Journal of Post Keynesian Economics

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Hyman Minsky’s interpretation of Donald Trump

Kevin W. Capehart

To cite this article: Kevin W. Capehart (2015) Hyman Minsky’s interpretation of Donald Trump,
Journal of Post Keynesian Economics, 38:3, 477-492, DOI: 10.1080/01603477.2015.1075358

To link to this article: http://dx.doi.org/10.1080/01603477.2015.1075358

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 Journal of Post Keynesian Economics, 38:477–492, 2015
Copyright © Taylor & Francis Group, LLC
ISSN 0160-3477 print / 1557-7821 online
DOI: 10.1080/01603477.2015.1075358

KEVIN W. CAPEHART

Hyman Minsky’s interpretation of

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Donald Trump

Abstract: Hyman Minsky’s interpretation of The General Theory by

John Maynard Keynes has received renewed attention in recent years. This
article draws attention to Minsky’s interpretation of another book by
another author: The Art of the Deal by Donald Trump. The article begins
by summarizing Trump’s interpretation of himself in his book. In Trump’s
interpretation, he was an artist when it came to making deals, and appreci-
ation in the value of his assets was proof of his deal-making artistry. Next,
the article summarizes Minsky’s interpretation of Trump. In Minsky’s
interpretation, Trump’s deal-making artistry was predicated on appreci-
ation in the value of his assets because of the fragility of his financing.
To conclude, the article argues that Minsky’s interpretation of The Art
of the Deal is a point of entry into his body of work.

Keywords: Donald Trump, Hyman Minsky, Ponzi financing

When he died in 1946, John Maynard Keynes was wealthy. He was

worth about $24 million in today’s dollars (Skidelsky, 2010, p. 74).
Keynes was wealthy when he died primarily because of the invest-
ments that he made in currency, commodity, and other markets
throughout his life (ibid., pp. 55–74). Keynes probably could have
written a book about some of the investments that he made along
his way to becoming wealthy. Whether they were successful or

Kevin W. Capehart is an Assistant Professor in the Department of Economics at

The American University of Paris. The author completed this article while he was
a graduate student at American University in Washington, DC. He thanks the
participants at the Levy Institute’s inaugural Hyman Minsky Summer Seminar
for their insights into Minskian economics.

477
 478 JOURNAL OF POST KEYNESIAN ECONOMICS

unsuccessful, and whether they were on his own behalf or on the

behalf of others, his investments sometimes made for interesting
stories. One time, he sold too many Spanish pesetas and broke
the market for that currency. Another time, he bought a large
supply of wheat and tried to store it in the chapel at King’s College
while waiting for the price of wheat to rebound. And yet another
time, he bought art from the French when prices were depressed
because of an impending German invasion (Heilbroner, 1999,
p. 257; Skidelsky, 2010, p. 73). Keynes never wrote such a book.
The book that Keynes is famous for writing, The General Theory
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of Employment, Interest and Money, may have been informed by

his experience as an investor (Skidelsky, 2010, p. 60), but that book
is obviously not about some of the investments that Keynes made
along his way to becoming wealthy, as even a cursory reading
would confirm. Exactly what that book is about is less obvious,
it seems, given some of the alternative interpretations that have
been put forth over the years.
One interpretation of The General Theory that has been put
forth is Hyman Minsky’s. His interpretation has received renewed
interest in recent years. For example, the book in which Minsky
first put forth his interpretation was recently republished (Minsky,
2008 [1975]). The renewed interest can be partially attributed to a
renewed interest in The General Theory. In recent years, there was
a deep recession that rivaled the Great Depression and, during the
recession, at least some governments responded with expansionary
fiscal policy. The General Theory is typically interpreted as a theory
that explains why expansionary fiscal policy may be necessary
during a recession, so a renewed interest in the book is understand-
able. The renewed interest in Minsky’s interpretation of The
General Theory can also be attributed to a renewed interest in
Minsky’s own work, much of which can be seen as an interpret-
ation of The General Theory and an extension of it (King, 1996).
As such, Minsky’s interpretation of The General Theory is a point
of entry into his body of work. A renewed interest in Minsky’s
body of work is understandable, given recent crises. At least some
if not all of Minsky’s work seems relevant to understanding
recent crises, including the collapse of the housing markets in some
countries, the global financial crisis, and the deep recession (see,
e.g., Behlul [2011] and references therein).
The purpose of this article is to suggest that another point of
entry into Minsky’s body of work may be his interpretation of
 MINSKY ON TRUMP 479

