Stop Calling Trump’s New York Caper a ‘No Harm’ Crime

Donald Trump cheated the shareholders of the banks that lent him money out of millions of dollars in interest payments and fees.

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Former President Donald Trump speaks to the media on March 25, 2024, in New York City. (Photo by Brendan McDermid/Getty Images)

One of the irritating recurrent features of the discussion surrounding Donald Trump’s New York fraud trial is the insistence that this was a “victimless crime.” On a recent episode of National Review’s “The Editors” podcast, my old colleague Rich Lowry insisted repeatedly that Trump’s shenanigans resulted in “no harm.”

This is not true.

It isn’t even particularly difficult to understand—no 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 loans—but 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: “Well, sure, Trump lied about the value of his assets, but the bankers didn’t just take his word for it.” True, and—so 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 “principal-agent problem,” in which executives in a firm (the shareholders’ agents) often have incentives that are different from—and even opposed to—the interests of the shareholders in the firm (the principals). For example—and I am not saying this is what happened in the Trump case; this is only an illustration—bankers 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 “liar’s loans” 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. Trump’s apologists argue that he was presenting his fraudulent numbers to “sophisticated financial players,” and he was—as were the people who did so much to create the subprime-mortgage mess.

Trump’s shenanigans are against the law for the same reason ordinary mortgage fraud is against the law. People go to prison for mortgage fraud. It isn’t common, but lying on a mortgage application can, under federal law, bring down a 30-year sentence. Our financial system isn’t made for habitually dishonest people like Donald Trump—it runs, to a surprisingly large extent, on trust. Lenders charge interest in proportion to the risk they are undertaking, meaning banks—as well as their shareholders and, in practice, the taxpaying public that has from time to time found itself on the hook for bank failures—need to know what kind of risk they are taking on.

If you roll back the odometer on your car and sell it to a dealer, you’ve committed fraud, and it is no defense to say that you did, in fact, deliver the car, so there was “no harm”—you misrepresented your side of the deal. Nor is it a defense to say that the dealer, being a sophisticated party, should have done his own due diligence. If you misrepresent the state of a house you are selling and the buyer’s agent goes along with it in order to realize a commission, you’ve committed fraud—and the fact that the agent helped you rip off the principal isn’t a defense.

There are legitimate criticisms to be made of many aspects of New York’s case against Trump. You can’t say the prosecution isn’t to some degree political when the prosecutor ran a campaign on prosecuting Trump. But “This is political” is not another way of saying “There was no wrongdoing that should be addressed.” There was wrongdoing, and the claim that Trump’s wrongdoing produced no harm is untrue.

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  1. HalinTexas

    Fail.

    To convince. You can’t use irrelevant analogies to apply to Trump fraud. You can use similar cases that haven’t been filed that others have committed in the same state. So, I ask, with the millionaires and billionaires and celebrities and mega-corps based in NY is this the first one anyone has heard of? If mortgage fraud people go to jail all the time, where are all the prosecutions of charges similar to Trump?

    If the State succeeds, I have another reason to fear for anyone that does business in NY. Trump-like fraud law will be running all over the state, and probably across the borders.

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  2. Rsbailey1042

    Rich Lowery is an arrogant boob.

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    Ben Connelly

    Thank you for writing this! I suspected something like this was true, but when Rich and others started saying it was a victimless crime, I assumed they knew more about finance than me. But my hunch from the start was that shareholders had been cheated. Which, last I checked, free market conservatives are supposed to care about! All that stuff about fiduciary duty and shareholder values vs. stakeholder socialism and all that.

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  4. Clark.Monson

    I’d love to see us prosecute more cases like Trump’s. I have a problem with only prosecuting his, or prosecuting such a low proportion of those who rip off their principals or the other side of a transaction that it might as well only be this case that’s prosecuted, which is effectively what’s happening here.

    Some consistency would be nice. Instead we have the classic “for my friends, everything, for my enemies, the law” corruption.

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    Rdpulfer

    Isn't it all interested that, in every other case, Trump claims he's not guilty...that he was framed...that he's the victim of a witch hunt. But here, even his most ardent defenders agree he lied...and that it's somehow no big deal?

    Like it's not very much of a stretch to say..."If he's lying about his finances, what else is he lying about?"

    But somehow his supporters don't want to consider that part.

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  6. Bobby D

    It’s also interesting that this is coming up as a defense, as it’s not a defense set forth in the operative Answer in the case. Thus, Trump is seeking to defend himself on a defense upon which he is not relying in court.

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  7. Joe1776

    "Donald Trump cheated the shareholders of the banks that lent him money out of millions of dollars in interest payments and fees."

    Do you know Trump would have done the deal if the interest and fees would have been millions of dollars higher? If not then maybe the shareholders profited in millions of dollars of fees and interest because of the alleged fraud.
    This reminds me of AOC blowing the deal with Amazon and saying how they can spend the millions of dollars in tax cuts they were going to give Amazon on all sorts of things. Except, the deal didn't go through so she does not have the millions in tax cuts or the millions she would have had if the deal went through with the tax cuts. Here area was left with nothing. Maybe if the bank wanted millions more in fees and interest Trump (like Amazon) would have looked elsewhere.

