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House of Cards

24Seppm2012

That phrase about cards was not made up by a fiction writer, it was used to described the financing model of “Developers”. My introduction to accounting occurred as the result of my practice of Tax Law. My introduction to the role of developers was my effort to get the final 20% or so of my client’s Contract Amount (a term of art) as he approached the completion of construction of a retirement community development. He did not consult me when he entered into the contract, only when he didn’t get paid.
Long story short, when I got my hands on some documents I went right to the closing documents from the day the financing was finalized by which the project actually got started. Immediately, I noted that of the $20mm or so that was secured from commercial lenders, $9mm went out the door immediately to the people that put the deal together. They did nothing much for such money, but the promise of profits issued by the accountants and estimating or assuming certain returns, etc. said to the developers that all would be good – in the long run.
Here is what I have since put together, as it is pretty obvious once you start dancing in the room that this band plays.
In majority of such situations, the original investors face financial hurdles of some significance that are not even alluded to in the “numbers” generated by the bean count measurers in their analysis of what will take place. As a result, if they do not have access to substantially more capital as things roll out, they will be highly strapped for money on the project. Then they face a choice of how to get the cash to finish, or how to fake out everyone until finish is achieved.
I could go on and on, but I don’t have the patience in this medium. HOWEVER, what I see from even a cursory understanding of what Trump’s tax returns show, he is heavily indebted to one or more entities who have not yet been identified. If or When those people want to bring the hammer down on him, he will have NO EQUITY left in any significant property interest upon which he relies to show his wealth. By the way, those owed will have recorded security in their investment, by which Trump has been forced to move from one lender to another for his whole “career”.
His contracts with people that use his name for their hotels show that he is paid for his name and has some rights to staffing choices, but his equity in the properties is limited and will likely extinguish upon the happening of certain events in attachments to the Governing Agreement. Once his name is fully tarnished, the name will loose the value upon which he relies.
Yeah, I know, you don’t get it or believe it. The good lawyers do.
I have cross examined guys like him and they give it up if the right questions are asked. At the end, they think they carried the day, but everyone in the courtroom, Judge, Jury and other counsel, all know that the guy just killed his position in the case. Trump would be like shooting fish in a barrel once he is sworn in.

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