The World's Worst Negotiator

During the campaign last year, Trump continually bragged that he's the world's greatest negotiator, which was a joke to anyone who knew him or anyone who ever sat across the table from him. Trump was basically a laughing stock or a punch line among top level New York City businessmen. And now the clown is President Clown.

You probably remember the column Joe Nocera wrote for The Times, under "Sports Business," early last year about how Trump had a horrible reputation not as a consummate negotiator but as a bully and a crook. His deals have always tended to turn to shit, just like his legislative agenda has. Nocera's column was about a Trump-owned golf resort in Jupiter, Florida-- Trump National Jupiter. The members of the club say Trump "stiffed them out of their refundable deposits, many of which were in the range of $200,000. Some of the members had to swallow the loss (in return for some paltry benefits) because they had bought time shares or homes that were part of the resort development. Others negotiated settlements. Still others sued."

Although the home sales and time shares made money for Ritz-Carlton, the resort did not. According to a former member named Bernie Carballo, who’s in the golf course business himself and who saw the resort’s books, by 2011 the resort was generating some $13 million in revenue, and had an annual loss of around $1.2 million. It also had a huge liability: nearly $30 million in those refundable deposits. So in 2012, Marriott Vacations Worldwide decided to sell.

The buyer was Trump Golf. The company is probably the largest piece of the Trump portfolio-- though with Trump, one never really knows about such things-- with 17 golf resorts, including the National Doral in Miami and Turnberry in Scotland.

Trump Golf confines itself to resorts and golf courses, and eschews time shares. So his business model has no use for refundable deposits. On the contrary, a Trump Golf member usually pays a nonrefundable deposit-- one considerably less than $200,000-- plus annual dues.

The sale to Trump was completed on Dec. 4, 2012. Trump Golf paid $5 million-- and agreed, as part of the sale, to assume the $30 million in debt resulting from the members’ refundable deposits. (Marriott Vacations Worldwide held on to the time shares.) In fact, he had no intention of honoring that agreement.

Three days after the sale was completed, Trump held a meeting at his new resort. He told the assembled members that he was eager to make Trump National Jupiter “one of the finest clubs anywhere in the world!” as he put it in a Dec. 17 letter that reiterated what he had said in the meeting. But its membership rules were “antiquated,” preventing the resort from becoming “ultra-luxurious” and “ultra-prestigious.”

He told the members that if they wanted to remain in the resort, they would have to give up their refundable deposit; in return, he would freeze their dues for three years (saving them, at most, $20,000), and give them the right to play at other Trump golf courses (for a fee, of course). Members who stayed but didn’t accept that deal would be denied those benefits and see an immediate dues increase of $4,000. Stuck with the homes and time shares they had bought, many of the home-owning members accepted the deal.

But there was also one other category of members: those on the resignation list. By the time Trump took over the Jupiter resort, the resignation list had grown to an astonishing 150 members. That was more than half the club.

During the time the Ritz ran the resort, people who put themselves on the resignation list still had access to the resort and the golf course, and they still paid dues. And why wouldn’t they? Until new members joined, allowing them to recoup their deposit, they were still members of the resort. They hadn’t resigned, but simply announced their desire to resign.

Trump, however, wanted nothing to do with them. He immediately barred them from the club, and said he would no longer accept their dues. (According to a brief filed by the plaintiffs in the class-action suit, Trump later complained that the people on the resignation list were in arrears on their dues.) As he bluntly put it in his Dec. 17 letter, “If you choose to remain on the resignation list-- you’re out.”

According to one attendee, the members listened in stunned silence.

(Nearly everyone who spoke to me for this column requested anonymity. Some did so because they had nondisclosure agreements with the Trump organization, while others said they were fearful of Trump’s reaction if they criticized him publicly.)

What was taking place in Jupiter was an essential part of Trump’s modus operandi. In every deal, he has to win and you have to lose. He is notorious for refusing to pay full price to contractors and vendors after they’ve completed work for him. And he basically dares the people he has stiffed to sue him, knowing that his deep pockets and bevy of lawyers give him a big advantage over those who feel wronged by him.

