Trump Verdict In Fraud Trial Threatening To U.S. Economy

By Tommy Wilson | Tuesday, 20 February 2024 03:00 PM
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In a recent ruling, a New York state judge ordered former President Donald Trump to pay a hefty sum of $364 million, a verdict stemming from a fraud trial against him and his companies.

The charges, which Trump's supporters have labeled as baseless, accused the former President of inflating the value of his properties to secure more favorable loan terms from a lender. Critics argue that this verdict, far from being a simple punitive measure against Trump, could potentially destabilize the entire economy.

The court's decision was based on the conclusion that Trump had committed fraud by exaggerating the value of his properties. Interestingly, the lender involved in the case stated that they had not been defrauded and had suffered no damages. Despite this, the judge found Trump guilty. Critics argue that the implications of this verdict could necessitate a significant shift in business practices for real estate developers.

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The potential fallout from this verdict could result in a decrease in business expansion, causing harm to not only the New York economy but potentially the U.S. economy as well.

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When Trump sought loans for his properties, he provided an estimated market value. The lender would then conduct their own appraisal, and the loan terms would be negotiated accordingly.

To illustrate this process, consider a developer who has constructed an income-generating property. The value of such a property is typically determined based on the income it produces. For instance, if a property generates $200,000 in annual income, its value might be set at five times that amount, or $1,000,000. The lender agrees with this valuation and offers to lend 70% of that value, or $700,000.

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Real estate developers rely on such loans to invest in other projects that stimulate economic growth. After a few years, if the developer can increase the property's annual income to $400,000, the property's value would rise to $2,000,000. The developer could then seek a 70% loan on the new value, or $1,400,000. The original loan would be repaid, and the remaining $700,000 could be invested in future projects.

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However, the recent verdict against Trump could make developers hesitant to refinance debt when they believe their property's value has increased. They may fear that if they submit a higher value, a politically motivated court could dispute their valuation, potentially resulting in hefty fines and severe restrictions on their business activities.

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This hesitancy could lead to less capital being available to developers, resulting in slower economic growth.

The implications of the Trump verdict could be even more far-reaching. Virtually every developer could potentially be accused of overvaluing their properties. Many homeowners could also be accused of overvaluing their homes to secure more favorable rates when refinancing a mortgage or seeking a home equity loan.

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Consider a homeowner who seeks a home equity loan on a house they bought a few years ago for $400,000. If home prices have risen, the homeowner might claim the house is now worth $500,000 and seek a $100,000 home equity loan. If the bank agrees with this valuation and grants the loan, but later decides the home is only worth $425,000, the homeowner could potentially be accused of defrauding the lender.

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Trump is expected to appeal the verdict. Even if the liberal-leaning appellate court in New York upholds the verdict, critics argue that an objective higher court should reverse it. They contend that transactions where both parties agree to terms and no party is harmed should not result in a fraud conviction.

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