THE TRUMPS OF BROOKLYN, QUEENS, AND THE KLONDIKE
He was a very difficult guy, but he was a great teacher for me.
—DONALD TRUMP ON HIS FATHER
Although he had been summoned by a US Senate committee to answer for $4 million in windfall profits he took from a government housing program for war veterans, things could have been worse for Frederick Trump. He could have been Roy Cohn.
For much of the previous month, Capitol Hill and the nation had been transfixed by the Army-McCarthy hearings, where military men battled with Joseph McCarthy, the notorious Red-baiting senator from Wisconsin, over the conduct of his belligerent chief aide, Cohn. (Things had gone so badly for Roy Cohn that his political career would be ruined. The hearings were just as bad for the senator. One witness became a sensation as he famously asked of the senator, “Have you no decency, sir?” Young Cohn would leave Washington in disgrace. Shunned by colleagues, McCarthy would soon die, at age forty-eight, of alcohol-related liver disease.)
The drama of the McCarthy hearings was still fresh on July 12, 1954, when Fred Trump sat at a witness table to answer questions about graft and profiteering in a Federal Housing Administration building program. In another time, corruption in an agency that subsidized builders who constructed apartments for World War II veterans might have riveted the nation’s attention. But in McCarthy’s wake, the American people could be forgiven if they took their eyes off the Capitol for a moment.
Trump had been called to answer questions raised by the first witness to testify before the committee. In his testimony, federal investigator William McKenna said Trump ranked near the top among builders who shared in excessively high payments approved by the FHA officials who were almost certainly on the take. Many of these bureaucrats had accepted expensive gifts—TVs, watches, appliances—from developers. Others lived so far above their means that it seemed obvious they had been bribed with substantial sums. The builders, in turn, got favors worth millions of dollars. According to McKenna, Trump had benefited, in particular, from the rule-bending practiced by a powerful Washington figure named Clyde L. Powell. Powell had allowed Trump to finish construction at Beach Haven six months before he had to start repaying his federally subsidized loan. In that time Trump pocketed $1.7 million in rent payments.
McKenna’s testimony about Trump and others had appalled committee chairman Homer Capehart—the senator from Indiana used the word “nauseous”—who said that builders had taken advantage of both the federal government and countless vets. Capehart was taking cues from President Dwight Eisenhower, who had flushed red with anger when McKenna told him about the FHA troubles. The first nonpolitician to be elected president since U. S. Grant, Eisenhower had campaigned on a promise to root out corruption. The president had nothing against developers in particular. He had recently met with another big New York builder, William Zeckendorf, to urge him to take on the project that would become L’Enfant Plaza in southeast Washington. But Ike truly loved the fighting men he’d led to victory in World War II. When he had unleashed federal investigators with an executive order—calling the FHA developers “sons of bitches”—Senator Capehart, a more ordinary politician, had spied an opportunity.
Like Eisenhower, Capehart was a Republican. The FHA had been created by the Democrat Franklin Delano Roosevelt, and the events under investigation had all occurred while another Democratic president, Harry S. Truman, was in charge. If Capehart could make enough noise about the FHA, he might hurt the Democrats in the coming congressional election. So he said that the builders and the FHA were mired in “a grand scandal” far worse than the infamous Teapot Dome corruption case of the twenties, in which bribes were accepted by officials to grant rich oil leases on federal land. Teapot Dome, which involved oil reserves worth hundreds of millions—if not billions—of dollars, happened under a Republican, Warren G. Harding.
Capehart, who came to the Senate after a career selling jukeboxes and popcorn machines, was renowned as a self-promoter. He decided that the hearings would become a traveling show that would open in Washington and then cross the country so that more Americans could watch him grill colluding bureaucrats and builders. With a little luck, TV cameras might appear to broadcast the show live. As any astute politician understood, television would make the investigation and the scandal far more important to the general public. Committee lawyers, senators, and witnesses would be seen as dramatic characters, and the scandal would be understood as a narrative of good and evil. In the end, the acronym FHA might even enter the political lexicon and become as powerful as the words Teapot Dome, which everyone knew represented corruption.
In the days of testimony that preceded Fred Trump’s appearance, most of the witnesses had played their expected roles. After first explaining that he would not answer any questions because he refused to incriminate himself, Clyde L. Powell deflected his interrogators by repeating, “My answer is the same, sir” or “My answer is heretofore as given.” Others tried, but failed, to explain the shocking returns made by the builders. In one case, every $5 put up by a developer quickly became $1,737. In another instance, $10,000 grew to $3.1 million. One builder pounded the witness table as he insisted upon his innocence. Another suffered a heart attack in the hours after his testimony.