another book by another author: The Art of the Deal by Donald

Trump. Minsky did not devote as much scholarly attention to
The Art of the Deal as he did to The General Theory. Whereas
his interpretation of The General Theory makes up a large part
of his published work, Minsky’s interpretation of The Art of the
Deal takes up only a small part of a talk that was never published
and that can only be found in his archives (Minsky, 1990). Of
course, it probably would have been silly if Minsky had devoted
as much attention to Trump’s book as he did to Keynes’. Whereas
The General Theory is one of the most important books in the
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history of economic thought, the same cannot be said for The

Art of the Deal. As noted below, The Art of the Deal is mostly
about some of the “deals” that Trump made along his way to
becoming wealthy. Even if a great thinker like Keynes had written
a similar book, it probably would not have deserved much
scholarly attention. Minsky did attend to one aspect of Trump’s
book, however, as discussed in this article.

Trump’s interpretation of himself

“I don’t do it for the money. I’ve got enough, much more than I’ll
ever need,” Trump said at the beginning of his book The Art of the
Deal (Trump and Schwartz, 1987, p. 1). Although he might not
have had more money than he would ever need, Trump was worth
millions or billions of current dollars when his book was published
in 1987. In that year, as part of its annual list of the 400 wealthiest
Americans, Forbes Magazine estimated that Trump was about the
fifty-ninth wealthiest American with a worth of about $850 million
(Forbes Magazine, 1987, p. 150). The magazine might have over-
valued some of Trump’s assets or missed some of his liabilities
(Connolly, 1991). But Trump often claimed that he was worth
more than what the magazine estimated (see below). And, accord-
ing to an estimate by another magazine that was “confirmed” by
Trump, he was worth about $3 billion in 1987, which would have
made him the second wealthiest American on Forbes Magazine’s
list (Norman and Frons, 1987, p. 94).
The “it” that Trump did was make deals (Trump and Schwartz,
1987, p. 1). Trump was wealthy when his book was published
primarily because of the deals that he made in real estate, casino,
and other markets throughout the 1970s and 1980s (Blair, 2000;
Farnham, 2000; Forbes Magazine, 1987, p. 150). In his book,
 480 JOURNAL OF POST KEYNESIAN ECONOMICS

Trump mostly discussed some of the deals that he made along his
way to becoming wealthy. These included a deal to buy a rundown
hotel in New York City and renovate it into a luxury hotel; a deal
to tear down an eleven-story building in the same city and build up
a sixty-eight-story skyscraper in its place; a deal to assemble a site
from several properties in Atlantic City, New Jersey, and build
a “hotel-casino” on the assembled site; and a deal to buy an
unfinished hotel-casino in the same city and finish it (Trump and
Schwartz, 1987, ch. 6–9, respectively).
In The Art of the Deal, Trump also discussed himself. In addition
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to saying, “I don’t do it for the money,” Trump also said, “money

was never a big motivation for me” (Trump and Schwartz, 1987,
pp. 1, 44). According to Trump, “Deals are my art form …. Other
people paint beautifully on canvas or write wonderful poetry. I like
making deals, preferably big deals” (ibid., p. 1). In addition to his
preference for “big” deals, Trump also said that he had an “almost
perverse attraction to complicated deals” (ibid., p. 133).
Big and complicated deals may have an aesthetic quality, even if
the size or complexity of a deal is perhaps as subjective as the
beauty of a painting or the wonderfulness of a poem. Trump
may also have made deals without regard to the money that he
would make, like a starving artist who paints paintings or writes
poems without regard to his or her material well-being. The aes-
thetic quality of a deal is at least partly judged by its bottom line,
however. An unprofitable deal is almost certainly not as aesthet-
ically pleasing as a profitable one. Although Trump may not have
cared about the money he would make, he presumably cared about
the money that his deals would make. Indeed, Trump said that he
was attracted to complicated deals because they were more likely
to make a profit (Trump and Schwartz, 1987, pp. 133–134). Big
deals would also seem to imply big profits. Therefore, Trump pre-
sumably liked to make deals that were not only big and compli-
cated but also profitable.
Trump was sometimes unable to make deals (Trump and
Schwartz, 1987, p. 93). Sometimes the deals that he was able to
make were relatively small or uncomplicated (ibid, p. 165). Trump’s
deals were also sometimes unprofitable, such as his deal to buy a
professional sports team (ibid., ch. 11, esp. p. 197). Although he
was at times unable to make big, complicated, and profitable deals,
Trump seemed to believe that he was born with an ability to make
such deals. “More than anything else, I think deal-making is an
 MINSKY ON TRUMP 481

