The Fall of the House of Trump

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.”
Ernest Hemingway, The Sun Also Rises

A New York judge has issued an order that essentially gives the Trump Organization the corporate death penalty. Judge Arthur Engoron’s order rescinds the Trump Organization’s business charters and puts Trump’s corporate empire into a receivership. Ultimately this may do just as much or more to end Donald Trump’s reign as the many criminal indictments against him.

The Trump Organization is in the bullshit business. Real estate is just the side hustle. Trump shamelessly slapped his name on anything he could—golf courses, steaks, a failed airline, even vodka (which tee-totaling Trump does not drink). Trump is right that the main source of his revenue was through his “brand,” a brand which is now synonymous with right-wing extremism. But ultimately Trump is incredibly cash poor and highly leveraged. His real-estate empire was basically an attempt to get more and more money from lenders to keep his incredibly-leveraged empire afloat.

Now, that scheme is falling apart. Trump was already radioactive to most banks, forced to go to less savory banks connected to Saudi and Russian oligarchs. But Trump needed legitimate assets to do that, including Trump Tower and his Mar-a-Lago club. Now, Trump has run out of both legitimate assets and likely the revenue streams he needs to keep his secured creditors at bay.

Trump’s money, real or imagined, is what kept everything together. Now Trump has a voracious need for cash, not only to keep his quasi-campaign afloat, but to pay his lawyers in his numerous criminal cases and keep his standard of living going. Right now Trump is quite adept at fleecing his followers with everything from t-shirts to worthless NFTs. But that is likely not going to be enough. While their may be a sucker born every minute, Trump needs a lot of suckers to keep himself afloat, and sooner or later that well will run dry.

The question becomes what happens next. Trump will certainly appeal Judge Engoron’s ruling. That appeal is highly unlikely to change anything, but it may delay the process. However, no matter what happens, Trump’s access to credit through conventional means is likely to be incredibly curtailed. That leaves Trump even more at the mercy of Saudi autocrats, Russian oligarchs, and other unsavory characters than he already is. Whether Trump can get enough support outside of banks depends on whether the Saudis, Russians, etc. see him as a valuable investment or simply damaged goods. The more legal hot water Trump gets into the less his “Teflon” appearance becomes.

Just as in Hemingway’s quotation above, Trump’s downfall could be gradual then incredibly sudden. Trump has so far been incredibly adept at avoiding the consequences of his actions, but this ruling strikes at the heart of who he is and who he makes himself out to be. At some point Trump’s luck and bluster will run out. His only hope at this point is to win the Presidency and use the power of his office to make his legal troubles go away. Sadly for the country, there remains a precipitously high chance that could happen. But the entire Trump mystique is based on him being the world’s greatest businessman. That has never been true, and the collapse of Trump’s empire of bullshit might be more personally devastating to him than even a jail sentence.

On The Death Of Twitter

Elon Musk’s purchase of Twitter for the vastly-inflated price of $44 billion is probably the singularly largest and most rapid destruction of corporate value in the history of American business thus far. While there have been plenty of terrible deals in American history – AOL/TimeWarner stands out as an example, it took years for those business deals to turn sour. Musk has managed to destroy Twitter in a matter of weeks.

While Musk had been known as the visionary genius behind Tesla’s electric cars and SpaceX’s incredible rockets and spacecraft, he has managed to torch not only a social networking site, but his own mystique. Instead of a tech visionary, Musk looks like a terminally uncool and out-of-touch shitposter with a boundless ego and an equally boundless sense of self-importance. Because Musk heavily leveraged his Tesla shares, it is quite possible that he could lose control of that company. Given that NASA and the Department of Defense are some of SpaceX’s largest and most important customers, the backlash to Musk’s radicalism could (and probably should) cause him to be ousted from that company as well. And the next time SpaceX needs a capital raise how many investors will see the garbage fire that is Twitter and think that giving Musk more money is a sound investment? Musk’s infantile antics have real-world implications for both him and his companies.

