In November 2006, a limited liability company called “John Hannah LLC” bought Apartment 43G in Trump Tower from David Barger, one of the founders of JetBlue Airways. The purchase price was $3,675,000, and the entire sum was paid in cash.1 There was, and is, nothing unusual about such a transaction: thousands, if not tens of thousands, of similar transactions take place every year in New York City. American laws, largely written by lobbyists and supported by both Republicans and Democrats, have long been friendly to anonymous shell companies, and by 2006, New York City was vacuuming in money from around the globe.
There is, actually, a human being named John Hannah, a former national security advisor to former vice president Dick Cheney. But the real John Hannah has nothing to do with “John Hannah LLC,” a limited liability company named by combining the middle names of Paul John Manafort and Rick Hannah Davis,2 two business partners who, even in 2006, had conducted a number of business transactions with oligarchs in Russia, Montenegro, and, increasingly, Ukraine.
By 2006, Manafort had worked as a strategist on four Republican presidential campaigns, beginning with Gerald Ford. When he wasn’t working on campaigns, Manafort sold high-level access to politicians with the busisness model he’d invented with Roger Stone, hiring himself out as a strategist and lobbyist for some of the most brutal strongmen on earth: Ferdinand Marcos of the Philippines; Mobutu Sese Seko, of Zaire; Angola’s South Africa–supported rebel leader, Jonas Savimbi, known for perpetrating a bloody thirty-year war.
In early 2004, Manafort made a new business contact: the Russian oligarch Oleg Deripaska. Deripaska had become a billionaire by emerging a victor of “the aluminum wars” in the former Soviet Union, where people were killed in the struggle over who could control the newly privatizing Russian aluminum industry. Deripaska’s role in the aluminum wars and possible ties to organized crime led the US State Department to refuse to issue him a visa for years.3 (Deripaska’s “official spokesperson” said in a statement that “any suggestion he acted improperly in so-called aluminum wars is false,” and denied any ties to organized crime.)
If becoming a billionaire in Russia in the post-Soviet era required a deadly sangfroid, keeping that money meant staying on the good side of Vladimir Putin, and indeed, an email released in the early days of WikiLeaks claimed that Deripaska had boasted of making himself “indispensible to Putin and the Kremlin.” (Deripaska denies saying this.)4 As the Atlantic’s Franklin Foer reported in his Manafort masterwork, “The Plot Against America,” Manafort soon went to work for a Deripaska friend, a Georgian politician and former KGB agent who’d previously been accused of plotting to assassinate that country’s president.5
The political campaign was unsuccessful, but Manafort and his partner Rick Davis mounted a successful referendum for independence in Montenegro, “an effort that Deripaska funded with the hope of capturing the country’s aluminum industry,” Foer wrote.6 (Deripaska disputed this.) By 2005, Manafort and Davis felt emboldened enough to make another pitch to Deripaska, to “influence politics, business dealings and news coverage inside the United States, Europe and former Soviet republics to benefit President Vladimir Putin’s government,” according to documents uncovered by the Associated Press.7 (Deripaska’s spokesperson said that he had “never received, nor requested, any such proposals.”)
But Manafort soon went to work on another Deripaska proxy battle: to thwart a movement for the renationalization of steel mills in Ukraine. The privatizations had led to massive job loss and widespread hunger. In 2004, a candidate named Viktor Yushchenko was running for president, and the oligarchs feared he would renationalize the steel mills. During that campaign, Yushchenko was poisoned; the poisoning caused his face to be disfigured by permanent lesions. Yet he ultimately won. According to documents and testimony in the later trial of Manafort, the oligarchs then hired Manafort to counter Yushchenko.8 In the US political system, wealthy people have to contribute to candidates, who then hire the strategists. In Ukraine, the route is direct: the oligarchs just paid Manafort to install a compliant politician to maintain their control of the steel mills. In this case, the politician was a former prime minister named Viktor Yanukovych, an apparatchik from Eastern Ukraine who was jailed twice in his youth for violent crimes. (His official bio said the convictions were quashed.)9
Manafort began his work by taking a poll for one of the oligarchs, steel magnate Rinat Akhmetov. The poll laid out the sharpness of the challenge: 87 percent of Ukrainians “said that they would not like to see Yanukovych as Prime Minister ever again.”10 But, with Manafort’s help, Yanukovych led his party to victory in 2006, and four years later, he was elected president. Akhmetov paid Manafort handsomely, and in 2005–2006, according to a document released by prosecutors from the Special Counsel’s Office, so did Russian oligarch Oleg Deripaska.11 (Deripaska disputes paying Manafort for Ukraine work.) Eventually, tax filings showed that a ten-million-dollar loan traceable to Deripaska was made to John Hannah LLC. At the end of 2006, John Hannah LLC purchased apartment 43G in Trump Tower, just an elevator ride down from the penthouse triplex of Donald J. Trump, for $3,675,000 in cash.