No one performed more brilliantly than the witness who consumed most of the afternoon hearing on July 12. Dapper in a fine suit and carefully trimmed mustache, Fred Trump sat at the witness table flanked by attorneys. Like every other witness, Trump was seated at floor level and was thus required to look up to the dais where the chairman sat, like a judge in a courtroom or a king on his throne. But Trump didn’t behave like a supplicant or an accused man. Instead, he spoke confidently of the convoluted, but legal, means he used to get the most for himself out of a program that seemed almost designed to benefit a builder who could read regulations as well as he could read a blueprint.
At times Trump’s testimony proceeded with a “Who’s on first?” quality worthy of Abbott and Costello. Asked when he had purchased some land, Trump answered, “Five or eight or ten years” prior. Questioned about a project estimate that included an extra 5 percent “architect’s fee,” which mostly went into his own pocket, Trump insisted it was included to satisfy the FHA. When a skeptical Senator Capehart pressed him, Trump added, “And it is provided by the regulation.”
“What is provided by the regulation?” said Capehart.
“The five percent architect’s fee.”
“Have you ever seen a regulation that says that?”
“No, I’m a builder.”
“Then how do you know these regulations provide for a five percent architect’s fee?”
“They wouldn’t have allowed it if they didn’t.”
So it went for much of the afternoon with Trump warning at times, “That is a very iffy question,” and then launching into descriptions of the complex methods he used to squeeze maximum profit out of the taxpayers. He explained, for example, that the land under his Beach Haven development was held by a trust devoted to his children. The buildings, however, were owned by half a dozen corporations. Every year these six entities paid rent to the trust—really his children—for the use of the land. Under the terms of the lease the Trump kids might receive $60,000 or more in pure profits every year for ninety-eight more years. Then the lease could be renewed for another ninety-nine years.
With similar candor Trump explained how he had paid himself the general contractor’s fee that had been included in the estimate he submitted to the FHA, and how he fattened his own wallet by having one of his corporations do business with another of his. To the senators this was the equivalent of a man mowing his own lawn and then insisting he should be paid for the chore. Trump insisted that he was more like the tailor who pays a low-wage assistant to sew a custom suit, then charges his customer full price. If the quality is the same, thanks to the tailor’s supervision, why shouldn’t he get the money?
In Trump’s tailoring at Beach Haven he submitted a plan to the government that called for extra high construction costs, which allowed him to borrow more money and get the government’s approval to charge higher rents. The final tally on the project showed that Beach Haven had been built for $4 million less than the estimate. (Worth $35 million in 2015.) The extra high rents set when the project was approved remained in place, even after the excess profits were revealed, because the FHA permitted it. Similarly, the cash left over from the FHA building loan stayed in a Trump bank account. As far as he was concerned, this money was fairly earned and, technically speaking, not personal income. As he explained, as long as he didn’t put the cash in his pocket, the $4 million could be regarded as a rainy-day fund for Beach Haven.
With the occasional aid of his lawyers, Trump testified for more than two hours straight. Much of what he said would disturb anyone who believed that the taxpayer dollars invested through the FHA program were supposed to serve the noble public purpose of aiding veterans as much as possible. But Trump and other builders would say that their windfall profits compensated them for the excellent work they did creating tens of thousands of homes at a breakneck pace. Any suggestion that he had violated any regulations or laws was “very wrong, and it hurts me,” said an indignant Trump. He was the one who ought to be vexed, not the senators, because of the “untold damage to my standing and reputation.”1
* * *
Although Fred Trump had clearly violated the spirit of the FHA program he had not been caught in any criminal act. Plenty of Americans might admire and even root for an ambitious and clever fellow who understood the ways of the world and exploited them for his own gain. Trump was just such a fellow; a classic New York character who could have been drawn from a Gilded Age memoir of political corruption called Plunkitt of Tammany Hall. The Plunkitt in question was George Washington Plunkitt, a nineteenth-century New York State legislator who had famously declared, “I saw my opportunities and I took ’em.” One of Plunkitt’s most famous essays focused on what he called the “honest graft” practiced by politicians who made sure their friends received special favors, including help with real estate deals.
The rascal’s humor in Plunkitt stood in sharp contrast to the acid observations of Thorstein Veblen, who also wrote a Gilded Age classic. In The Theory of the Leisure Class, Veblen showed that the American elite lived according to an ethic of utter greed and immorality covered by a veneer of proper education and manners. Far more powerful and thus more dangerous than Plunkitt’s hacks and hangers-on, the members of Veblen’s leisure class were enabled by great fortunes amassed by brutal men who enjoyed “freedom from scruple, from sympathy, from honesty and regard for life.”
Known popularly as “robber barons,” Veblen’s subjects bore names such as Rockefeller, Morgan, Carnegie, and Vanderbilt. He saw in their conspicuous good works, lavish spending, and time-consuming leisure pursuits such as yachting and golf a concerted effort to distract others from their predations and inspire both admiration and imitation. Great fortunes also bought dependents and descendants access to the highest realms of business—finance, industrial monopolies, oil and minerals—where their status would be preserved with the aid of advisers, lawyers, and others who hoped to join the leisure class themselves.