I said that if Musk reinstated The Former Guy, I would leave the site. He did, and I did. What is even more pathetic is that Musk is practically begging TFG to return to Twitter. While TFG would certainly get a bigger audience at Twitter than at his private internet pigsty Truth Social, TFG seems uninterested in returning. Knowing how TFG loves making others squirm, Musk’s pathetic entreaties must tickle the Mango Mussolini of Mar-A-Lago. But given the choice of playing on Musk’s playground or the one he owns completely, TFG appears content to stay put.

Not only has Musk invited TFG back to the site, but he is actively restoring the accounts of every shitposter, racist, and fool he can find. Project Veritas, the painfully unfunny Babylon Bee, the idiot’s intellectual Jordan Peterson, etc. Musk is rapidly turning Twitter into a virtual Mos Eisley Cantina – a digital den of scum and villainy.

Musk’s idiotic business deal means that Twitter needs to bring in roughly twice the revenue it has ever had just to service the site’s massive debt obligations. The math behind Twitter’s debt obligations simply does not work. In order for Musk to keep the lights on at Twitter he needs to find a source of revenue.

Unfortunately for Musk, he has pissed off advertisers to the point that major firms have already begun pausing or even cancelling campaigns. Major brands do not want their ads next to a racist rant from “JewHatr1488.” Instead, Musk has been pushing for the $8 “Twitter Blue” subscription model, that includes some additional features and a “verified” checkmark. However, Musk failed to understand that the purpose of verification was not to make a user seem cool, but to ensure that everyone else knew that user was legitimate. This misunderstanding led to a clusterfuck of epic proportions as people used Twitter to impersonate major brands. If Musk had already been on thin ice with advertisers before, the botched Twitter Blue rollout made things infinitely worse.

Even if Musk is content to let Twitter go without its main source of revenue, the idea that people are going to pay $8 a month for a septic tank of a website seems hopelessly naive. The only value of a social media site is its people. And as normal people leave Twitter in droves, whether decamping to Mastodon, Instagram, or any of the up-and-coming sites like Hive or Post, the value of Twitter drops even more. Most people are not going to wade through a sea of filth just to hear what their friends are doing. And even fewer still are going to pay $8/month for the privilege of doing so. The chances that Musk is going to make enough money to even come close to servicing Twitter’s debt obligations with Twitter Blue subscriptions is naive at best, and catastrophically idiotic at worse.

This does not even touch on the way in which Musk’s has mismanaged Twitter’s employees. Musk’s management strategy is basically “the lashings will continue until morale improves.” The employees that Musk has not fired either as a headcount reduction strategy or in fits of pique have largely left. At this point the skeleton crew that is left tends to be people who have few other options, like H1-B visa holders that cannot leave without the risk of deportation.

The fact is that Elon Musk is someone so desperate for any kind of attention that he will burn billions of dollars in cash to do so. The purchase of Twitter was not a savvy business move—it was a toddler’s tantrum. Musk’s crowing about Twitter’s spiking usage shows how he fundamentally misunderstands his position. Gawking at a dumpster fire brings eyeballs, but it does not bring revenue. Insulting users is not going to make people want to stay on the site, and once a critical mass leaves, the rest will follow. It is quite possible that critical mass has already left. From my experience, most of the people I follow have already decamped to Mastodon. Despite Mastodon’s issues, it is far less toxic.

In the end, Twitter is likely to collapse. There are plenty of ways in which Twitter could die in very short order. The mass firings of engineers could cause the site to slowly break down to the point that people just do not bother. Elon’s blatant violation of Twitter’s FTC consent orders could cause ruinous fines or even personal liability. Google and Apple could see a Twitter that’s become a haven for porn, piracy, racism, and trolling and decide to boot the Twitter app from their respective app stores. Twitter could simply run out of money and have to file for bankruptcy. There are a million ways that Twitter could die at this point and very few scenarios in which the site survives.

Business and law textbooks will no doubt have lengthy chapters on Musk’s Twitter acquisition and its fallout. None of them will be flattering to Musk.

Can America Do Big Things Again?

Neal Stephenson, long one of my favorite authors, has a crucial and timely article asking whether America can still do the “big stuff” anymore. In the latter half of the 20th Century, Americans landed men on the Moon, cured several diseases, increased the ability for the world to feed itself, and invented the modern technological age. Even in the former half of the 20th Century we invented the airplane, created the Atomic Age, won two World Wars, and survived a depression worse than the one we are living in now.