The apartment was a smart investment. According to an analysis by the Furman Center at New York University, from 2006 to the time Manafort went to work as campaign manager for Donald Trump in 2016, Manhattan apartments increased in value by fifty percent.12 In Washington, Albany, and New York City during the aughts, government policies were making it easier for wealthy men like Manafort and Trump to get even richer.
There were, first, two George W. Bush tax cuts. The initial one, in 2001, had been conceived during the 2000 presidential campaign as a way to dispose of a surplus accumulated during the Clinton years. Yet it was pitched as a populist measure. “Let’s start where the need is greatest: with social mobility for hard-working American families,” Bush said during the campaign. By mid-2001, with recessionary storm clouds hovering on the horizon, Bush recast the same proposal as a stimulus package. The Economic Growth and Tax Relief Reconciliation Act of 2001 cut the highest tax bracket from 39.6 percent to 35 percent, erasing a tax on the wealthy that Bill Clinton had enacted. Bush’s law cut taxes for everyone—though reducing percentages at the bottom of the scale provided de minimis relief for those making less than $20,000, a fact Bush advisor Larry Lindsay acknowledged to Jonathan Chait, then writing for the New Republic. “If you don’t pay taxes,” he told Chait, “it’s very hard to get a tax cut.”13 Most significant, the tax cuts of 2001 phased out the estate tax and the generation-skipping tax, eliminating them entirely for 2010.14
In New York, too, the wealthy were getting an assist from their new technocratic, billionaire mayor, Michael Bloomberg, who had won election months after the 9/11 attacks after spending $73.9 million of his own money, more than double the cost of any previous self-financed campaign in American history. Bloomberg was a rationalist, a great believer in his own ability to manage his way out of any crisis. His early years were characterized by a share-the-pain approach—budget cuts, tax hikes, borrowing—but all of that was overshadowed by the overweening need to rebuild a city in which the smell from the rubble of the World Trade Center still pervaded the blocks around City Hall.
That rebuilding effort soon transmogrified: Bloomberg was remaking the city. In 2003 and 2004, with a fervid eye on securing the 2012 Olympics (which went to London), Bloomberg’s administration pushed through a frenzied set of rezonings in Greenpoint, Williamsburg, and downtown Brooklyn, along the East River in Queens, and on the West Side of Manhattan, giving developers the right to build up and up, instantly doubling and tripling and quadrupling the value of their land.
In Washington, Bush cut taxes again. The cumulative result of his two tax cuts, according to economist Joseph Stiglitz, writing in Vanity Fair, was that by “2012 the average reduction for an American in the bottom 20 percent will be a scant $45, while those with incomes of more than $1 million will see their tax bills reduced by an average of $162,000.” There was another, ancillary effect, Stiglitz argued: with the presidential administration preoccupied by tax cuts, “the job of economic stimulation fell to the Federal Reserve Board, which stepped on the accelerator in a historically unprecedented way, driving interest rates down to 1 percent.”15
Cheap borrowing meant not only that it was easy for consumers to get money, but also that international investors would soon be prowling for higher-yielding places to put their money than US Treasury bonds, as Adam Davidson and Alex Blumberg reported for This American Life’s “Giant Pool of Money” episode. “Among the many things they put their money into,” Davidson said, “there was this one thing that they fell in love with”: mortgage-backed securities.16 These were investment instruments that packaged and resold and repackaged again a mix of mortgages. So long as the housing market went up, the whole system worked.