ability you’re born with. It’s in the genes . . . . It’s about instincts,”
he said (ibid., p. 32).
Trump therefore seemed to believe that he was a natural-born
artist when it came to making deals. Many of the deals he made
throughout the 1970s and 1980s would have confirmed, or could
have created, that belief. As he said at the end of his book: “I’ve
spent the first twenty years of my working life building, accumulat-
ing, and accomplishing things that many said could not be done”
(Trump and Schwartz, 1987, p. 242). The buildings that he built,
the assets that he accumulated, and the other things that he
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accomplished would have been evidence of his deal-making

artistry.
It can be noted that Trump’s interpretation of himself in The Art
of the Deal was often similar to the media’s interpretation of him
around the same time. In particular, the media often suggested that
Trump seemed to have an ability to make the sort of big, compli-
cated, and profitable deals that he described in his book (see, e.g.,
Norman and Frons, 1987; Powell and McKillop, 1987; Williams,
1988). Trump attributed his ability to make such deals to an artistic
ability, but the media sometimes attributed it to something that was
much more magical or mythical, although perhaps as mysterious as
an artistic ability—for example, a “magic touch” (Stern and Con-
nolly, 1990, p. 93), a “golden touch” (US News & World Report,
1990), a “Midas touch” (Welles, 1990), a “Midas fist” (Powell
and McKillop, 1987, p. 51), and “the Trump touch” (Geist, 1984,
p. 30). Trump apparently believed that he had such an ability, artis-
tic or otherwise. He would later say that, in the 1980s, “One maga-
zine said, ‘Everything He Touches Turns to Gold,’ and I believed
it” (Trump and McIver, 2004, p. 6).

Minsky’s interpretation of Trump

Minsky’s interpretation of Trump can be found in one of his talks.
The text of his talk is archived in the Hyman Minsky Archive at
the Levy Economics Institute of Bard College (Minsky, 1990).
Different versions of the talk were apparently delivered in different
cities (specifically, Boston, New York, Washington, DC, and
Paris) to alumni of the same business school (namely, the
University of Chicago’s Graduate School of Business; Minsky,
1990, p. 11). Only one version of the talk is archived.
 482 JOURNAL OF POST KEYNESIAN ECONOMICS

The date on which the talk was written is unknown. It is

archived with a date of January 1, 1990, but the part of the talk
about Trump was probably not written until later in that year.
The part about Trump talks about his problems with cash flow,
but Trump’s cash-flow problems did not draw much attention
from the media until after a newspaper article on April 27, 1990
(Barsky, 1990a; Blair, 2000, pp. 404–406; Welles et al., 1990,
pp. 118–119). Other parts of the talk were also probably not
written until later in that year.1
Minsky’s talk was titled “The Bubble in the Price of Baseball
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Cards” (Minsky, 1990, p. 1). In it, he talked about various “bub-

bles” that had developed or collapsed in recent decades, including
bubbles in the price of baseball cards (Minsky, 1990, pp. 1–3), the
quantity of external debt held by developing countries such as
Brazil (ibid., pp. 3–6), the price of real estate in regional markets
in the United States (ibid., pp. 6–8), and the price of real estate
and corporate equities in Japan (ibid., pp. 8–10).
While talking about a bubble in the price of real estate in
regional markets in the United States, Minsky talked about
Trump. The portion of his talk about Trump was brief enough that
it can be examined in detail, which is not meant to suggest that
everything Minsky ever wrote deserves an exegesis. A detailed
examination of what Minsky said about Trump seems justified,
however, because of its brevity. Some of what Minsky said about
Trump also requires qualification or elaboration.
Minsky started talking about Trump by saying, “One of the puz-
zles of the 1980s was the rapid rise in the financial wealth of Donald
Trump, author of The Art of the Deal” (Minsky, 1990, p. 6). In
1982, as part of its inaugural list of the 400 wealthiest Americans,
Forbes Magazine estimated that Trump was about the 289th
wealthiest American with a worth of about $100 million in current
dollars, although Trump claimed that he was worth $500 million,
which would have made him about the 27th wealthiest American
(Forbes Magazine, 1982, p. 145). By the end of the decade, the
magazine estimated that he was about the 26th wealthiest American
with a worth of about $1.7 billion in current dollars (Forbes

