But if you owe the bank $1 billion and can’t pay…

[Donald Trump] understood a famous axiom: If you owe the bank $1 million and can’t pay, you’re in trouble, but if you owe the bank $1 billion and can’t pay, the bank’s in trouble. The moment that captured his strategy perfectly came when Trump’s CFO received an $800,000 quarterly insurance bill for Trump’s yacht, Trump Princess, which was, of course, mortgaged. He simply sent the bill to the Bank of Boston, which held the note on the boat, with a reminder that if the Princess sank uninsured, there’d be no collateral for the loan. The bank paid the bill.

— Geoff Colvin in Ex-CEOs should learn from The Donald, Wall $treet Week, 13 May 2008.

I’ve been meaning to blog some version of the “if you owe the bank $x” line for some time, but this week’s W$W article gave me extra impetus.

The broader point for businesses and executives is that there are many ways for someone to hold you hostage.  Owing you too much is just one.  Customers can hold you hostage if you’re their biggest client.  Employees can hold you hostage if they’re the only ones who know how to do something essential for your business.  Neighbors can hold you hostage if they can make your block somehow unattractive to your customers.

You can’t make all these risks go away, but you sure ought to safeguard against the ones you can if they’re big and/or likely.

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