New York City real estate beckoned to international oligarchs like Lev Leviev, an Uzbek-Israeli diamond magnate and self-described friend of Putin who was a major backer of Chabad in Russia—Putin’s favored Jewish group.17 In late 2004, Leviev began growing his New York business. His companies bought properties as diverse as the $170-million 20 Pine Street, a thirty-five-story office tower near Wall Street18 (it would later figure centrally in a Russian money-laundering scheme, in which Leviev was not implicated19) and, for $8 million, a plot of land along the well-situated but heavily polluted site known as the Gowanus Canal in Brooklyn.20 There were soon more purchases, in SoHo and Tribeca in Lower Manhattan, and eventually, in 2007, Leviev bought the former New York Times Building on West Forty-Third Street in Manhattan for $525 million.21
In 2003, Donald Trump and his siblings had decided to make, uncharacteristically, a quiet real estate deal. Before the success of The Apprentice, needing cash for his casinos, Donald Trump urged his siblings to liquidate their father’s real estate assets. Fred’s empire was still producing profits, but as the New York Times reported it, Donald’s siblings didn’t object. On May 4, 2004, the family sold off all of Fred’s real estate for $737.9 million, hundreds of millions of dollars less than it had been appraised.”22
This meant that, as the housing market softened, Trump had some cash. He rooted for a crash. “Well first of all, I sort of hope that happens because then people like me would go in and buy. You know, if you’re in a good cash position—which I’m in a good cash position today—then people like me would go in and buy like crazy,” he said in an audiobook released in 2006. “If there is a bubble burst, as they call it, you know, you can make a lot of money.”23
This was the period when he was positioning himself as a guru of real estate. Two years earlier, Trump had been approached by a golf buddy, a senior managing director at Bear Stearns, Jonathan Spitalny. Spitalny introduced Trump to a man named Michael Sexton, who had an idea: he wanted to license the Trump name to sell real estate advice in the form of online seminars. The initial concept was that actual experts from actual universities would hold online “classes” in business and real estate. And though it wasn’t actually a university, and though they were warned by New York State not to advertise it as such, they named it “Trump University.” This seemed, like so many ideas that came to Trump in the mid-aughts, like a way to get free money: he could sell his name and take no risk. Soon, though, Trump decided that he wanted to invest and took a 90 percent stake in the company.
The idea of webinars had yet to catch on, and the web class approach was further complicated by the target audience: adults in their mid-forties and older, who were the least likely demographic to pioneer online learning. About a year after, Trump University pivoted from a web-based service to live events.
This is when Trump University became pure sales pitch, a way to separate middle-class people from their money and divert it to the Trump family business. Trump University offered an initial free ninety-minute session, which served mainly as a hard sell for a three-day event costing $1,495. But that event, hundreds of victims told the New York Attorney General’s Office, was actually “an upsell to increasingly costly ‘Trump Elite’ packages starting at around $10,000 and ending with what was supposed to be a year-long personal mentorship program at a cost of $35,000.”24 Victims told the AG that they were pulled out of sessions and encouraged to call their credit card companies to increase their credit limits so they could afford these sums. They were driven around by unprepared “instructors” who had simply pulled real estate listings off the internet. One woman spoke of how she had been induced to buy a Florida property for $35,000, only to realize that the wiring wasn’t up to code, the roof was faulty, and there was no washer-dryer.
Trump University launched as The Apprentice was hitting its stride. Donald Trump was not a successful real estate magnate at that moment; he only played one on TV. He never actually divulged any of his “personal real estate secrets,” as the Trump University students were assured he would. They were told Trump had “handpicked” the instructors. But, the complaint said, “not a single one was ‘handpicked’ by Donald Trump.” Most “instructors” weren’t actually instructors, didn’t have a background in real estate and “some came to Trump University shortly after their (own) real estate investing caused them to go into bankruptcy.” The students were promised they would “recoup the cost of the courses in a few months, with access to ‘insider’ financing and close mentoring by Trump instructors.” Consequently, “relying on these representations, individuals spent thousands of dollars of their savings or took on thousands of dollars in debt—while Trump University brought in over $40 million in revenue.”
This was not an arm’s-length licensing scheme. Trump University’s operations were managed day to day by the Trump Organization. Though there were nesting LLC companies set up to shield the Trump Organization from liability, “almost none of the formalities of a separate corporate existence were observed by Trump University or the limited liability companies through which Donald Trump purported to hold his stake in it. Trump University could not even issue its own checks, and it never held a board meeting,” the charging documents said. Check-writing privileges were reserved for Donald Trump; his three adult children Don Jr., Ivanka, and Eric; and his chief financial officer, Allen Weisselberg.25 In the course of its investigation, the New York AG found that Donald Trump had written himself such checks, personally withdrawing the sum of five million dollars.
In 2008, Trump sold a house in Palm Beach for $95 million, one he’d bought out of bankruptcy a few years earlier for $41 million. Maison de L’Amitié, it was called, French for “house of friendship.”