1
Minsky began his talk by saying, “Almost immediately after his trip to the
slammer for a five month vacation for tax fraud, the price of the Pete Rose rookie
baseball card was reported to have fallen by 50 percent” (Minsky, 1990, p. 1).
Rose was sentenced to five months in prison for tax fraud in 1990, but not until
July 19 of that year.
 MINSKY ON TRUMP 483

Magazine, 1989, p. 164), although Trump claimed that he was

worth $4 billion or $5 billion, which would have made him one
of the three wealthiest Americans (Stern and Connolly, 1990,
p. 94). The aspect of the increase in Trump’s wealth that was a
“puzzle” from Minsky’s perspective is discussed below.
As Minsky also said, Trump was the author of The Art of the
Deal. Whether Minsky read all of The Art of the Deal, part of it,
or none of it is unknown, much like the rest of his reading habits
are somewhat unknown. As pointed out by King (1996, p. 71), a
“trademark” of Minsky’s work was its “paucity of citations.”
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Although Minsky might not have read Trump’s book, he was

obviously aware of the book’s existence. And he presumably had
at least some knowledge of the book’s content. Even if Minsky
never read the book, the media covered many of the deals Trump
wrote about in his book. The media also often interpreted Trump
similarly to the way in which Trump interpreted himself in his
book, as discussed above. Thus, even if Minsky was not directly
addressing Trump’s interpretation of himself in The Art of the
Deal, what Minsky said still dealt with that interpretation.
Minsky continued his talk by saying, “Trump’s fortune was
made in real estate” (Minsky, 1990, p. 6). The fact that Trump
made a fortune in real estate was not puzzling from Minsky’s per-
spective. “Many large fortunes have been made in real estate, since
real estate is highly leveraged,” Minsky said (1990, p. 6). Real estate
has been the primary source of wealth for many of the individuals
on Forbes Magazine’s list of the 400 wealthiest Americans since its
inaugural list in 1982 (Bernstein and Swan, 2007, pp. 112–113).
Leverage is not necessary to make a fortune in real estate, of
course. If someone can purchase a piece of property with his or
her own money, and if he or she can either generate a steady
stream of cash from the property, sell the property at a high price,
or book a large amount of unrealized income due to appreciation
in the estimated value of the property, then he or she could make a
fortune in real estate without leverage. Real estate deals are often
leveraged, however, perhaps for various theoretical and practical
reasons. Trump’s deals were highly leveraged, by all accounts
(Sloan, 1988; Spy Magazine, 1989; Welles et al. 1990, p. 120).
Leverage would obviously make it more likely that someone would
make a fortune, for a given gain, although it would also make it
more likely that someone would lose a fortune, for a given loss.
Leverage multiplies gains and losses, by definition.
 484 JOURNAL OF POST KEYNESIAN ECONOMICS

Although Minsky was not puzzled by the fact that Trump made
a fortune through highly leveraged real estate deals, Minsky said
that one “factor” that made Trump’s increase in wealth “somewhat
unique” was that “the cash flows on most of Trump’s properties
were negative” (Minsky, 1990, p. 6). Whether or not the cash flows
on most of Trump’s assets were negative throughout the 1980s
is discussed below; but, at least around the time that Minsky was
talking about Trump, the cash flows on most of his assets were
apparently negative.2
In 1990, as part of an article about Trump, Forbes Magazine
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estimated that Trump was worth about $500 million in current

