A few posts back I brought you the curious case of Donald Trump’s for-profit educational enterprise, called Trump University, of course. If you’ve been following the news stories about these for-profit companies that claim to be colleges, universities, or at least something more than a complete waste of time and money, you probably already know that most of them are, in fact, a complete waste of time and money. What puzzled me at the time (and led to the rather snarky title of the piece) was the question of why people would pour thousands or tens of thousands of dollars into such an organization knowing that it was not accredited, could not grant any degree or college credit, and in fact was mostly just a profit center for Donald Trump. Even granted that I work in Education, and might therefore be expected to know or at least care more about the issue than some folks, the information about for-profit schools in general (and the Trump University lawsuit in particular) have been all over the news lately. Why would anyone invest their savings in such a thing?
Well, before you answer that, consider the cases currently pending on behalf of literally hundreds of people who purchased real estate (usually condominiums) in real estate development programs endorsed by Trump, but not otherwise affiliated with the Donald or his company. In most of the cases, the true relationship Trump had to the projects (basically getting paid a few million dollars at a time to put his name on them – and occasionally meet with potential buyers – but no other financial or managerial connection) was kept confidential, but that does not change the fact that with the Real Estate Bubble straining at every seam and all of the experts saying it was time to move to something else, these people still spent money they could not afford to lose on projects for no better reason than the Trump name on the prospectus…
You can pick up the MSNBC story here if you want to, which includes a link to the video about the situation from last April, but the facts are fairly straightforward. All of these investors claim that their only reason for committing to these dubious developments was Trump’s name on the project, and had they known how little he actually had to do with them, they would never have done so. I don’t think we can criticize them for wanting to ride Trump’s coattails into an easy fortune; certainly, a lot of people have made money on real estate in the U.S. over the past decade, and nobody has made more with less effort than Trump himself. The more important question is what made these people think that Trump wouldn’t screw them over in this fashion in the first place? And even more importantly, what made them think that just because Trump could make money on a project, so could they?
To do him all possible justice, Donald Trump has never claimed to be a philanthropist, or a champion of the common man, or anything other than a hard-nosed businessman in a cut-throat industry. He has made money fairly consistently over the years, and will do so in the future, at least in part because he has the resources to sink money into long-term projects, work through intermediate cash flow difficulties, and cut his losses and move on where absolutely necessary. The average small investor has none of those things; expecting to make money on real estate the way Trump does because you’re reading his notes or following him onto a project is like believing that you will be able to play basketball like Michael Jordan if you wear the same shoes. Except that it’s stupider than that; an average person has a very small chance of lobbing a ball at a basket and having it accidentally fall in, but the average person has no chance whatsoever of being able to suddenly raise $100 million using other investments for collateral…
Whether or not Trump’s masquerading as one of the developers on these projects is actually fraudulent is for the court to decide, but even if it was the investors had a responsibility to do their own due diligence and find out if those condo projects had any reasonable chance of being completed, let alone returning a profit. Not doing so and just assuming that anything Trump puts his name on MUST be a goldmine would be a lot like buying gold because some Fox News pundit who owns a gold brokerage tells you that the price of gold is going to rise – which is to say, stupid beyond all human reason…
Of course, people have done that recently, as well…
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