* * *
In the 1890s, as Plunkitt wrote his essays and Veblen lectured at Cornell University, Fred Trump’s father could access neither Tammany Hall nor the leisure class. Born and raised in Germany, he had emigrated from Bremen via Southampton in October 1885 traveling in steerage aboard the new, Glasgow-built SS Eider. Just sixteen years old, Friedrich had been trained to work as a barber in a country already oversupplied with young men who knew how to use scissors and razors.
Donald Trump’s grandfather first stepped on American soil at Castle Garden, where an immigration center occupied a former fort built on an island constructed of landfill off the southern tip of Manhattan. Arriving immigrants were put through a gauntlet of inspections before being permitted to walk across a bridge to the borough. Once safely in New York City they were free to travel anywhere in the United States and its territories. Like many other new arrivals, Friedrich Drumpf had his name summarily changed by immigration officers. According to government papers, he departed Castle Garden as Friedrich Trumpf, and he would carry this name for years to come.
After six years in New York, Friedrich followed news of a mining boom to the West, where new cities and towns were rapidly developing. In Seattle’s red-light district he thrived as the owner of a restaurant that offered warm meals and prostitutes in private rooms. It wasn’t quite the Horatio Alger myth come to life, but in a country that equated wealth with virtue, Friedrich was becoming a true and virtuous American. Seven years after his arrival in New York, he went to the US District Court for the Washington State and, after renouncing his “allegiance and fidelity” to “William II Emperor of Germany,” signed the declaration that made him a US citizen. In this document the f in Trumpf disappeared.
Having become a citizen and a businessman named Trump, Friedrich looked for opportunities to become rich. He spied one in a Cascade Mountains mining camp called Monte Cristo, which was overrun by prospectors looking for silver and gold. Seeing a more reliable source of cash in the prospectors than in the dirt, Trump falsely claimed to have found gold on a plot of land, which allowed him to seize control of some prime real estate without actually paying for it. (A “strike” gave a prospector exclusive access to a parcel.) Trump never worked his claim but instead built a boardinghouse. The boardinghouse was a big success. Friedrich’s profit was all that much greater because he had paid nothing for his location.
As he turned his nerve and hard work into wealth, Trump showed himself to be a genuine American. In the 1890s, much of the Pacific Northwest was practically lawless, and the landscape teemed with men and women who happily exploited civilization’s not having quite taken hold. Formalities meant little in the isolation of the forests and mountains, so grit and audacity might be enough to bring success. The entrepreneurial outlaw was now gradually replacing the Indian fighter as the archetypal frontiersman, and no one in a place such as Monte Cristo would be shocked to learn that one man had simply occupied another’s property. Trump may have been bolder than most as he accepted a shipment of lumber and built his business on another’s land, but lots of men were living and mining on land they didn’t own.
No one would have been surprised, either, that Monte Cristo turned out to be a false promise kept alive so that John D. Rockefeller, whose speculation had touched off the gold and silver rush, could escape with a big profit. In 1891 America’s wealthiest man had invested in the mining region on the basis of a geologist’s highly optimistic reports. Rockefeller built a large processing facility to prepare ore for shipment along a new railroad line. However, production was meager, and eventually Rockefeller and his syndicate partners learned that the geologist had been wrong. They quietly sold, at a profit, and took their money back East.
When Rockefeller’s secret—there was no ore—got out and Monte Cristo was abandoned, few complaints were raised about the geologist’s mistake and the New Yorker’s stealthy retreat. What good would it do? Besides, a new gold rush had begun in the Klondike region of northwest Canada. Roughly one hundred thousand men stampeded north after two ships arrived in Seattle with prospectors bearing the equivalent of $1 billion in 2015 in gold. Friedrich Trump departed for the Yukon, intending to repeat his success at Monte Cristo. After landing in Alaska he endured one of the most demanding and deadly wilderness treks imaginable. Trump began by operating one of the tent restaurants that specialized in meals made of horses that had expired on the trail. Soon came a real establishment built out of shingles and planks—the New Arctic Restaurant and Hotel—where once again he made prostitutes available. The New Arctic was located first in a town called Bennett and then floated on lakes and streams to the larger settlement of White Horse. Again occupying land he didn’t actually own, Trump kept his place open day and night and made far more money than all but the most successful prospectors. As the boom ended, he departed White Horse, leaving the New Arctic to a partner, who would soon lose the business.
Wealthy and twice the age he had been when he came to America, thirty-two-year-old Friedrich Trump traveled to New York, where he caught a steamer for Germany, intending to find a wife there. By one account he brought with him a fortune that would be worth more than $8 million in 2015. He returned to New York City in 1905 with his wife, Elizabeth Christ Trump. She was pregnant with the son who would be born in America and named Frederick (not Friedrich) Christ Trump.