dollars (Stern and Connolly, 1990, p. 96). Trump was still wealthy,
by almost any standard, but his wealth had declined by about $1
billion in about a year, according to the magazine. That decline
was due to a downward revision in the magazine’s estimate of
the value of Trump’s assets. “Even granting his magic touch,”
the article said, “virtually all real estate has come down in value”
(Stern and Connolly, 1990, p. 93). Trump claimed that the maga-
zine undervalued his assets (Newsday, 1990).
In the same article, Forbes Magazine also estimated the cash
flow after debt service from each of Trump’s assets in the year
1990. According to the magazine, Trump had eighteen assets (or
categories of assets). Ten of the eighteen assets had negative
cash flows after debt service, three had cash flows that were about
equal to (i.e., within $100,000 of) their debt-service payments, and
only five had positive cash flows after debt service. Therefore, most
of Trump’s assets had debt-service payments that exceeded
their cash flows. In total, Trump’s debt-service payments exceeded
his cash flows by about $38 million (Stern and Connolly, 1990,
p. 95).3
It may seem puzzling that Trump’s assets could exceed his
liabilities in 1990, if he did not generate enough cash to service
his debt in that year (ibid., p. 93). It may seem even more puzzling

2
In Minsky’s talk, “cash flows” presumably referred to cash flows from
continuing operations, and that is the sense in which this article refers to cash
flows.
3
The asset with the largest cash flow after debt service was the Trump Plaza in
Atlantic City, which was a casino in a city where the gambling market was argu-
ably saturated, yet Trump was opening another casino in the same city. The asset
with the most negative cash flow after debt service was the West Side Yards in
New York City, which was an undeveloped property (Stern and Connolly, 1990).
 MINSKY ON TRUMP 485

that Trump’s wealth could increase in the 1980s, if he did not

generate enough cash to service his debt throughout that decade.
But that was not the “puzzle” of the increase in Trump’s wealth.
According to Minsky:
Trump’s wealth surged because the market value of his
properties—or, at least, the appraised value—was increasing
faster than the interest rate. Trump obtained the funds to
pay the interest on his outstanding loans by increasing the
draw on what was in effect a home equity credit line ….
Trump was golden—he had the magic touch—as long as
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property prices were increasing at a more rapid rate than

the interest rate on the borrowed funds. (Minsky, 1990, p. 7)
So, even if he did not generate enough cash to service his debt, if
the value of his assets was appreciating fast enough, then Trump
could make his debt-service payments by borrowing against the
appreciated value of his assets, like a homeowner borrowing
against the equity in their home in order to make a mortgage
payment. And even if he borrowed in order to service his debt,
Trump’s wealth could still surge if the value of his assets was
appreciating fast enough.
Whether or not Trump had negative cash flows throughout
the 1980s is somewhat unknown, contrary to what Minsky said.
BusinessWeek Magazine estimated that Trump’s cash flow was
about negative $60 million in 1989, although Trump claimed that
it was about positive $157 million (Welles et al., 1990, p. 119).
Another magazine, Fortune, estimated his cash flow at about
positive $253 million in 1988, although Trump claimed that even
this estimate was “too conservative” (Williams, 1988, p. 152).
Estimates are not available for the rest of the decade, to the
author’s knowledge, but it has been suggested that his cash flows
deteriorated over the course of the decade (Reibstein et al., 1990,
pp. 40–41; Welles, 1990; Welles et al., 1990, p. 120).
Although it is somewhat unknown whether or not Trump had
negative cash flows throughout the 1980s, it is also somewhat
irrelevant, if the value of his assets was appreciating fast enough.
Again, Trump could have borrowed against the appreciated value
of his assets in order to service his debt (Reibstein et al., 1990,
p. 41; Stern and Connolly, 1990, p. 93).
At least around the time that Minsky was talking about Trump,
however, Trump’s financing was an example of what Minsky
 486 JOURNAL OF POST KEYNESIAN ECONOMICS

had elsewhere called “Ponzi” financing.4 An individual, a firm, or

another economic unit is engaged in Ponzi financing if its debt-
service payments exceed its contemporaneous cash flows. In order
to service its debt, the unit must borrow funds or make its debt-
service payments in another way such as by liquidating assets
(Minsky, 2008 [1986], pp. 377–379). The financial position of a unit
engaged in Ponzi financing is relatively fragile, relative to the
financial position of a unit that can service its debts out of its cash
flows, because its ability to service its debt is relatively sensitive
to changes in asset prices, interest rates, and the availability of
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refinancing (ibid., pp. 371–379).

