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The no harm bullshit is a poor defense.Kevin Williamson: By misrepresenting his creditworthiness, Donald Trump cheated counterparties of millions of $$ in interest payments and fees. (Though the state fraud law at issue doesnāt require proving reliance and damages, NY proved them anyway.)
Stop Calling Trumpās New York Caper a āNo Harmā Crime
One of the irritating recurrent features of the discussion surrounding Donald Trumpās New York fraud trial is the insistence that this was a āvictimless crime.ā On a recent episode of National Reviewās āThe Editorsā podcast, my old colleague Rich Lowry insisted repeatedly that Trumpās shenanigans resulted in āno harm.ā
This is not true.
It isnāt even particularly difficult to understandāno finance gobbledygook required: By misrepresenting his creditworthiness, Donald Trump cheated the shareholders of the banks that lent him money out of millions of dollars in interest payments and fees. Yes, Trump paid back his fraudulently negotiated loansābut that is irrelevant to the question at hand, which is that the loans themselves were based on bunkum, fraudulently put forward by Trump.
The next line of defense goes: āWell, sure, Trump lied about the value of his assets, but the bankers didnāt just take his word for it.ā True, andāso what? That Trump might have carried out his fraud with the knowledge and winking cooperation of bankers who willfully turned a blind eye to his financial misrepresentations ought to surprise exactly nobody. It is as if nobody remembers the events leading up to the financial crisis of 2008-2009, when bankers offered their winking cooperation in all sorts of mortgage fraud by willfully turning a blind eye to the financial misrepresentations of a million deadbeat borrowers not named Donald Trump.
In economic and public-policy analysis, there is something called the āprincipal-agent problem,ā in which executives in a firm (the shareholdersā agents) often have incentives that are different fromāand even opposed toāthe interests of the shareholders in the firm (the principals). For exampleāand I am not saying this is what happened in the Trump case; this is only an illustrationābankers may get personal income from getting a deal done by underestimating the credit risk involved, while the risk is borne not by the executives personally but by the shareholders. The whole idea of paying executives in stock options is to align their interests with those of the shareholders by making them current and future shareholders.
In the subprime mortgage fiasco, there were gazillions of āliarās loansā signed off on by mortgage originators, who pocketed their fees and commissions, and then passed on the dodgy loans to other institutions, which in turn securitized these dodgy loans and found credit-rating agencies willing to label them Triple-A, investment-grade assets suitable for bank reserves. Trumpās apologists argue that he was presenting his fraudulent numbers to āsophisticated financial players,ā and he wasāas were the people who did so much to create the subprime-mortgage mess.
Trumpās shenanigans are against the law for the same reason ordinary mortgage fraud is against the law. People go to prison for mortgage fraud. It isnāt common, but lying on a mortgage application can, under federal law, bring down a 30-year sentence. Our financial system isnāt made for habitually dishonest people like Donald Trumpāit runs, to a surprisingly large extent, on trust. Lenders charge interest in proportion to the risk they are undertaking, meaning banksāas well as their shareholders and, in practice, the taxpaying public that has from time to time found itself on the hook for bank failuresāneed to know what kind of risk they are taking on.
You have been debunkedThis has been debunked. Do your homework.