Young Frederick’s father used his Yukon riches to invest in real estate. He wisely focused on the sleepy borough of Queens, which was then home to fewer than two hundred thousand scattered souls. A new bridge to Manhattan was under construction along with a railroad tunnel. The bridge opened in 1909. By 1910, when the Long Island Rail Road began running trains from Queens to the glorious new Pennsylvania Station, 284,000 people lived in the borough. Developers put up apartments and homes as fast they could. Commercial blocks emerged along Hillside, Jamaica, and Atlantic Avenues. By 1920, Queens would be home to nearly half a million people.2
Friedrich Trump knew a gold rush when he saw it. Planning to get rich by investing in properties, he made regular visits to real estate agents, often walking to these appointments hand in hand with his son. On one of those walks, in March 1918, he began to feel sick. Within hours he developed the first symptoms of the flu. In some accounts, his death was attributed entirely to the “Spanish flu,” which killed about 775,000 Americans between 1918 and 1919. But inside the family, alcohol would take a share of the blame.3
Suddenly the man of the family, young Frederick began working and contributing to the household as a national economic crisis—the depression of 1920–21—swept away much of the family’s wealth. He attended night school, which he supplemented with correspondence courses, to learn various construction trades and went to work for a builder as soon as he finished high school. He began as an unskilled helper, hauling heavy loads of supplies. On good days he worked with a horse. On bad days, he replaced the horse. Conscientious and strong, he was soon promoted to carpenter and began learning both the tricks and the trade of construction and real estate.
Furiously ambitious, at age twenty-one Fred Trump went into business with his mother, whose maturity reassured those who would do business with E. Trump and Son. They couldn’t have chosen a better moment. New York City had entered a period of exploding growth that would see its population increase by 20 percent in a decade. As it became the world’s largest city, New York’s economic and cultural influence rippled across America and around the globe. Thanks to newsreels and print photographs, the skyscrapers, theaters, and streets of Manhattan dominated the world’s idea of New York City, and with the help of a rascal mayor named Jimmy Walker, the borough came to represent wealth, glamour, and corruption to an extent that was both breathtaking and intimidating. Although huge rewards awaited those who made it in Manhattan, the competition was fierce. The Trumps chose to play it safe, sticking to the outer boroughs of Brooklyn and Queens. From one-house-at-a-time projects they graduated to the development of small groups of houses on subdivided properties. Within two years they had finished and sold dozens of homes and were acquiring bigger properties near the border of suburban Nassau County.4
The fictional West Egg of F. Scott Fitzgerald’s Great Gatsby was on Nassau County’s North Shore, and new homes built anywhere near this tony district carried cachet. Growing even faster than it did in the previous decade, Queen’s population pushed real estate prices to record levels. As the Roaring Twenties produced a bubble of wealth, the Trumps built bigger houses, on bigger lots, and embellished them with architectural details that appealed to those who wanted the look of success. At a time when the typical American home cost $8,500 the Trumps were building some valued at $30,000.
The stock market crash of 1929 changed what many readers saw in Fitzgerald’s novel—it became a cautionary tale—and ended the real estate boom in Queens. Rippling out in every direction, Wall Street’s woes became the Great Depression of the 1930s. So many workers were laid off that the unemployment rate, which had hovered around 5 percent, soared into double digits. As breadlines formed, almost everyone, including those with money, stopped spending. Stuck with properties that no one could or would buy, E. Trump and Son went out of business. Fred opened a grocery store, which he operated with the barest interest, and waited for a chance to get back into real estate.
* * *
The American economy hit bottom in 1933, as the Great Depression pushed the official jobless rate to 25 percent and the drop in home values reached 20 percent. In many places conditions were far worse, and for the millions who’d lost their jobs and struggled to pay for food, clothing, and shelter, the data said nothing about their fears, anxieties, and desperation. Foreclosures forced record numbers of families out of their homes. On a single January day, fifteen properties, seized for nonpayment of mortgages, were sold at auction in New York City.
Remarkably, amid all the gloom, one of the most popular books of the time was the celebratory history called The Epic of America, which introduced the world to the concept of “the American dream.” Author James Truslow Adams defined the dream as a shared belief that every citizen should have a chance to live “the fullest possible life of which they were capable.” This concept wasn’t merely economic. Adams stressed the dignity and respect sought by every human being—these were key elements of the dream—and rued “the struggle of each against all,” which he blamed for the speculative excesses of the twenties and the Crash.5 After his book was published in late 1931, Adams spent more than a year traveling and writing about his hope that the crisis would prompt a return to less materialistic values. By 1934, as the worst of the crisis seemed over, he noted that too many of his countrymen had resumed their obsession with “getting and spending” and warned of “another orgy” of speculation.