To conclude the part of his talk about Trump, Minsky discussed
the “puzzle” of the increase in Trump’s wealth:
The puzzle is that the lenders failed to recognize … the arith-
metic of his cash flows …. In the short run, Trump could
make his interest payments with funds from new loans—
but when the increase in property prices declined to a value
below the interest rate, Trump would become short of the
cash necessary to pay the interest on outstanding loans.
(Minsky, 1990, p. 7)
If the value of his assets was appreciating fast enough, then Trump
could service his debt by borrowing funds. If not, then Trump
would be unable to service his debt by borrowing further. More-
over, Trump would be unable to service his debt, unless he could
liquidate his assets at fancy prices or generate cash in another
way.5 Minsky apparently thought it was inevitable that Trump’s
assets would eventually appreciate too slowly. Thus, from

4
This eponymous financing was named after Charles Ponzi, who ran a fraudu-
lent pyramid scheme, although Ponzi financing is not necessarily fraudulent
(Minsky, 2008 [1986], pp. 377–378). A special case of Ponzi financing, “Ponzi-
squared” financing, was recently suggested. “A unit is Ponzi-squared,” according
to the suggested definition, “if it has all the characteristics of a Ponzi unit and no
capital at risk in the transaction” (Auerback et al., 2010, p. 122). Although
Trump’s financing at least in the early 1990s may have been an example of Ponzi
financing, it was not an example of Ponzi-squared financing because he had
personally guaranteed debt (see, e.g., Trump and McIver, 2004, p. 7). As such,
this article does not try to draw a distinction between Trump’s personal finances
and those of his privately owned organization. That distinction would also be
difficult to draw because of a lack of data.
5
An unusual way in which Trump generated cash in order to service his debt
was the following. Trump’s father bought $3 million worth of chips at one of his
son’s casinos, without playing the chips or cashing them in. Trump used that
“loan” from his father to make a bond payment (Blair, 2000, pp. 428–429).
 MINSKY ON TRUMP 487

Minsky’s perspective, it was puzzling that lenders seem to have

failed to recognize that inevitability.
The value of Trump’s assets did not seem to be appreciating fast
enough around the time of Minsky’s talk about Trump. An article
in the Wall Street Journal on April 27, 1990, asked the question,
“What’s going on with Trump? Over the past few months, [he]
has discussed selling, refinancing, or securitizing virtually every
major asset he holds” (Barsky, 1990a). Trump claimed that he
wanted to accumulate cash—that he wanted to be “king of
cash”—so that he could acquire new assets amid a downturn in
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the real estate market. The article suggested that Trump wanted
to accumulate cash because of a current or anticipated shortage
of cash (Barsky, 1990a).
Shortly after that article, other pieces questioned Trump’s cash
flows, including the Forbes Magazine article estimating that his
cash flow after debt service was negative $38 million. And shortly
after that, another item in the Wall Street Journal revealed that
Trump had entered negotiations with his bankers to restructure
his debt (Barsky, 1990b; Blair, 2000, p. 406). Trump and his
bankers were concerned that he might miss an upcoming $30
million bond payment, or they were concerned that, if he made
that payment, he might miss other upcoming debt-service pay-
ments, including payments to his banks (Barsky, 1990b).
Initially, the banks extended millions of dollars in new loans
to Trump and deferred debt-service payments on some of his
billions of dollars in bank loans. In return, Trump agreed to
put up more of his assets as collateral, cede some control over
his business decisions, and curtail his personal expenses by living
on a budget. Eventually, the banks wrote off hundreds of millions
of dollars of Trump’s loans. The amount of debt that was written
off was large enough that Trump’s cash flows could service his
remaining debt. In return, Trump agreed to sell off some of his
assets, including his jumbo jet and luxury yacht, and transfer par-
tial ownership of some of his other assets to the banks, including
about half of his stake in some of his hotels and casinos. Trump
and his bankers were eventually able to make the arithmetic of
his cash flows work, therefore, but Trump was brought to the
brink of bankruptcy and his banks suffered substantial write-offs
(Barsky, 1990c, 1991; Bernstein and Swan, 2007, pp. 60–66; Blair,
2000, pp. 411–412; Farnham, 2000, pp. 136–140; Light and
Webber, 1992).
 488 JOURNAL OF POST KEYNESIAN ECONOMICS

