The haves v. have-mores...

[Earth_First]

The Surprising Borrowing Habits of the Rich

Just as the rich control a disproportionate share of national wealth, they also account for a disproportionate share of debt. The richest 1% now hold 7% of the nation's debt, with a total of $650 billion in borrowings, up from 5% in 1998.

Debt for this group grew faster than for any other group in the Fed survey. Total debt held by the top 1% increased 150% between 1998 and 2004, compared with growth of about 100% for those in the 50th-to-90th percentile wealth range. The rich, in short, have joined the great American borrowing binge. Call them the leveraged elite.

This "strategic debt" involves taking out a loan at, say 7%, and investing the money in the financial markets for a return of, say, 10%. Debt may be a necessity for the middle class, but the wealthy are "making a sophisticated economic decision," says Arthur Kennickell, an economist with the Federal Reserve.

And on the whole, their balance sheets remain healthy. According to the Fed, the debt held by the top 1% amounted to only 3.7% of their total wealth. That compares with 24% for Americans ranked in the 50%-to-90% groups.

Today's rich are more comfortable with risk. In a world awash in cash, many of today's wealthy made their fortunes by leveraging and making big bets with their businesses. They're applying the same principles to their personal wealth.

With some measures showing prices for high-end goods outpacing the broader inflation rate, the wealthy are increasingly looking beyond mortgages to use debt for buying beachfront homes, yachts, cars and other collectibles. Private bankers say loans for jets are among the most popular.

In fact, some sociologists and economists say the rise in wealthy people's debt stems in large part from the growing pressure among the elite to keep up with richer peers. The biggest disparities in wealth today are among the rich, with mere millionaires getting shoved aside by decamillionaires, centimillionaires and billionaires.

So the haves are borrowing more to keep up with the have-mores...

http://finance.yahoo.com/loans/article/102370/the_surprising_borrowing_habits_of_the_rich

[redqueen]

1. Mammon-worshipping fools. n/t

[Yavin4]

2. The Interest on Their Debt Is Tax Deductible So Of Course

Set up private corporations. Buy everything with debt like lease your autos, your planes, your yachts, your luxury stadium skybox, etc. Write off your interest on your taxes.

[RB TexLa]

3. And the 3% spread between investment return and loan interest is supposed to provide a net profit?

Doesn't work out.

Of course people take out loans for investing but the scenario described doesn't make much sense to maximize yield. The 7% loan taken out to invest in real estate, a start up business or some other investment vehicle with higher possible returns works and is done every day by those with billions, millions, and thousands of dollars.

[Rosemary2205]

4. Didn't Trump go "bankrupt" leveraging his debt?

Still amazes me how they can go bankrupt and not lose anything...........

[bryant69]

5. I've been reading a book on how fashion and power track

The more clothes you wear the more power - so if you are not in power you have less on. The less-ons really get screwed pretty continuously apparently. And who's running things? The More-ons.

Bryant
Check it out --> http://politicalcomment.blogspot.com

[originalpckelly]

6. ...

:spray:

[Jackpine Radical]

9. But in another sense the less-ons are always ahead

because the more-ons never seem to catch the less-on.

[TomInTib]

7. I could write books about this

Living in the wealthiest (per capita) community in the country, the layers and social castes and divisiveness in our local society is unbelievable.

It has taken years for me to barely begin to figure it out.

[Warpy]

8. So could I, but my experience was on Cape Cod

and when they were on holiday, they felt free to invite an amusing person of modest means (me) to their parties.

I think we could collaborate and eviscerate them thoroughly.

[TomInTib]

10. Now THAT would be great fun!

I often find myself scratching my head, feeling really alone and thinking, "Can you believe this shit?".

[earth mom]

11. The "merely" rich are trying to keep up with the "obscenely" rich?!

Pardon me while I :puke:

[CrispyQ]

12. He who dies with the most toys still dies.

I could almost feel sorry for these people living their lives by someone else's standards.

[bleedingheart]

13. there are people out there who are paid to babysit the rich to keep them from

impoverishing themselves.

I know one person who has managed trusts for these upper class twits.

Some folks receive in interest hundreds of thousands, if not millions, of dollars in trust payments...yet they still manage to outspend their trust payments. They will take great-grandpa's trust to court in order to break it in order to get to the principle...and the entire time...there are attorneys and trust officials who are trying to prevent them from ruining themselves.

I say let them ruin themselves...it would be fine by me.