“I sold the house in Palm Beach about fifteen seconds before—for a hundred million—fifteen seconds before the depression came,” Trump told journalist Deborah Solomon in a 2009 interview. “That’s the highest price—I consider that to be the high-water mark or the low-water mark depending on your definition of this country, because that’s the only time a house ever got 100 million dollars.” Trump explained to Solomon that he purchased the home to fix it up though, he said, he spent only “twelve dollars to fix it up,” just to have it painted, before putting it on the market, when he sold it to “a Russian.”26
The Russian was a forty-one-year-old billionaire named Dmitry Rybolovlev. As described by Politico, “with a net worth that Forbes estimated at $13 billion, Rybolovlev had made his fortune in the wild west of 1990s post-Soviet Russia. He’d spent a year in prison on murder charges (he was later cleared) and wore a bulletproof vest when his own life was threatened.”27
When Trump sold the mansion to Rybolovlev, the financial markets were crashing. The freely issued, shakily backed subprime mortgages that had been scooped up and packaged together as the miracle financial instrument of the new century began to unravel, symbolic of banking’s disturbing comfort with backing investments built on quicksand. Bear Stearns fell. Then Lehman Brothers. Its employees, wearing jeans and pastel-colored polo shirts, were filmed leaving their offices, brown cardboard file boxes in their hands.
That very day, an article appeared in a real estate industry publication, eTurboNews. The headline was “Donald Trump Jr. Bullish on Russia and Few Emerging Markets.” Don Jr. had been interviewed during a real estate conference that had taken place from September 9 to 12 in New York City. As Wall Street was collapsing, the Trump family was looking abroad. “The emerging world in general attributes such brand premium to real estate that we are looking all over the place,” Don Jr. said in the interview. “There is a lot of new money in the emerging markets which appeal to certain brands whether ego-driven or having the life-jacket effect that we feel gives added-value to our investment.”
There was one place in particular where this seemed particularly true. “In terms of high-end product influx into the US, Russians make up a pretty disproportionate cross-section of a lot of our assets,” Don Jr. said, adding that Russians were buying Trump real estate “in Dubai, and certainly with our project in SoHo and anywhere in New York. We see a lot of money pouring in from Russia.”28
The American real estate world was sinking. Flight capital, particularly from Russia, was keeping the Trumps afloat.
The Trumps weren’t the only real estate business drawing Russian money before the crash. Attracting foreign money to New York was a deliberate policy of Mayor Michael Bloomberg; both in his governing and in his business, he encouraged the flow of global capital through New York. His administration’s construction of bike lanes and pedestrian plazas, his espousal of congestion pricing to fund mass transit, all were deliberate and successful attempts to make New York an attractive investment prospect for global business and investors.
The foreign capital parked in New York real estate had a transformative effect on the city, particularly midtown Manhattan. “In a large swath of the East Side bounded by Fifth and Park Avenues and East 49th and 70th Streets, about 30 percent of the more than 5,000 apartments are routinely vacant more than 10 months a year because their owners or renters have permanent homes elsewhere, according to the Census Bureau’s latest American Community Survey,” Sam Roberts reported in the New York Times at the decade’s end. “In one part of that stretch, between East 53rd and 59th Streets, more than half of the 500 apartments are occupied for two months or less.”29 On a map, this is the area radiating out from Trump Tower.
The flow of foreign capital in many ways protected New York City from the worst effects of the Great Recession. But it also drove up prices at an astronomical rate: a Manhattan apartment costing $1,000,000 in 2001 would be worth $1,872,000 a decade later.30 Wages did not keep pace. For the middle class, housing ownership slipped beyond reach, pushing rents even higher. Though the city built and built and created more supply, the demand was insatiable. In Harlem, property values jumped 222 percent and in East Harlem, median market rents went from roughly $1,200 in 2002 to $1,900 in 2011.31
Housing was just one measure of rising income inequality in New York City. According to the city’s own poverty measure, roughly 46 percent of New Yorkers were poor or “near poor” in 2011. For a family of four, that meant earning under $46,416 annually.
Mayor Bloomberg testily defended this social order. “If we can find a bunch of billionaires around the world to move here, that would be a godsend, because that’s where the revenue comes to take care of everybody else,” Bloomberg told New York magazine as he wrapped up his years in City Hall. “Who’s paying our taxes? We pay the highest school costs in the country. It comes from the wealthy! We have an $8.5 billion budget for our Police Department,” Bloomberg continued. “We want these people to come here, and it’s not our job to say that they’re over- or underpaid. I might not pay them the same thing if it was my company—maybe I’d pay them more, I don’t know. All I know is from the city’s point of view, we want these people, and why criticize them? Wouldn’t it be great if we could get all the Russian billionaires to move here?”