August 6, 2007
The view from the top — of the economic ladder — can be intoxicating. Wealth can go to your head. And fast. Before you know it, you’re thinking you must be special to deserve all the millions that have come your way. You must be better than everyone else.
Are rich folk special? Some are. Those super-rich sober enough to see themselves as fortunate, not better, as the beneficiaries of a rigged status quo that desperately needs changing, certainly do deserve our respect. Maybe support, too. Life can get bumpy for people who dare to be “traitors to their class.”
In this week’s Too Much, we look at two of these admirable — and rare — wealthy individuals. Both made a splash last week. Who knows? More splashes and we may have a wave.
Americans worth at least $25 million, note researchers from Prince & Associates, plan to leave at least 75 percent of their estates to their children — and these deep-pocket parents, the Wall Street Journal’s Robert Frank reported last week, are deathly afraid their offspring will waste that wealth away. But they’ve found a solution. They’re sending their twenty-something kids to summer camp. Specialized “wealth education” companies like the California-based IFF Advisors are charging $5,000 a place for intensive summer workshops that teach wealthy young adults the money-management basics, everything from investing in emerging markets to “how to persuade prospective spouses to sign a prenup.” The goal of the camps: to help wealthy young people grow up to become “good stewards of wealth.” That’s “wealth-management speak,” notes the Wall Street Journal’s Frank, for "not spoiled brats.”
Donald Trump’s oceanfront estate in Florida’s Palm Beach — currently for sale at $125 million — is beginning to look like a bargain. A 6.5-acre Beverly Hills mansion that once belonged to publishing giant William Randolph Hearst has just gone on the market for $165 million, a move that brings to five the number of residential properties in the United States now listed at $100 million or more. The real state agent for the cheapest of these, a $100 million Lake Tahoe spread, has plenty of experience marketing to mega millionaires. The realtor, Shari Chase, nearly a decade ago handled the sale of what up to then rated as the most expensive residential property in U.S. history. That 1998 deal, the Chicago Tribune points out, took over two years to put together. The final price: $50 million . . .
The publishing industry’s hottest new magazine for the super-rich is going global. The year-old Spear’s Wealth Management Survey, an oddly named lush quarterly available by invitation only — at $50 a copy — to British households worth at least $5 million, has just become the latest acquisition of a new media empire bankrolled by an American venture capital company. That firm, Nectar Capital, plans to expand Spear's into the Chinese and Indian luxury markets. Spear's currently targets affluents who “need to know which yacht to buy” or “discover which firm provides the best bodyguard.” The magazine’s publisher, former Los Angeles journalist William Cash, has a fairly good window on the super-rich world. His wife, Italian jewelry heiress Ilaria Bulgari, stands to inherit assets worth $2 billion . . .
India’s super-rich, besides their own edition of the Spear’s luxury magazine, will also soon have Porsche sports car dealerships in each of the nation’s four biggest cities. The new Porsche dealership in Mumbai, the city formerly known as Bombay, is going up just a ways down the road from outlets hawking the latest-model offerings from Mercedes and Rolls-Royce. Mumbai’s mega-millionaire motorists only seem to be lacking one thing: a transportation infrastructure. Luxury cars that sell for upwards of $348,000 each, the Financial Times observed last week, turn out to be surprisingly “vulnerable to abuse on Mumbai's potholed streets, where traffic often moves at walking pace and cars bump each other jostling for space.”
You won’t find many potholes on the main drags of Dubai, the Middle East emirate now exploding with luxury malls, exclusive new villas, and what will soon be the world’s tallest building, the 124-floor Burj Dubai. Who’s building all these edifices? Dubai is now hosting over 300,000 migrant construction workers, most of them from India and elsewhere in South Asia. The migrants earn $175 a month — in a city more expensive to live than Washington, D.C. A new Human Rights Watch report, Building Towers: Cheating Workers, says construction companies regularly withhold migrant worker wages to keep them from “running away” to better jobs. Asks Rafia Zakaria, an attorney who has studied the Persian Gulf migrant situation: “Is Burj Dubai a symbol of progress or a mocking tribute to the existence of modern-day slaves?” Eight billionaires now call Dubai home, says Arabian Business magazine, and the tiny society now boasts more high net-worth individuals, per capita, than Germany.
Quote of the Week
“Never before in our history has the elite had such control over the government. To run for national office requires many millions of dollars, the raising of which puts 'our' elected representatives and 'our' President himself at the beck and call of the few moneyed interests that financed the campaigns. America as the land of opportunity has passed into history.”
Paul Craig Roberts, former Reagan administration assistant secretary of the Treasury, The Return of the Robber Barons, August 2, 2007
New Wisdom
on Wealth
Paul Harris, Welcome to Richistan, USA, The Observer (UK), July 22, 2007. A look at how the American dream may be "turning into a nightmare of inequality."