Adams wasn’t alone in his fear. In March 1934, hundreds of residents of Brooklyn and Queens—fourteen busloads—would descend upon state lawmakers in Albany to demand they do something to help them keep their homes and to thwart real estate speculators. So many homeowners in the two boroughs had sought aid under an existing program that this agency was a year behind in processing the applications. “When the real estate market picks up, the loan shark and the speculator will reap,” said Matthew Nappear, a spokesman for the petitioning homeowners. “Many of our great financial fortunes were built up that way. It should not happen again.”6
Nappear was right about one thing. One man’s real estate crisis is another’s opportunity. All markets work in this way, providing investors with cash the chance to buy—stocks, bonds, real estate, and commodities—when prices are depressed. This reality is devoid of emotional weight and is the basic truth that keeps capitalist economies working. The difference, when it comes to real estate, is that the investment “instrument” might be someone’s home. A home, unlike, say, a stock certificate, comes freighted with extra meaning. A source of safety, comfort, and even identity, home is not just a place but the heart’s location. We do not dream of portfolios and mutual funds. We do dream of the houses and apartments we knew as children.
Additional factors distinguished real estate from other investments. For one thing, most property was bought with the help of a mortgage, which meant that a relatively small amount of ready cash could leverage a much larger purchase. Also, property, more specifically land, is permanent and fixed. Stocks and bonds and the entities they represent can and often do disappear without a trace. Except in the case of government accession, for which owners must be compensated, privately held land will always retain some value. “They ain’t makin’ any more of it,” people say to communicate real estate’s special appeal. The words convey something so primal that it is known, or rather felt, by any creature that ever defended a certain territory against a rival. Whether it is a house lot or a forest, no place is the same as this place.
Real estate’s magic is no secret. In growing cities and towns, property owners understand that strong demand pushes values up, and many will sell to turn paper profits into cash. But as demand and prices continue to climb, and more owners seek to capitalize on the opportunity, markets enter a bubble phase. Supply then outstrips demand and the bubble bursts, sending prices down. Smart money gets into the game when prices are at rock bottom and exits before the pop.
In 1930s New York the smart money swirled around the courthouses, where judges resolved bankruptcies and foreclosures and disposed of real estate at extremely low prices. As political creatures themselves, judges understood that while rules governed their actions, well-connected players could be favored whenever possible. Friends and allies would be named as trustees when prime properties were forfeited in bankruptcies and get the first shot at them. With the right information, well-connected investors might even approach a homeowner who was behind on payments and make an offer to buy a building or some land before a lender foreclosed or the city issued a tax lien. The seller would be spared the stress and embarrassment of an eviction, while the buyer acquired real estate without the hassle of working through the courts or competing with other investors.
Lacking the connections to seize the easy opportunities, Fred Trump watched the bankruptcy/foreclosure action hoping to see an opening he might exploit. He learned the names and habits of the powerful men who ran the city’s Democratic Party clubs and checked courthouse dockets. At the end of 1933, Trump’s eye was drawn to claims made against one of the biggest mortgage companies in Brooklyn, Lehrenkrauss & Co. Licensed as an investment bank by the state, the company was family owned and had operated for more than fifty years. In the 1920s, as Americans of every rank and class raced into the money boom, Lehrenkrauss sold everything from foreign currency to gold. However, the firm’s main business was the sale of bonds backed by big bundles of mortgages. Many of the bondholders were recent German immigrants who were reassured, as they invested their savings, by the bank’s good name.
The Lehrenkrausses were so prominent that their comings and goings were recorded on the society pages—Charles F. Lehrenkrauss entertained aboard his yacht in Manhasset Bay—and their divorces appeared in the news columns. (J. Lester Lehrenkrauss’s wife, Beatrice, secured a divorce from him thanks to a court in Reno, Nevada.) A Lehrenkrauss Cup was awarded each year to the top student at a local school, and members of the family were sought to sit on various boards and committees. In April 1929 the most senior Lehrenkrauss, Julius, was named to the board of a new finance company called Brooklyn Capital. The very next month he joined the advisory board of the Hamilton Trust division of the Chase National Bank.
All three Lehrenkrauss men—Julius, Charles, and Lester—were named personally when investors filed their complaint against the firm in Brooklyn’s federal court. According to the papers, investors suspected that the company was insolvent and that the notes the firm had sold were essentially worthless. Thousands of bondholders were outraged by the tale of deception that emerged in the court hearings. As Julius explained, he had sold bonds worth many times the value of the mortgages that backed them. Dividends were paid with new revenues, Ponzi-style, and cash was shifted from account to account to give auditors the false impression that the firm’s various operations were solvent. As the company was nearing collapse, Julius had withdrawn $1,900 in cash, all $20 bills, because, he said, he was “looking for the future.”