But what have we done lately? Stephenson notes our cultural and technological malaise:

My lifespan encompasses the era when the United States of America was capable of launching human beings into space. Some of my earliest memories are of sitting on a braided rug before a hulking black-and-white television, watching the early Gemini missions. This summer, at the age of 51—not even old—I watched on a flatscreen as the last Space Shuttle lifted off the pad. I have followed the dwindling of the space program with sadness, even bitterness. Where’s my donut-shaped space station? Where’s my ticket to Mars? Until recently, though, I have kept my feelings to myself. Space exploration has always had its detractors. To complain about its demise is to expose oneself to attack from those who have no sympathy that an affluent, middle-aged white American has not lived to see his boyhood fantasies fulfilled.

Still, I worry that our inability to match the achievements of the 1960s space program might be symptomatic of a general failure of our society to get big things done. My parents and grandparents witnessed the creation of the airplane, the automobile, nuclear energy, and the computer to name only a few. Scientists and engineers who came of age during the first half of the 20th century could look forward to building things that would solve age-old problems, transform the landscape, build the economy, and provide jobs for the burgeoning middle class that was the basis for our stable democracy.

Stephenson points out that we are no longer a society that embraces risk in the way that we have in previous years. If we want to advance as a society and continue to provide a better life for our children, we have to embrace the idea that no great advancement comes without substantial risk. Yet our culture, our politics, our whole society has turned its back on the spirit that produces the next batch of great entrepreneurs.

The Lost Spirit Of American Entrepreneurship

From childhood, we are systematically smothering the initiative of our children. We fret about vaccinations (one of the greatest life-saving technologies of the last 200 years), we worry about them falling on the playground. We have overblown fears that any moment a child predator will snatch them up, and we imprint that fear of the world onto them.

We don’t let our children explore the way they used to. The chemistry set has been practically banned out of existence. It used to be that children could learn about engineering and science by actually building things themselves—instead, we encourage children to color inside the lines, sit down, do what they are told, and accept the guiding hand of authority.

That is not how you raise a culture of entrepreneurial risk-takers. That’s how you raise a culture of middle-managers.

And that same aversion to risk continues on in our politics. Our politics is not about the future, but about the past. Look at the Democratic Party: what is their bold political position for the future? It’s going back to the New Deal. For that matter, the Republicans aren’t much better: they envision a return to a more restrained system of government—but they can’t seem to elucidate why that benefits the future of the country except in the most nebulous way.

That’s because our politicians are more concerned about preserving the past spoils system than launching the future. Our political class suffers from a severe lack of vision: instead of bolding charting new courses, our political system has become largely about managing our decline. That isn’t all bad—we don’t really want a system of government that leaps from bad idea to bad idea. But our Founders didn’t want a static system of government either: they wanted the states to retain sovereignty so that they could become laboratories of democracy and experiment with new and better systems of governance. But the creeping centralization of Washington has eliminated the ability of the states to do much other than comply with the demands of the D.C. nomenklatura.

Reclaiming America’s Future

What can we do to restore America’s future? We have to stop placing roadblocks in our own path. What we need can’t be legislated from the top-down, it has to come from the grassroots up. We need a culture that encourages and fosters responsible risk-taking. That requires parents to stop living in fear and let their children learn. That requires a culture that doesn’t coddle future generations, but gives them room to explore. That requires us to stop sliding comfortably into decline and start taking personal responsibility for the future.

We are still a culture that can do great things. We still have innovators like Bill Gates, Steve Jobs, Elon Musk or Jeff Bezos who can provide instructive examples. We could, if we desired, return to the Moon and create a lasting human community outside the bounds of Earth’s atmosphere. We could, if we desired, became a nation where great technological leaps once again happened in the garages of individual innovators. There are subcultures in America that are not only dedicated to making things again, but could revolutionize manufacturing for the entire world.

America in 2031 can be a country where small innovators use computers and 3D printers to design amazing new technologies and take them from the drawing board to reality in hours rather than days. Or, America in 2031 can be a country where what few resources we have left are being fought over in an intergenerational battle between young and old.

