The ‘Super Rich’ and the Recession

 

Last week Fed Chairman Ben Bernanke spoke optimistically about a global recovery. US home sales have started to improve giving cause for more good feelings. Whether or not Bernanke, EU Monetary Chief Trichet, or any other central banker is correct about pulling out of a recession will be known only in hindsight. However, the effects of recession are already present – especially for the super rich.

The “super rich” are the wealthiest of the wealthy. Think Bill Gates and Warren Buffet. According to CNBC, in 1985 there were only 13 billionaires in the United States. Today there are more than a thousand. But the super rich aren’t always defined by the size of investment portfolios. Wealth has exploded over the past generation to the benefit of thousands.  The fortunes of CEOs, entrepreneurs, and hotel heiresses rose on the tide of global prosperity. According to the New York Times, “in the late 1970s, the cutoff to qualify for the highest-earning one ten-thousandth of households was roughly $2 million, in inflation-adjusted, pretax terms. By 2007, it had jumped to $11.5 million.”

But the same recession that changed your grocery-buying habits has also hit the super rich. Last week the New York Times detailed the recession’s financial blows to the super rich. Gates, Buffet, the Wal-Mart heirs, and Google’s founders each lost billions over the past two years.

Many of the not-as-super rich lost a chunk of their equity too. Per the Times, “Last year, the number of Americans with a net worth of at least $30 million dropped 24 percent.” UC-Berkeley Economics Professor Emmanuel Saez speculated the cutoff for the top one ten-thousandth of households is now $6-$8 million – nearly half of what it had been. Saez commented that a return to pre-recession numbers would require a new financial bubble.

One of the more drastic examples of recession-related pain is John McAfee, founder of the McAfee Anti-Virus suite. At his peak, McAfee was worth $100 million. Right now, he lays claim to only $4 million. One of his final residences is on the auction block in New Mexico. After he sells that ranch, he plans to relocate to less-expensive Belize.

Although the super rich may be less wealthy, they have not disappeared. Private jets are still flying and rich people are still buying sports teams – albeit at wholesale prices. The Chicago Cubs are being sold for under a billion by the super rich Ricketts family. Media-mogul Ted Turner is still the largest landowner in the country – besides the US government, and three of the original five Wall Street investments banks are still in business.

In other words, the super rich are still with us. If we are to believe the central bankers, the super rich may be worth even more this time next year.