    Now I agree that we shouldn't only look at the effects. "Attempted murder" should be punished as well. But the whole line you are trying to draw between the "poor shareholders" who BTW are ultimately responsible for hiring the agents who looked past this alleged fraud are not very sympathetic figures. Nor do they want to be looked at in that way. And there is a reason no one was ever prosecuted for this sort of fact pattern - until we had politics come into play.

    Using the police force to go after political opponents is a true threat to our democracy. We shouldn't make excuses for it. We know no other businessman would face this prosecution from these leftists and that alone should make us reject these politicians.

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    1. Iconoclast

      The damage Trump caused is not directly related to the shareholders of a specific bank, but to the integrity of the financial system. To help deter fraud in the system, the State of New York has the ability to punish fraudsters by recovering the amount they were unjustly enriched by their fraud. In Trump’s case, it’s the difference in the interest rate he would have paid without fraud and the amount he paid with it.

      The commercial lending group at Deutsch Bank offered to lend money to Trump at 8% over Libor, without requiring his financial statements. The personal wealth management group offered to lend him money at 4% over Libor, but there was a requirement that he provide accurate financial information.

      Trump chose to borrow at the lower rate from the personal wealth management group, but he provided fraudulent financials, in violation of the terms of the loan agreement. That was a clear violation of New York’s financial laws and deserved to be punished.

      Beyond that, it is sad that so many conservatives have no problem with fraud if no one is ‘injured’.

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  8. Iconoclast

    The damage Trump caused is not directly related to the shareholders of a specific bank, but to the integrity of the financial system. To help deter fraud in the system, the State of New York has the ability to punish fraudsters by recovering the amount they were unjustly enriched by their fraud. In Trump’s case, it’s the difference in the interest rate he would have paid without fraud and the amount he paid with it.

    The commercial lending group at Deutsch Bank offered to lend money to Trump at 8% over Libor, without requiring his financial statements. The personal wealth management group offered to lend him money at 4% over Libor, but there was a requirement that he provide accurate financial information.

    Trump chose to borrow at the lower rate from the personal wealth management group, but he provided fraudulent financials, in violation of the terms of the loan agreement. That was a clear violation of New York’s financial laws and deserved to be punished.

    Beyond that, it is sad that so many conservatives have no problem with fraud if no one is ‘injured’.

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    1. DBR

      How do you (or Engoron or anyone else) know what interest rate he would or wouldn’t have received? How do you know Trump would have accepted the terms if the interest rate were higher vs looking to another lender? DB did their own due diligence and did not rely on Trump’s valuations. The terms of the loan were freely agreed upon by both parties and the loan was repaid in accordance with the agreed upon terms. No victim and clearly lawfare being waged by the Dems.

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      1. Bobby D

        In most cases, the types of information that Trump was providing is taken at face value. The amount of due diligence carried out by the counter-party is cursory. This keeps transaction costs low, and prevents massive amounts of money from being wasted on due diligence. The maintenance of this high-trust system depends on two key features: (1) laws that require disgorgement of gains obtained by lying; and (2) ethical rules that require the attorney providing the numbers to have a reasonable and good-faith belief that they are accurate.

        I disagree with Kevin’s assertion that the bank’s shareholders are the main losers. These laws, like antitrust laws, exist to protect the market itself. In this case, the laws incentivize conduct consistent with maintaining a high-trust system in which deals can be completed quickly with low transaction costs.

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        1. Iconoclast

          Well said!

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      2. Iconoclast

        The evidence was provided at the trial.

        The commercial lending group at Deutsch Bank offered to lend money to Trump at 8% over Libor, without requiring his financial statements. The personal wealth management group offered to lend him money at 4% over Libor, but there was a requirement that he provide accurate financial information.

        Trump chose to borrow at the lower rate from the personal wealth management group, but he provided fraudulent financials, in violation of the terms of the loan agreement. That was a clear violation of New York’s financial laws and deserved to be punished.

        What shocks me is that you think it’s ok to defraud people as long as they are not ‘damaged’. Is that your modern relativist morality?

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        1. DBR

          So you somehow know that Trump would otherwise have signed off at 8% vs seeking another lender with a better rate? If this is not Dem lawfare, can you cite another case where the statute 63(12) was used when there was no victim? Also, DB testified that their did their on valuation/due diligence:

          . “ Deutsche Bank did its own due diligence to estimate Trump's net worth, landing on a figure that differed from Trump's reported net worth by over $2 billion -- but the difference didn't concern the bank, according to testimony from managing director Dave Williams.”

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          1. Iconoclast

            The point is that he signed with the personal wealth group and submitted fraudulent financials.

            When did that become ok?

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  10. Ken Motamed

    Kevin is arguing that the bank executives (more likely loan officers) benefited from lending to Trump at a lower rate than what was commensurate with the risk the bank was taking. And this personal gain came at the expense of the bank's shareholders. (Nice bit of EfEM.) But he never explains how the executives benefited, especially, since lower profits for the bank would mean smaller compensation for them.

    Furthermore, if the bank officers were to gain from lending to Trump at a discounted rate, they would have done it regardless of Trump's valuation of his assets.

    I guess once you've taken a position on an issue, it's really hard to admit you were wrong.

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    1. Clark.Monson

      They benefited because they made the sale (and presumably got whatever commission/bonus associated with it). With an interest rate and terms that truly reflected the market, it’s not a given that Trump would have used their bank, or that he would have entered into these loans at all. He might have borrowed a smaller amount, for example. But they made the sale and this benefited.

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