Trump’s need to restructure his debt can be partially attribu-

ted to his debt-service payments exceeding his cash flows, but his
debt-service payments might have exceeded his cash flows
throughout the 1980s. Trump had to restructure his debt pri-
marily because the value of his assets was not appreciating fast
enough. Perhaps because of the downturn in the real estate mar-
ket, banks and other lenders were apparently no longer willing to
appraise his assets at a high enough value or set his interest rates
at a low enough level so that he could make his debt-service pay-
ments by borrowing further. The market value of Trump’s assets
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was also apparently not appreciating fast enough. Although

Trump sold some of his assets as part of his debt restructuring,
he was unable or unwilling to sell enough of his assets at
high enough prices so that he could service his debt without
restructuring it.6
Minsky’s talk did not offer an explanation for why banks and
other lenders may have failed to recognize the arithmetic of
Trump’s cash flows until his assets appreciated too slowly. An
explanation offered in the media was that Trump’s banks and
other lenders believed that his assets would always appreciate fast
enough (Barsky, 1990b; Light and Webber, 1992, p. 75; Reibstein
et al., 1990, p. 41; Welles, 1990). One banker explained it by saying
that “[Trump] seemed to have a Midas touch” (quoted in Welles,
1990, p. 53).

A point of entry into a body of work

In his talk, Minsky only attended to one aspect of Trump’s The
Art of the Deal—Trump’s interpretation of himself. Minsky’s
interpretation of Trump was obviously different from Trump’s
interpretation of himself. If Trump’s cash flows could not cover
his debt-service payments, but if the value of his assets was
appreciating fast enough so that he could service his debt by
6
Trump’s need to restructure his debt might also be attributable to the value of
his debts exceeding the value of his assets. Amid Trump’s debt-restructuring
negotiations, it was estimated that he was worth anywhere in the range of about
negative $294 million and positive $1.41 billion in current dollars, depending on
whether he was forced to sell his assets in a fire sale or he could hold onto them
until a hypothetical rebound in the real estate market (Barsky, 1990d). The value
of Trump’s assets was a source of contention during his debt-restructuring nego-
tiations. “Who can say what [my assets] are worth? It’s like [valuing] a painting,”
Trump said at the time (quoted in Hammer and Friday, 1990).
 MINSKY ON TRUMP 489

borrowing funds, then Trump would presumably have interpreted

that as proof of his artistic, magical, or mythical ability to make
big, complicated, and profitable deals. In Minsky’s interpretation,
in contrast, Trump’s ability to make such deals was predicated on
the value of his assets appreciating fast enough so that he could
service his debt by borrowing funds. If Trump’s assets appreciated
too slowly, then his deals could turn into disasters.
Minsky’s talk did not express concern that Trump’s financing
could be disastrous for anyone, except for Trump and his lenders.
Perhaps this was because Minsky saw Trump’s financing as
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somewhat unique, or perhaps it was because Minsky’s talk was

about other things. In his larger body of work, Minsky did exp-
ress concern that an economic collapse, like the one that hap-
pened during the Great Depression, could happen again, if
financing like Trump’s was prevalent among the units in an econ-
omy (see, e.g., Minsky, 2008 [1986]). Trump’s near bankruptcy in
the early 1990s illustrates that Ponzi financing could be disas-
trous for a unit and its lenders. It may also illustrate some of
the reasons why an economic collapse could occur, if Ponzi
financing was prevalent.
As Trump’s near bankruptcy appears to illustrate, if there is a fall
in asset prices, a rise in interest rates, or a reduction in the avail-
ability of refinancing, then a unit engaged in Ponzi financing may
be unable to service its debt by borrowing funds. The unit may
be able to service its debt by liquidating assets. If many units are
engaged in Ponzi financing, however, then attempts by some units
to service their debts by liquidating assets may be thwarted because
of a fall in asset prices. A fall in asset prices can also make it harder
for other units to service their debts by borrowing funds.
If a unit engaged in Ponzi financing cannot service its debt by
borrowing funds, liquidating assets, or generating cash in another
way, then it might be able to persuade its lenders to put off some
of its debt until a later date or write off some of its debt forever,
as Trump was able to do. If many units are engaged in Ponzi finan-
cing, however, then borrowers may be unable to restructure their
debts unless their lenders are able to restructure their debts, too.
If a unit cannot restructure its debt without bankruptcy protec-
tion, then it would have to declare bankruptcy. The real assets of a
unit do not disappear amid debt restructuring, of course (Miller,
1991, pp. 484–485), but the financial liabilities of the unit are the
financial assets of other units, and those financial assets will be
 490 JOURNAL OF POST KEYNESIAN ECONOMICS