We can’t hope for government to solve our current economic and cultural crisis—only rekindling the American spirit of innovation can get the economy growing again and allow us to have another period of growth and optimism.

America can to great things again. The question is whether we’re willing to do what’s necessary to get there.

Getting To A Real Stimulus

Carl J. Schramm has a great piece on why the real focus on stimulating the economy should be on growing the entrepreneurial class:

Only private enterprise — in particular high-growth start-ups — will create the jobs and the wealth to right America’s listing economy. That is, if we let them.

What our economy most needs is another outbreak of entrepreneurial energy. It is waiting to happen all around us. As people face layoffs, many take with them wonderful ideas for entirely new products and services. Layoffs are tough, but they need not spell doom. The average age of those who found high-tech companies in this country is 39. In fact, twice as many founders are older than 50 as are younger than 25. The end of one career can be the beginning of another.

Some people getting pink slips might have ideas that could become entire new industries. Indeed, some of America’s largest and most successful firms were started in recessions or bear markets or both — including General Electric (founded in the wake of the Panic of 1873), IBM (started in the last year of the recession that followed the Panic of 1893), United Technologies (same year as the 1929 crash), Microsoft (1975 depth of “stagflation”) and Guess (1981, worst post-World War II recession to date).

He’s absolutely right—in a normal recession, the way to rebuild is through what Joseph Schumpeter called the process of “creative destruction”. Basically, the old system that had failed is replaced at the grass roots with a new system—new businesses, new ways of doing things, new technologies. Those new businesses form the basis for not only an economic recovery, but a stronger economy.

That is, so long as government doesn’t try to prop up the old, unsustainable system.

Schramm is right: what we so desperately need now is not more bailouts, but more creative destruction. The seeds for our economic renewal are being planted all around us. The future is not with General Motors, it’s with Tesla Motors and Aptera Motors. There are a million garage inventors out there who right now are creating advances that will fundamentally change our world.

34 years ago on this date, a group of these inventors met in Menlo Park, California. This was deep in another recession. They were visionaries and dreamers who didn’t have the backing of government research programs or big corporations. They were the Homebrew Computer Club, and if that meeting had never happened, your iPod, iPhone, and probably even your PC would likely never had existed.

Now, imagine an alternate reality in which the government, concerned about the very real environmental impact of all these people working with heavy metals and dangerous components, decided to heavily regulate or even ban their use. The only way to build a computer would be to get a government license and go through an elaborate set of “safeguards” to prevent any potentially hazardous materials from being introduced into the environment. There would, of course, be major fines for violating these rules. If a young Steve Wozniak’s first Apple I prototype fizzled, it would cost him $25,000 to properly dispose of it.

Would Wozniak and Jobs have gone on to found Apple? Would the Mac I’m using to write this post have existed? Almost certainly not. Our world would have no iPods, no iPhones, and the Internet would remain a military communications network accessible only be a handful of tightly controlled machines. The microcomputer revolution would have been strangled in its crib.

The hypothetical government regulations weren’t all that unreasonable—early computers were filled with all sorts of dangerous contaminants, from lead to PCBs. One could have made a perfectly reasonable case for doing exactly what the government did in that hypothetical—and people do much the same all the time.

Yet the results would have been a much weaker economy and a much less prosperous world. Without the Homebrew Computer Club, there would have been no Apple Computers—and Apple employs tens of thousands of Americans today.

That is why we need entrepreneurs in this country. That is why a top-down program will never work. When government picks winners and losers, they will inevitably pick some of them wrong. In fact, they are quite likely to get all of them wrong. The “winners” in a top-down system will be the firms with the most political clout. Such a system rewards the ones with the most lobbyists, not the best ideas.

Right now businesses are scaling back. It’s not just Obama’s promise to increase the highest marginal tax rates, it’s also his promise to raise the cap on FICA and reduce the phase-outs on crucial deductions. Add to that an increasing state and local tax burden, and the very class of people most likely to give us those future jobs are hurting and expecting to hurt even more.

A real stimulus would be to get government as far out of the way as possible. That means government should promote innovation from the bottom up rather than the top down. We need more tax credits for American small businesses—the employers of half of the American workforce. We need fewer painful regulations that that end up hurting entire industries. We need to ensure that people like those visionaries who met in Menlo Park 34 years ago have a chance to bring their dreams to fruition.

