Don't be fooled by glitter of nouveau riche
The High-Beta Rich, by Robert Frank
Published 24/11/2011 | 05:00
SEAN Quinn is not the only billionaire to go broke. His story has been repeated in the United States many times. David and Jackie Siegel are an example.
They had it made, judging from Robert Frank's 'The High-Beta Rich'. The Siegels owned a white-and-gold mansion in a gated community in Florida, he writes in this unsettling sequel to his 2007 best-seller, 'Richistan'. They employed 15 housekeepers, three landscapers, six nannies and a chef. Their toys included a yacht, a stretch SUV and a Gulfstream III.
And yet they wanted more. So they began building a palace they called "Versailles" (and pronounced "Versize"). Their plans called for a bowling alley, an indoor skating rink, six swimming pools, two cinemas, 10 kitchens and 23 bathrooms.
Then, like many billionaires of the Second Gilded Age, they ran out of credit as the collapse of Lehman Brothers hammered David's company, Westgate Properties.
The very rich, as the old gag goes, are different from you and me: They have more money -- and more debt. Siegel, who owed more than $1bn (€748m), couldn't finish what would have been America's largest private home, leaving a frame resembling a dinosaur skeleton, as Frank says.
Frank has covered the mega-moneyed set for the Wall Street Journal for eight years. He compares his excursions into the land of Maybachs to reporting from a foreign country -- a prosperous place with its own economy, health-care system, schools and travel network.
In 'Richistan' -- a bubbly book for a frothy age -- he invited us to gatecrash and gawk even as he asked what the growing gap between the richest 1pc and the rest meant for American society. In 'The High-Beta Rich', his warnings turn more pointed as he shows how yesterday's booming consumption ended in a bust, complete with repo men seizing Sea Ray yachts and Cessnas from deadbeat millionaires.
The title, though clunky, captures Frank's premise. This book isn't about the "millionaires next door", those sensible souls who drive battered Chevys, save pennies and treat debt like the plague. It is, instead, an anecdotal look at the nouveau riche, whose behaviour resembles "high-beta" technology stocks -- shares that swing higher and lower than the broader market. They are, Frank says, "prone to violent swings and rapid cycles of value creation and destruction."
Frank also catches up with billionaire Tim Blixseth, a timber magnate-turned-resort owner who, when last seen in 'Richistan', had built himself a Mediterranean mansion surrounded by pools, lush gardens, and a private 19-hole golf course in California. When Frank returned in 2010, the waterfalls had dried out and the links had turned "an anaemic shade of yellow". Blixseth's wife, Edra, had filed for Chapter 7 personal bankruptcy amid the couple's bitter divorce.
The narrative groans in places under heavy-handed explanations of how these individuals illustrate trends, and each chapter ends with a formulaic foreshadowing of the next.
That said, Frank writes in a pleasingly breezy style and makes a convincing argument that the volatile earnings and spending of the high-beta rich have wound up distorting communities, the economy and government.
Frank sees no easy fix for this lopsided dependence on the rich at a time when, as he says, the top 1pc of Americans earn about 20pc of the country's income and stump up more than 38pc of US federal income taxes. He does offer some "survival tips", including the wise counsel that most people should stop mimicking the manic spending of the rich.
Don't be fooled by the glitter, he says. Behind the Richistanis' mansions, you'll often find a pile of debt: "They form a Potemkin plutocracy ever fearful of being exposed." Well put. (Bloomberg)