You’re likely to hear this a lot during the next several months: Donald Trump “rooted for the real-estate crash” that caused a foreclosure epidemic and forced 5 million families from their homes.
Trump’s likely Democratic rival in the presidential election, Hillary Clinton, recently produced an ominous 44-second video that makes Trump seem like Voldemort preying on hapless middle-class families for his own gain. And Democratic Sen. Elizabeth Warren ignited a tweet war with Trump when she said in a recent speech, “What kind of a man roots for people to get thrown out of their house?”
The controversy stems from these comments Trump made in an obscure audiobook in 2006:
“I sort of hope that [a real-estate bust] happens because then people like me would go in and buy. If this is a bubble burst, as they call it, you know, you can go in and make a lot of money.”
Trump made those remarks around the time the bubble was fully inflated, with home prices near their peaks. The bubble began to lose air later that year and burst completely by 2009, with the overall housing bust lasting 8 or 9 years.
But there’s no evidence Trump ever made money on the housing bust. In fact, he may have lost money. And the idea he was hoping to profit from the misfortune of ordinary Americans is a stretch.
Trump is a commercial real-estate developer, and like any investor, he hopes to take advantage of cycles to buy low and sell high. That’s the same thing ordinary home buyers hope to do, and there’s nothing wrong with it.
Plus, as a commercial developer, Trump was probably thinking of ways he might capitalize on a drop in the price of office, resort and apartment buildings, not homes that would have to be abandoned by middle-class families. Markets ebb and flow all the time, with buyers and sellers constantly losing at each other’s expense. Usually, there’s no perfidy involved.
It appears Trump never actually bought into real estate as it sank toward a bottom in 2009 and 2010. In fact, he bet the wrong way on housing in 2006 by launching Trump Mortgage, a firm meant to sell residential and commercial loans. “I think it’s a great time to start a mortgage company,” Trump told CNBC at the time. “The real estate market is going to be very strong for a long time to come.” He was dead wrong and Trump Mortgage turned out to be an embarrassment that closed the following year.
Other investors profited handsomely from the housing bust. Hedge fund manager John Paulson, for instance, made billions by short-selling, or betting against, securities backed by subprime mortgages. Private-equity firm Blackstone bought thousands of homes lost through foreclosures and rented them out, earning rent while the homes rose in value. Even so, those types of investors didn't cause the housing bust or force families into foreclosures; they just acted on conditions as they found them.
Trump actually doesn’t do a lot of real-estate development any more, as Slate pointed out recently. Instead, he earns most of his income by licensing his name, renting space in buildings he already owns and charging management fees. So maybe he’s not so good at predicting the direction of the real-estate market after all.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.