written down or written off. The units that write down or write off
some of their assets may be pushed into bankruptcy themselves.
For reasons such as these, Minsky expressed concern that an
economic collapse could occur if Ponzi financing was prevalent.
In Minsky’s larger body of work, he also hypothesized or theorized
that during a period in which an economic collapse did not occur,
financing such as Trump’s would tend to become prevalent (again,
see, e.g., Minsky, 2008 [1986]). Trump’s success throughout the
1980s may illustrate some of the aspects of Minsky’s hypothesis
or theory about the tendency toward Ponzi financing.
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Trump may have had an ability to buy or build assets and sell
them at sufficiently high prices to make his deals profitable. Even
if he did not have that ability, if the value of his assets was appreci-
ating fast enough, then his deals would have been profitable. The
same would have been true of anyone else’s deals, again, if asset
values were appreciating fast enough.
Minsky’s hypothesis or theory suggests (among other things)
that, as long as asset appreciation can cover debt-service payments,
borrowers and lenders will eventually tend to borrow and lend
based on the expectation that asset appreciation will cover debt-
service payments. Investments with relatively low or negative cash
flows for relatively long amounts of time would appear to be pru-
dent and would prove to be so, even if cash flows sometimes failed
to cover debt-service payments. Units could borrow against the
appreciated value of their assets in order to service their debt, or
they could sell assets into a rising market. In such an environment,
many units might eventually end up with financing such as
Trump’s. Again, however, if or when assets appreciated too slowly,
deals that seemed prudent could turn into disasters.
Trump’s deals brought him to the brink of bankruptcy in the early
1990s. Trump was eventually able to emerge from his near bank-
ruptcy. Indeed, as of this writing, he is as wealthy and as well-known
as ever. His reemergence can perhaps be attributed to some ability
that he had all along; but, to the extent that he continues to engage
in Ponzi financing, the full expression of that ability is, in some
sense, predicated on the value of his assets appreciating fast enough.
In summary, Minsky’s interpretation of The Art of the Deal may
be an entry point into Minsky’s work. Trump’s financing at least in
the early 1990s illustrates what Minsky called Ponzi financing;
Trump’s near bankruptcy in the early 1990s may illustrate some
of the perils of Ponzi financing; and his success throughout the
 MINSKY ON TRUMP 491

1980s may also illustrate some of the aspects of Minsky’s

hypothesis or theory about the tendency toward Ponzi financing.
The conditional concern expressed by Minsky about financial
troubles like those experienced by Trump in the early 1990s can
also be contrasted with the complete lack of concern expressed
by more orthodox economists. Around the same time that Minsky
was talking about Trump, Merton Miller—the “father of modern
finance”—was also talking about Trump. In his Nobel Prize
lecture delivered on December 7, 1990, Miller talked about Trump
and his financial troubles. After saying that it looked as if Trump
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would go bankrupt, Miller dismissed the possibility that a bank-

ruptcy by Trump could create trouble for anyone else. Miller
was especially dismissive of the possibility that the bankruptcy of
an “over-indebted” unit like Trump could create more bankrupt-
cies or an economic collapse (Miller, 1991, pp. 484–485). “Neither
economics generally nor finance in particular … offer much sup-
port for [the] notion of a leverage-induced ‘bankruptcy multiplier’
or a contagion effect,” Miller said (ibid., p. 485).
Today, in the shadow of recent crises, it seems that society may
have been better served had Minsky’s thoughts about Trump
received as wide an audience as Miller’s. Although units engaged
in Ponzi financing may never have recognized the perils of their
financing until they were unable to perpetuate it, economists might
have been able to predict or prevent recent crises, rather than gen-
erally failing to recognize the possibility of contagion and collapse.

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