Before the ordeal was over, investigators would discover that dozens of deeds were missing from company files, and unbeknownst to others in the firm, Julius had lost more than $450,000—worth roughly $8.1 million in 2015—in the stock market. (One of his investments had been in a copper company that had produced just $52.26 worth of ore.) A nephew said Julius had recently told him, “Stocks are bound to rise.” Unable to pay for a vigorous defense and cornered by the evidence, Julius donned a formal wing-collar shirt, striped pants, and black jacket to attend the court session where he would plead guilty to grand larceny. His lawyer said that Lehrenkrauss would accept his punishment “like a man.” The judge, a longtime friend of the accused’s, sentenced him to a term of five to ten in the state prison known as Sing Sing.
Although Lehrenkrauss bonds were worthless, one small part of the business, which collected mortgage payments from debtors, retained some value. The court-appointed trustees invited bids for this business. One major mortgage-servicing company, Home Title Guarantee, entered the competition. Other bidders were less well-known but better connected to the Brooklyn political machine. Fred Trump, who had managed mortgages on many of the homes he sold, embellished his qualifications by informing the court that he had been in the real estate and mortgage business for ten years. (This claim would have had him selling houses as a high schooler.) But even with this exaggeration, he could lose without a special advantage.
Trump courted Brooklyn’s political power brokers and joined forces with another Queens-based bidder named William Demm. Concerned that a large group of Lehrenkrauss investors might hold up the sale, the two men attended one of the investors’ meetings at Bushwick High School. The victims feared that the old firm might one day be resurrected and they would be deprived of any value left in the mortgage-servicing business. Only a miracle would revive Lehrenkrauss, but Trump understood the feelings of the creditors. He and Demm promised that if Lehrenkrauss ever rose from the dead, they would sell the mortgage-servicing business to the creditors for a net profit of just $1,000. All they asked in return was that the group endorse their bid to the trustees. A deal was struck, and the court, eager to avoid conflict with the victims of the Lehrenkrauss clan, accepted the Trump/Demm bid.7
Although they would make some money processing mortgage payments, the real value in the business won by Trump and Demm was in the information they gleaned from the Lehrenkrauss operations. In the company’s recent records they discovered which homeowners were behind in their payments and when foreclosures were imminent. With this knowledge, they could offer to buy distressed properties before they ever went on the market.
As Fred Trump bought properties, he zeroed in on the Brooklyn neighborhood of East Flatbush, where, just thirty years before, farmers had grown produce to supply markets in Manhattan. The neighborhood’s transformation from rural to urban began when a real estate firm called Wood, Harmon and Company persuaded the Brooklyn Rapid Transit Company to extend trolley service that previously stopped at nearby Prospect Park. Wood, Harmon built fifty homes within a year. The neighborhood grew even more quickly when August Belmont’s Interborough Rapid Transit Company brought its subway down Nostrand Avenue. Suddenly convenient to commuters who worked almost anywhere in Manhattan, East Flatbush bloomed with new single-family homes, duplexes, and apartment buildings.
By the late 1930s, Fred Trump was piecing together lots to create large tracts where he built developments ranging from a few dozen homes to hundreds. His largest project was built on a long-vacant lot where the Barnum & Bailey Circus had performed under a big top. When the circus last visited East Flatbush in 1938, the star of the show was a gorilla with the stage name Gargantua. Buddy, as he was known to his friends, had been raised by an eccentric Brooklyn woman, who used to dress him in a shirt and pants and drive around the borough with him in her car’s passenger seat.
Close to two different subway stops, Trump’s circus-lot development was subsidized by the very same Federal Housing Administration that would come under Senator Capehart’s scrutiny in 1954. Created by Franklin Delano Roosevelt to help would-be home buyers, developers, builders, and construction workers, the FHA was a part of FDR’s larger New Deal effort to stimulate the Depression-era economy with the kind of government spending that economist John Maynard Keynes called pump priming.
Prior to the 1930s and the creation of the FHA, the federal government had no real housing policy, and homeownership was not the bulwark of middle-class status that it eventually became. Mortgage lenders required down payments of 50 percent or more, and loans typically became payable in full—this was called a bullet payment—in five or ten years. (Most homeowners refinanced before the due date.) In 1940, just 43 percent of Americans owned their homes. In more urbanized states, even fewer people did. For New York the figure was just 30 percent. In addition to FHA support for new housing, New Deal programs sparked a steady increase in ownership by aiding the creation of twenty-year mortgages for up to 80 percent of a home’s value and by insuring lenders against loss should a borrower default.