Scramm goes further with even more substantive ideas for beating this recession: a payroll tax holiday, exempting new business owners from capital gains, cross-state purchasing of health plans, and other very strong and very achievable ideas for rebuilding this economy. These are ideas that should take precedence over yet another top-down bailout of industries that have already failed.

Creative destruction is really just creative reconstruction. America needs to look forward, not try to prop up a system that just isn’t working. Government is the friend of big business, and efforts to regulate benefit those with the biggest lobbyists who can influence the rules and grease the right palms. If we want a better future, it will come not from the top down, but from the bottom up. Schramm is right: entrepreneurs are the key to getting out of this mess. If we’re not going to give them the opportunity to succeed, then we are potentially losing the chance for the next Apple, Microsoft, or even General Electric to transform our future for the better.

Atlas Is Shrugging

The U.S. economy shed 598,000 jobs in January, the worst job loss since 1974. There is no doubt that the U.S. economy is in a state of crisis. Our government is only making it worse.

It is more than mere coincidence that this huge job loss occurred in the same month that President Obama signed the Lily Ledbetter Fair Pay Act into law. The Ledbetter Act basically means that employers can be sued for “paycheck discrimination” years after the events occurred. In Ms. Ledbetter’s case, the alleged discrimination happened so far ago that the supervisor involved had not only left the company, but died. This Act, instead of making things “fairer” for employees, puts a massive burden on employers who now have to worry about lawsuits stemming from events decades old.

This is what the business environment will be like under the Obama Administration. There will be more regulations and those regulations will be written by representatives of big industries and radical special interests. There will be higher taxes on everything from corporate income taxes to personal income taxes to the estate tax, and there is a strong possibility of a carbon tax that will raise prices on every single good that needs shipping. The web of regulations, higher taxes, and the way society is treating the very idea of entrepreneurialism is making American business falter.

The result: more lost American jobs.

This “stimulus” bill will not help. It will give hundreds of billions to political contributors, and barely anything to American small business. Big business, the ones with the lawyers and lobbyists, have already gamed the system. The Democratic Party has no room for the interests of American small business, even though their employees are half of the American workforce. The situation for American small business will be dire: not only will there be more taxes, more regulation, and more self-righteous condemnation from Washington, but the credit markets are still tight. Unless you’re in a field that will be the recipient of government spending, like health care or road construction, forget hiring employees, you have to cut expenses to the bone right now.

American jobs are being lost because we are punishing the people who create them.

President Obama and the irresponsible Congressional Democrats are pushing this recession into a depression. Their wrong-headed pro-government economic policy is turning America into a banana republic. It is crucial that they be stopped.

Atlas is shrugging, and the world is at the brink of tumbling right off.

Ruining The Experience

I was one of the first ~~suckers~~early adopters to get the iPhone. And it truly is the best smartphone out there, bar none. No Blackberry or Windows Mobile phone comes close.

And even though the iPhone 3G is faster and thinner, and has GPS, I’m not sure about the upgrade. It’s not the phone, but the way in which AT&T and Apple are ruining the iPhone experience that’s keeping me away.

The first iPhone could be activated at home. The process of buying a iPhone was easy. No in-store activations meant that even on the first day, there was no problem getting through the line. You brought the phone home and could connect it to AT&T’s cellular network from the kitchen table. It was a great experience, and made the iPhone the easiest phone to buy.

That won’t be the case with the iPhone 3G. Instead, it’s back to the old in-store activations. That means that it will take 10-12 minutes per person to activate the new iPhone. No leisurely unboxing for buyers, but a lot of waiting. The first day will be brutal if people will have to wait for activations.

A 3G iPhone is a long awaited device, but if Apple and AT&T can’t deliver the experience that they did with the first iPhone, they’ll have a harder time capturing the same magic. With the data plan for the iPhone 3G being $10 more per month, a $199 iPhone, while still cheap, isn’t quite the deal it would seem.

The iPhone is moving into the corporate world, but sadly, the prices and the efficiency of getting service is starting to look a bit too much like the other commodity smartphone vendors out there, not like the Apple experience we’ve come to expect.