...Many members reacted by suing Trump Golf. Given that the cost of a full-blown lawsuit was obviously going be higher than a $200,000 deposit, many of those on the resignation list sought to settle. The typical settlement was for 50 cents on the dollar, meaning that Trump was pocketing $100,000 of their deposit. Carballo says that the last time he checked, the debt had dropped below $18 million.

...There is one other thing about Trump National Jupiter that is worth pointing out. As I’ve noted, when the Ritz-Carlton ran the resort, it lost $1.2 million on $13 million in revenue. Last year, under Trump’s management, revenue dropped to $12.4 million, according to the financial disclosure forms he submitted last year as part of his presidential candidacy. It also has fewer members thanks to his counterproductive decision to bar all the people on the resignation list.

Which leads to a pretty obvious question: How much is Trump National Jupiter losing today?

Writing yesterday for the Washington Post, Daniel Drezner, referred back to a column of his a week before in which he made the point that "Ordinary toddlers eventually tire out after throwing a tantrum [but that] Trump is not really a toddler, but an overindulged plutocrat who has never had to cope with political failure. With each negative shock or story he faces, his behavior worsens, and that just leads to a new cycle of negative press and disaffected GOP officials. The political effects of this is to weaken his historically weak presidency, making it harder for him to do anything that would counteract this trend. This doom loop means that his behavior is only going to get worse."

Yesterday Drezner reminded his readers that Señor Trumpanzee's "behavior has gotten worse. By the end of the week, Trump had gone after Obamacare, the Clean Power Plan, UNESCO, and the Iranian nuclear deal."

The Trump administration’s style is gleefully aggressive enough to alienate countries that want closer ties with the United States. The data are already starting to come in on how loyal allies are reacting to Trump’s disruptive style, and that data is not encouraging. Politico’s Adam Beshudi chronicles how the Trump administration has successfully annoyed Japan:

Japanese officials are expressing growing frustration with the Trump administration’s economic policies, vowing to continue striking trade deals with other countries that undercut U.S. agricultural exports rather than seek a new trade agreement with the United States.

The frustration comes both from President Donald Trump’s harsh rhetoric on trade and from his pullout from the 12-nation Trans-Pacific Partnership, which Japan still hopes can provide a bulwark against China’s growing influence in the Asia-Pacific region...

In interviews with Politico, more than half a dozen senior Japanese officials said they were uneasy with a so-called bilateral-- two-nation-- deal to replace the TPP, arguing that the goal of the multinational agreement was to create a wide international playing field. They said they are dismayed by Trump’s seeming inability to understand the importance of a multinational pact to establish U.S. leadership in the region and set the trade rules for nations on both sides of the Pacific Ocean as a counterweight to China’s rising influence.

...Instead of leading, Trump’s “my way or the highway” approach has been a detour from the multilateral road the United States has traveled since World War II. And as Trump has left behind, or threatened to, the premier international agreements of this century, from the Paris climate accord to global trade alliances and now the Iran nuclear deal, he has not had many willing followers...

Even those who have proclaimed him as a leader have sometimes not felt bound by his demands.

Josh Marshall pointed to a post by Bill McBride at the real estate economics blog Calculated Risk, The Art of Negotiation. He spoke to a few Trump supporters who claim Trump "has extensive negotiating experience. They are wrong."

In general, there are two types of negotiations. There is the “win-lose” type (or Distributive negotiation) where one party receives more and the other party receives less. This is the common approach when buying a car or real estate, or haggling at a street market.

The other type of negotiation is “win-win” (or Integrative negotiation). This type is used when negotiating between a company and a worker’s union, with long term suppliers, negotiating agreements between international allies-- and even with adversaries.

The tactics for the two types of negotiations are very different. In the first type (win-lose), bluffing, threats (like threatening to walk away), even lying are commonly used.  (Sound familiar?)

The approach to an integrative negotiation includes building trust, understanding the other party’s concerns, and knowing the details of the agreement-- with the goal to reach a mutually beneficial agreement.

It is important to understand when each approach is appropriate. A used car buyer could use the Integrative negotiation approach, but they probably wouldn’t get a very good deal.

A company could use the “win-lose” tactics with a worker’s union, but they would probably face an extended strike followed by a long period of ill-will.