Although most Americans would struggle if asked to explain the difference between the FHA and Fannie Mae (the Federal National Mortgage Association), businessmen and politicians who followed the development of these programs recognized an opportunity. Real estate people saw a chance to do business on a much grander scale, with many more potential customers and greatly reduced risk. The pols saw big new bureaucracies that would be filled with Democratic appointees who would control millions and eventually billions of dollars’ worth of financing that could be given to favored applicants, if one was so inclined. In New York, the top FHA job went to a high school football coach turned lawyer named Thomas “Tommy” G. Grace. A World War I army veteran and a gregarious mainstay of the party clubhouse in the Brooklyn neighborhood of Bay Ridge, Grace was just thirty-nine when he was appointed in 1935. His brother was Fred Trump’s lawyer, and in August 1936 Tommy presented Trump with a plaque commemorating the federal government’s commitment to back the financing for a four-hundred-home development.
The little ceremony, which was noted in The New York Times,8 was a nonevent of the sort that businesspeople and politicians conceived and staged for the sole purpose of attracting publicity. Unlike real news events, which occurred spontaneously, these nonevents were preceded by “news” releases sent to editors and reporters, and they occurred at a certain hour with the participants following a preordained script. New York, where the first big public relations companies flourished in the 1920s, was the capital of this new business. The term public relations was coined by a New Yorker, Edward Bernays—a nephew of Sigmund Freud’s—who taught the first course in this trade at New York University in 1923.
Bernays believed that with the right combination of manufactured events, celebrity endorsements, and allies in high places, he could not only stimulate sales for a client but actually create trends, change fashions, or alter public policy. When short flapper styles destroyed demand for a client’s hairnets, Bernays got prominent women to declare they favored long hair, and he convinced regulators that hairnets should be required wherever women handled food or worked around machinery. Scant evidence existed that these new regulations were needed but Bernays was so persuasive that policies and attitudes changed and hairnet sales soared. He performed similar magic for luggage manufacturers who suffered because new styles allowed men and women to travel light. By the time Bernays was done, public health officials were telling people it was unsanitary to share a suitcase and luggage sales ticked upward.
Bernays was aided by what the critic Neal Gabler would call “the two-dimensional society,” which came with the spread of photo-rich tabloid newspapers and movie-theater newsreels that made people and events memorable to millions of people who could never access them in real life. The PR pioneer’s methods were so successful that in 1927 The Nation said he was ushering in “the Kingdom of heaven of the salesman.” He soon had legions of imitators, including run-of-the-mill bureaucrats and businessmen who discovered they could do it themselves. By feeding reporters a steady diet of announcements and events, they gained access to the new columns of the local papers. The free ink they received was more valuable than paid advertising because it was delivered to the public as legitimate news, recognized as such by professional journalists. Much of this manipulation was harmless, but in some cases PR practitioners—particularly those in politics—created scapegoats and public enemies through negative stereotypes.9
Deploying news releases at a steady rate, Fred Trump sought free publicity for everything he did, including serving as host for a company picnic. He got a couple of free column inches by simply announcing that one development in Brooklyn was one year old—“Flatbush Builder Celebrates”—and more inches just twelve days later—“Selling Homes in Flatbush”—by announcing he had completed forty sales in three weeks. That a development was a year old, or that a real estate man was selling homes, was “news” of the dog-bites-man variety. But somehow Trump got these items published, and the cumulative effect was good for business. By 1940 he was hailed as one of Brooklyn’s biggest builders in a report noting that his crews were bulldozing the last patch of forest in the borough. Paerdegat Woods, where Canarsie Indians once hunted, had been the site of a Revolutionary War skirmish between colonists and Hessian mercenaries during the larger Battle of Long Island.
Many of Trump’s developments were built on properties that he purchased from public or publicly regulated sellers including the City of New York and, in the case of Paerdegat Woods, the Brooklyn Water Company. Trump was not hurt in these deals by being extremely well-known to the city’s Democratic Party leaders. In any place or time, a real estate developer would be well advised to stay on good terms with local politicians. In 1940s New York it was also a good idea to stay on the right side of the mob.
As the end of Prohibition took away their liquor business, Italian American gangsters increased their presence in the construction industry and trade unions. These men used violence and the threat of violence to control the supply of materials and labor and determined which of the companies in their syndicate or “club” received contracts for major developments. The danger posed by these men was quite real. A double murder carried out by one group of Brooklyn mobsters against another brought unions representing painters and plumber’s helpers under the control of Louis Capone and his associates. The executions also signaled the seriousness of organized crime’s involvement in the trades. The mob bosses were so feared that with a word they could shut down a project and burden a developer with extra costs, or they could send cheap, nonunion workers to a site and thereby slash the price of labor. Sometimes the mob men required cash to keep the peace, or they forced a developer to pay for workers who never showed up. In other cases the cost was simply added to contracts. No matter the method, the Mafia’s involvement made construction in New York City more expensive, and more dangerous, than anywhere else in America.