Chuck Green, Nacchio got six-year term; victims got life, Pueblo Chieftan, August 1, 2007. A former Denver Post editor-in-chief looks at the luxury life after prison that awaits Joe Nacchio, the CEO of telecom giant Qwest whose massive fraud cost Qwest workers jobs and retirement security.
Warren Buffett has company. The United States now has two billionaires anxious enough about inequality to publicly — and powerfully — speak out against the tax policies that help their fellow rich become ever richer.
The new kid on the block — Bill Gross, the managing director of PIMCO, a wildly successful bond investment firm that's now handling $687 billion in assets — has actually been around the block more than a few times. Over 30 years of investing have left the 63-year-old Gross fabulously rich and fabulously famous in elite financial circles. Movers and shakers have come to pay enormous attention to what Bill Gross has to say. But they’re not likely to appreciate his latest musings, as just published in the PIMCO “Investment Outlook” column for August.
The column title: “Enough is Enough.” The theme: The super-rich are taking the rest of America for a ride.
Every society, the Gross column notes, needs people striving to create wealth.
“But when the fruits of society’s labor become maldistributed, when the rich get richer and the middle and lower classes struggle to keep their heads above water as is clearly the case today,” Gross writes, “then the system ultimately breaks down; boats do not rise equally with the tide; the center cannot hold.”
And that's just what's happening now, says the California-based investor, thanks to a tax system in the United States that supplies the rich the help they need to become “truly rich and multiply their numbers.”
“Wealth has always gravitated towards those that take risk with other people’s money,” as Gross puts it, “but especially so when taxes are low.”
Gross has little patience for the rationalizations for grand fortunes he hears from his fellow billionaires. He considers the philanthropy defense — the notion that we need the super-rich to become super-richer because they can redistribute wealth “more efficiently” than anybody else — little more than self-serving nonsense.
In reality, says Gross, “the inefficiencies of wealth redistribution by the Forbes 400 mega-rich and their wannabes” can be “egregious and wasteful.”
“Trust funds for the kids, inheritances for the grandkids, multiple vacation homes, private planes, multi-million dollar birthday bashes, and ego-rich donations to local art museums and concert halls,” Gross notes, “are but a few of the ways that rich people waste money.”
Adds the billionaire bond king: “When millions of people are dying from AIDS and malaria in Africa, it is hard to justify the umpteenth society gala held for the benefit of a performing arts center or an art museum. A thirty million dollar gift for a concert hall is not philanthropy, it is a Napoleonic coronation.”
A U.S. Senate hearing last week on whether Congress should up the tax rate on private equity fund fortunes — the question that has ignited this summer’s hottest class war skirmish — brought to the witness table all the usual suspects.
The privileged turned out to defend their privilege. Investment industry officialdom predicted, predictably, that dire dangers would befall America should Congress raise the tax rate, from 15 to 35 percent, on the billions of dollars in annual income that currently pour into the pockets of private equity and hedge fund managers.
Upping private equity taxes, the chairman of the private equity industry trade group told the Senate Finance Committee, would undermine “U.S. competitiveness” and frustrate efforts aimed at “giving struggling or failing businesses a new lease on life.”
Academic tax experts gave the Senate panel, also predictably, a more independent take. Asked Stanford University tax law professor Joseph Bankman: “Why should a surgeon, a schoolteacher, or a CEO pay tax at more than twice the rate of a fund manager?”
But not every witness at last Tuesday’s Senate Finance Committee hearing testified to form. One witness actually defied expectations — and, more importantly, privilege.
The testimony from that witness, Denver-based venture capitalist William Stanfill, cut straight to the heart of why the private equity taxation controversy really matters.
“How long,” Stanfill asked simply, “will we tolerate the ever-widening gap between rich and poor?”
The founding partner of Trailhead Ventures, Stanfill patiently demolished each of the justifications for preferential tax treatment that his fellow investment fund managers regularly advance.
“Many Americans invest sweat equity in their jobs and their businesses, take risks, contribute to the economy, and may have to wait a long time before their hard works pays off,” the 25-year investment partnership veteran summed up. “But they still pay ordinary income tax rates on their compensation.”
Added Stanfill: “Was Ben Franklin prescient when he warned us that our republic would fail because of corruption, greed, and, dare I say it, special interests? Doesn’t gross inequity in our tax code, maintained by the very people who benefit from it, come close to the same thing?”
Stat of the Week
A century ago, John D. Rockefeller put together America's first billion-dollar fortune. He eventually accumulated, adjusted for inflation, $14 billion. That’s less than the net worth now held by each of Wal-Mart founder Sam Walton's five children.
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