This brings me to Mr. Trump. He has experience in “win-lose” negotiations (buying and selling real estate), but apparently little or no experience in Integrative negotiations.

Mr. Trump keeps using the tactics of “win-lose” in negotiating with Congress, allies and adversaries. Not only has this been ineffective (members of Congress have repeatedly called his bluffs), but it is damaging to long term relationships. Mr. Trump’s use of “win-lose” techniques with North Korea have made him look weak and ineffective (a “dotard”), and have increased the risks of a major misunderstanding and possibly a war.

So, what can Mr. Trump do to be effective? First, he needs to realize he lacks the negotiating experience that is required for these types of negotiations. He needs to stop with the empty threats, bluffs, and lying. And he either needs to learn the integrative negotiation approach (and become a student of the details), or hire people with relevant negotiating experience (and remove himself from the process). All of this seems unlikely, and I expect Mr. Trump to continue using inappropriate tactics-- that betray his lack of negotiating experience.

Eric Holder's Legacy

In a USAToday OpEd yesterday, University of Tennessee law professor Glenn Harlan Reynolds, urged Obama to reach across the aisle for his next Attorney General. He may be a law professor but he's also a deranged crackpot claiming Obama needs to pick a Republican because other crackpots like himself-- particularly in states like Tennessee filled with crackpots-- don't trust Obama because of the GOP-manufactured scandals propagated by Rush Limbaugh, Fox News and other partisan Republican propaganda outlets that apparently are the only sources of Professor Crackpot's vast array of knowledge. He actually cites Darrell Issa's nonsensical fakes scandals, everything from "the IRS's targeting of Tea Party groups, to the Fast and Furious gun-smuggling scandal" and claims Obama is "beset by numerous scandals." Thanks for the garbage dump, USAToday. Another far right kook like Reynolds, also operating on behalf of the GOP, Byron York, was echoing Ted Cruz in demanding to give the obstructionist right-wing nuts veto power over his nomination. Why? Just 'cuz. The racists who control the Republicans in the Senate and House have always been on the warpath against Holder.

When Holder announced he was retiring, we looked at some of what he was able to accomplish even as he had to face the most bitter and vicious, non-stop Republican Party racism any cabinet member has ever had to endure. That's not to imply that Holder is beyond criticism, not by a long shot. He was lacking in so many of the same ways that so many elite Democrats-- like Obama, Clinton, Cuomo, etc-- are lacking. A far more useful OpEd than Reynold's embarrassing derangement was put forward by Joe Nocera in the NY Times yesterday, The Hole In Holder's Legacy.

A few weeks ago, Attorney General Eric Holder Jr. gave a speech at the New York University School of Law on the subject of white-collar prosecutions. In it, he offered a full-throated defense of his department’s efforts in the aftermath of the 2008 financial crisis. With his resignation announcement coming eight days later, one can’t help but view his speech as a kind of valedictory.

The Justice Department, he said, had stood vigilant against financial fraud “wherever it is uncovered”-- and prosecuted “criminal conduct to the fullest extent of the law.” He took credit for negotiating huge fines against financial firms, and for forcing several big banks-- Credit Suisse and BNP Paribas-- to accept guilty pleas.

As for the prosecution of individuals involved in the financial crisis, he claimed that the Justice Department had “taken aggressive action, nearly doubling the number of mortgage fraud indictments and criminal convictions between 2009 and 2010, then increasing them even further the following year.”

Actually, Holder’s Justice Department has been notoriously laggard in prosecuting crimes that stemmed from the financial crisis, and much of what it has done amounts to an exercise in public relations.

Take, for instance, those guilty pleas extracted from Credit Suisse and BNP Paribas. Last March, Holder said that he feared that prosecuting large financial institutions could hurt the economy. This became known as his “too big to jail” remark-- which he quickly disavowed. No wonder he was eager to have some firms plead guilty! Yet, as Peter Henning notes in a New York Times DealBook article, the Justice Department made sure those guilty pleas didn’t inflict too much pain. In the case of BNP Paribas, prosecutors secured agreements from state banking regulators that they wouldn’t pull the bank’s license to do business.