After World War II, when the FHA turned to funding homes for veterans, Trump teamed with a mob-connected masonry contractor to develop his big Beach Haven project. Prior to joining Trump, William “Willie” Tomasello had partnered with figures in the Genovese and Gambino crime families in a number of real estate developments in New York and Florida. Tomasello’s presence at Beach Haven meant that Trump wouldn’t have to worry about disruptions in the supply of bricks, cement, lumber, or hardware. It also assured him access to reliable labor, including men who were not union members and could be paid at lower rates. Trump never again partnered with Tomasello. In 1990 Tomasello’s associate Louis DiBono, who worked with him on four subsequent projects, was found dead in a Cadillac parked in an underground garage at the World Trade Center in Lower Manhattan.10
More prosperous with every passing year, Fred Trump advertised his properties with billboards and air-dropped coupons promising discounts on his apartments. He began offering the press his opinions on issues of the day—including President Truman’s policies—and talked about running for borough president of Queens. Practically unique to New York City, the office of borough president had been created at the end of the nineteenth century, when the city was consolidated. The presidents sat on a council called the Board of Estimate and controlled local land use, development, franchises, and other city business. By custom they exercised veto power over certain mayoral appointments and decisions. The office was tailor-made for an inside operator such as Fred Trump. But his desire would be thwarted as he ran up against a power that wasn’t susceptible to the influences of the Brooklyn Democratic clubs or his friends at the courthouse.
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By 1954, various investigators had begun to reveal the widespread corruption of government and certain industries—construction, trucking, dock services—in many of America’s big cities. Senator Estes Kefauver’s Special Committee to Investigate Crime in Interstate Commerce had revealed the links between the Mafia and Tammany Hall and sketched the outlines of corruption in the construction business. A special New York State crime commission documented bribes to public officials, and a state senator from Manhattan called for a permanent grand jury to conduct a continual review of city business.
The reality revealed by Kefauver made Plunkitt’s graft seem quaint. As the committee showed, gangsters were using extortion, violence, bribes, and payoffs to control both public officials and private businesses. The details outraged Dwight D. Eisenhower and a handful of clergy in New York, who denounced the greed and self-dealing. “We have become a city that is a civic sewer,” said Rabbi William Rosenbaum of Temple Israel in Manhattan. However, the web of relationships that governed this shadowy world was so large and complex that only a true expert, and few existed, would know all the names of those involved. When Fred Trump appeared before the Senate banking committee, no one mentioned that his associate Willie Tomasello was also in business with organized crime figures. As the members of the banking committee and their aides amassed more than three thousand pages of testimony, they expressed no interest in the mobsters who hovered around the construction industry. They were concerned only with the windfall profits of developers and the bureaucrats who helped them.
Two of the committee’s main targets, FHA officials Tommy Grace and Clyde L. Powell, had acted as the chief enablers for developers in New York, and Trump was involved with both of them. A Democratic clubhouse regular and political man about Brooklyn, Grace had bestowed upon Trump his very first FHA contract and the commemorative plaque noted in The Times. According to committee investigators, Grace had received $48,000 from the law firm where his brother George represented many FHA applicants, including Fred Trump. George would eventually admit that some “green” had been passed to “get something done,” but in his official response to the government’s inquiry he said that no one should believe the brothers Grace had done anything illegal.
Fred Trump’s connection with Clyde L. Powell was documented by committee staffers, who found that Powell had acted on Trump’s behalf. For example, when the agency’s comptroller discovered problems in some of Trump’s paperwork, Powell simply excused him from complying with the rules. Powell did the same for other developers and somehow, while his official government salary never exceeded $10,000 a year, managed to amass $100,000 in a bank account. The investigators suggested that the money had been accumulated as payoffs from those who wanted the FHA loans Powell controlled. Before he got his government job, Powell had been arrested several times on charges of embezzlement and check fraud. He also had a gambling problem so severe that he once lost $5,000—half his annual salary—in a single night.
Remarkably, neither Powell nor Grace were actually discussed when Trump appeared before the Senate committee, and he was never asked, directly, whether he had given them any money or gifts. However, Fred Trump would pay a price, for his involvement in the scandal, as he lost access to the FHA program. But in his spirited self-defense he made a much better impression than his fellow developers who, as the saying goes, “took the Fifth.” Despite his convoluted answers, Fred Trump came across as cooperative. By the end of the afternoon Chairman Capehart had so thoroughly warmed up to Trump that he thanked him for appearing and assured him that the committee had been “glad” to listen to him.
Finished with his testimony before sundown, Fred Trump caught a flight to New York so he could end the day at his home with his family in the tony Jamaica Estates neighborhood of Queens. In one of those small-world moments that was more likely when only about three hundred flights were departing daily from National Airport, he ran into the senator, who was also headed for New York City. Capehart told him, chirpily, that America needed more housing so Trump should “keep up the good work.”11