“They were careless people…”
F. Scott Fitzgerald, The Great Gatsby
Remember the Bluth family from the TV series Arrested Development? Imagine them without a Michael. That seems to be a pretty good description of the Kushners.
Jared Kushner is Donald Trump’s son-in-law, husband of Ivanka. As chaos has enveloped the administration, Trump has resorted to the age-old cosa nostra strategy of centering operations around family. In a criminal organization, family tend be the only people you can trust, because they are the only people complicit enough to be reliably loyal. In that climate Kushner has emerged as one of the last people Trump trusts, the last advisor he won’t betray.
Last week intelligence sources leaked some shocking information on Kushner’s collaboration with the Russians. Kushner had contacts with Russian government figures that he declined to share in his security clearance disclosures. In a normal, functioning democracy, that would be enough to get him fired from his position, banned from future federal work, and subjected to prosecution. That won’t happen, thanks to protection from Congressional Republicans. But it gets worse.
The same sources leaked some of the contents of Kushner’s Russian communications. Kushner asked the Russian Ambassador for access to the Russians’ secure communications infrastructure. He requested a level of insider cooperation not even a Russian intelligence asset would be granted, something our closest allies would not have given him. He wanted a way to communicate with sources in an enemy regime that could not be accountable to anyone in the US government.
This request was sufficiently bizarre to surprise the Ambassador. As far as we know, his request was rejected. While issuing the usual blanket denials, Trump also rolled out proxies to defend Kushner’s move, basically confirming its substance.
Why would Jared Kushner want, much less ask for, such an awkward resource from the Russians? As with everything this administration does, it is important to consider their unusual interests. Trumplandia recognizes only two forms of currency, money and ego. These people seem detached, even clueless, about legislation and policy because they don’t care. Policy is meaningless. They have no goals other than the promotion of the family’s interests and the protection of their image. The White House is just one more asset in a vanity real estate portfolio.
Why do Russian connections figure so highly into those interests? Foreign sources of capital are key to the family’s business dealings. Their secrecy prevents us from determining how much of their capital comes from Russia (or China or elsewhere). There are, however, clues from the family history.
The Kushners are New Jersey real estate developers. Jared’s grandfather, an immigrant, built the family business in the 50’s and 60’s. Jared’s father, Charles, built his portion of the inherited business into a substantial force by the 90’s, with vast holdings of apartments and other developments. Looking for something more prestigious, he started leveraging political contacts to make marquis deals. Adopting the New Jersey Method, he became a major Democratic donor, establishing the political (and other) connections necessary to broker larger transactions.
Young Jared was by all accounts a mediocre student. His admission to Harvard’s business school is…um, mysterious. His father’s carefully timed and structured $2.5m donation to the school probably had nothing to do with it.
The New Jersey Method for building rentier wealth often attracts the attention of ambitious prosecutors. But as the Trumps have learned, careful use of money, accountants and political contacts usually guarantees immunity. Charles Kushner misplayed his hand. While under investigation by a federal prosecutor named Chris Christie in 2004, he discovered that his brother in law had agreed to testify. Charles hired a prostitute to compromise his brother in law, using video of the incident in a failed blackmail effort. That was the incident that broke the case open. He went to federal prison for 14 months.
Returning from prison he went back into the family business, joined by his son. This is where it becomes important to distinguish real estate development from other forms of business. Donald Trump and Jared Kushner are not “businessmen” like Bill Gates or Mark Cuban. They never created anything. They never invented anything. Only on the rarest occasions have they built anything. All their conventional business ventures fail, because they suck at commerce. They have no original ideas. They sponsor no innovation. They create no value. They are rentiers.
Real estate development in the Trump/Kushner model starts with lots of money. There is a big asterisk on that “lots of money,” because it is always based on reputation and flash, not provable assets (which tend to be heavily leveraged and obscured from full financial disclosure). Leveraging that reputed “lots of money” as a form of imputed collateral, they recruit investors to fund the purchase an existing asset. Sometimes you try to flip that asset for a profit, since there is little money to be made from continuing business operations on most of these properties. It is okay to lose money on these “flip” deals, as long as you don’t lose your own money. A modest capital loss using these methods can often still yield profits for the right investors with the right positioning on the deal.
In Trump’s case, sometimes the only asset he puts in play is his name, for which he earns a share of any profits on the building it mars. Since the Kushners lack that kind of cache, they need another hook.
Cash for living comes from existing sunk capital, like the acres and acres of slum properties they have inherited, properties they are running into the ground while extracting rents. Those properties pay the rent, so to speak, but once fully leveraged they don’t provide enough capital to fund more ambitious ventures.
Banks tend to be a little reluctant to lend hundreds of millions of dollars to characters with a history of bankruptcy or felony convictions. Formal stock and bond markets…well, you can’t be serious. Those channels are heavily regulated, requiring actual, honest forms of disclosure. The best sources of capital for real estate investments, which rarely produce high capital returns anyway, would be people who aren’t looking for big returns on their investments – people who have non-business interests at stake.
If you have accumulated a small fortune in your home currency through shady means you need a way to convert those gains into some legitimate form of wealth, preferably denominated in US dollars or Euros. A real estate investment might be ideal, even if the building itself is of marginal value and you never intend to darken its doors. These investors are not primarily concerned about profit. They are looking for discretion and convertibility. This business model is sometimes crudely described as “money laundering,” though if done carefully it is usually legal.
Unfortunately, a conventional western real estate investment with an ordinary REIT (real estate investment trust) comes with…problematic…disclosure requests. To attract the right investors, you need a very special business model, one built around discretion.
Again, since there have been few financial disclosures from the Trumps or the Kushners, details are limited. We do, however, have this gem. An investigative reporter filmed a Kushner family sales pitch in China (before being caught and thrown out). In it a Kushner family business is promoting US visas for investments in their properties. Through one disclosure we know that Jared has raised $50m through a visa-selling mechanism, whereby Chinese investors can buy access to US immigration.
The visa for investment program is potentially legal, depending on how you do it. Not everyone plays by the rules. In April the FBI raided the offices of another similar company in the visa for investment racket.
Want to find investors who won’t ask questions about your business practices or financial viability? Go to countries where there are lots of rich people looking for ways to either escape, or to convert their assets. Places like, you know…China, Russia, the Middle East, etc.
It appears that the most pressing issue facing the Kushners right now is a lousy deal they made right before the financial crisis in 2008. Their splashy purchase of the luxury tower at 666 Park Avenue was supposed to mark Charles’ return to “legitimate” commerce. Instead it has been a constant headache and a looming disaster. Today, the total value of the office space may be less than the mortgage.
It looked for a while as though the family’s new notoriety might deliver a solution. This spring they were on the edge of a deal to dump the property, selling off to the politically-connected Chinese holding company, Anbang, for a ridiculous and commercially unjustifiable profit. It would have come at a time when legitimate loan payments are threatening to swamp them. In other words, this whole stupid project to put Donald in the White House was about to pay off. Then Congressional Democrats started asking questions. Meanwhile God knows what was happening in diplomatic and intelligence back channels. The Chinese pulled out. Now the fate of the project (and the family’s fortune) remains clouded and debt payments are climbing.
Why does Jared Kushner need a secure means of communicating with parties in Russia, free from US government oversight? The prevailing explanation is that he wanted a back-channel to work on a solution in Syria. Look how much time and energy the Trump administration has invested in Syria. Does it look like anyone in the White House cares? Something else explains such a wildly intense interest in such an outlandish request.
In white collar crime, it’s always the cover-up that sends people to prison. Kushner, of all people, should understand that.