his self-proclaimed property valuations.
Finally, let me point out one last irony in Stewart’s recent take: In responding to O’Leary’s “who’s next?” complaint, Stewart mockingly says, “First they came for the arbitragers, but I said nothing…Then they came for the quants…” Yes, it’s funny, but it really is relevant. The progressive left hates Donald Trump so much that they cheer on the utter collapse of the rule of law regarding his possible reelection. Say what you will about their tactics, but it’s not “saving democracy” to decree that the presidential front-runner isn’t allowed to win again.
Dr. Robert P. Murphy is the Chief Economist at infineo, bridging together Whole Life insurance policies and digital blockchain-based issuance.
Twitter: @infineogroup, @BobMurphyEcon
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