Or take the claim that the Justice Department has been rigorously rooting out mortgage fraud. In fact, after a grand announcement that the department was putting together a mortgage fraud task force, U.S. attorneys around the country began aiming their fire at easy prey: small-time mortgage brokers, or homeowners who had lied on “liar loans.” None of the top executives from any of the major firms were indicted. Indeed, according to an article in the New York Times Magazine in May, only one executive of any kind-- a mid-level executive with Credit Suisse — has gone to prison as a result of his actions during the financial crisis. The notion that he’s the only one who committed a crime in the mortgage-crazed run-up to the financial crisis is, quite simply, implausible.

As for those big fines against Bank of America, Citigroup and JPMorgan Chase, not only did they come very late, but their terms were such that it was impossible to know for sure the extent of their wrongdoing. And, of course, despite fines that went into the billions, no actual human was prosecuted for any wrongdoing.

…Holder’s legacy is a mixed bag. As The Times’s Matt Apuzzo wrote last week, he “succeeded in reducing lengthy prison sentences, opened civil rights investigations against police departments in record numbers and challenged identification requirements for voters.” On the negative side, he subpoenaed journalists and went after their sources.

No matter how he tries to spin it, Holder’s inability-- or unwillingness-- to prosecute financial crimes is on the negative side of the ledger.

David Dayen, covering the same territory for The Guardian goes straight to the point that refusing to send banksters to prison for their dangerous criminal behavior equates to an outrageous dearth of justice-- as Holder prepares to go back into business defending corporate clients at Covington & Burling, whose clients include mega-banks like JP Morgan Chase, Wells Fargo, Citigroup and Bank of America. Bad enough, but Dayen felt there is worse to look at in evaluating Holder's performance as Attorney General, when it came to the criminal frauds perpetrated on homeowners by the banksters. That got off way, way too easy.

A recent series of securities fraud settlements with JP Morgan, Bank of America and Citigroup, which DoJ said cost the banks $36.65bn, actually cost them about $11.5bn. And shareholders, not executives, truly bear that cost.

Incidentally, the Wall Street Journal found last week that the Justice Department only collects around 25% of the fines they impose. So the banks may have gotten off even easier.

These settlements have actually perverted the notion of justice, turning accountability into a public relations vehicle. And Holder’s Justice Department has been guilty of cooking the books: they admitted last August to overstating the number of criminal financial fraud charges by over 80%.

The DoJ’s Inspector General criticized this in a March report, and also found that DoJ de-prioritized mortgage fraud, making it the “lowest-ranked criminal threat” from 2009-2011.

As for homeowners, the biggest victims of Wall Street misconduct, they received little relief. Victims who already lost their homes got checks in the National Mortgage Settlement for between $1,500-$2,000, compensating people wrongly foreclosed upon with barely enough money for two month’s rent.

Despite claims that 1m borrowers still in their homes would get principal reductions under the settlement, when the final numbers came in this March, just 83,000 families received such a benefit, an under-delivery of over 90%.

Considering that over five million families experienced foreclosures since the end of the crisis, that relief is a drop in the bucket.

…The decision to protect banks instead of homeowners should be laid at the feet of the president and his administration, not one man in the Justice Department. But Holder certainly carried out the policy, even if he didn’t devise it.

We’ll soon find out if Holder merely presided over DoJ in a pause between helping corporate clients at Covington & Burling. But the failure to prosecute during his time in office certainly makes it look like Holder’s sympathies were with those clients even while serving as attorney general.

Economist Dean Baker was even harder on Holder than Dave Dayen and he asked a simple question, why isn't Robert Rubin behind bars? "We can never know," he concludes, "[if] this pattern of prosecution would have nailed big fish like Goldman’s Lloyd Blankfein or Citigroup’s Robert Rubin. We do know that Holder never even tried. As a result the Wall Streeters who profited most from illegal acts in the bubble years got to keep their haul. This is the message that bankers will take away going forward. This virtually guarantees ongoing corruption in finance." And you still wonder why so many voters sneer when naive partisans tell them about the great difference between the two political parties? The "us" and "them" is less about Democrats and Republicans and more about issues that don't come neatly wrapped in red or blue t-shirts.