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December 8 - December 24, 2018
describes as ‘the looniest episode in 15CPW’s short history’ came in 2013 when Citigroup’s ex-CEO Sandy Weill sold a penthouse for $88 million, having bought it for precisely half that just six years previously. The purchaser was the Russian fertiliser tycoon Dmitry Rybolovlev, who was at the time going through a messy divorce (which ended up costing him $6 billion)
Like a classic pyramid scheme, the earliest investors have earned sensational returns at the expense of their late-joining brethren.
Savills, a London-listed company, publishes research into the spending habits of its clients, which provides fascinating insights into the kind of people that can afford to drop millions of pounds on a house in a city they don’t even live in. In 2014 it published a paper showing how top-end London property had outperformed housing in the rest of the UK by 250 per cent over the previous three decades.
‘They are starting from $16 million, one six. And the penthouse, $130 million, one thirty. Fifty per cent of it is sold. I represent this building, the whole building.’
Pichulik was funny and thoughtful about his curious career, and clearly concerned by the kind of inequality he has witnessed. That gave him sufficient insight to realise that spending his days looking at apartments worth $50, $60 or $70 million was doing strange things to his mind, and to wonder about the mind set of people who live their lives surrounded by that kind of luxury:
Some of the world’s cleverest financial analysts have been mulling over this same question for more than a decade, and their conclusions are startling. We need to talk about plutonomy.
‘Plutonomy, Buying Luxury, Explaining Global Imbalances’.
Kapur’s insight was that, if the majority of a country is owned by very few people, it doesn’t necessarily matter what the oil price does.
He used the word ‘plutonomy’ to describe economies where the wealthy have a disproportionate share of the assets (he claimed to have invented it, although it dates back to at least the mid-nineteenth century, when it was used as a synonym for economics), places like Britain, America or Canada. His analysis was original, and provided a fascinating insight into how the kind of luxury spending detailed in the previous two chapters is affecting the world.
According to the Citigroup analysts’ research, the top million households in the United States had approximately the same wealth as the bottom 60 million households.
If you looked at just financial assets, and exclude housing from the calculation, the top million households held more of the sum total of American wealth than the bottom 95 million households put together.
He identified a basket of stocks that have benefited from the kind of purchases favoured by Moneylanders: companies like Julius Baer, Bulgari, Burberry, Richemont, Kuoni and Toll Brothers.
Kapur’s plutonomy papers have lasted longer,
polemical documentary maker Michael Moore, who cast Kapur as one of the bad guys in Capitalism – A Love Story.
Anti-corruption campaigns by governments are not the only risks to the profitability of Kapur’s plutonomy investment strategy, however. Since his very first paper in 2005 – and he has kept publishing them, through a series of different employers – he has highlighted the fact that, in its essence, plutonomy is about inequality.
the prosecution of multi-millionaire UBS client Ernest Vogliano, lawyers revealed that he moved his money from Switzerland to the United States by using travellers’ cheques, which he endorsed in Zurich, then put in the mail to be picked up on his return home to New York.
European countries agreed to swap information with each other; and the various British tax havens agreed to exchange data with the UK. All these efforts culminated in 2014 with the Common Reporting Standard (CRS), under which countries agreed to automatically swap information about all the assets that each other’s residents hold in each other’s banks.
CRS involves – as an aspiration, if not yet as a reality – everyone exchanging information with everyone else. But the United States is not part of CRS; it has its own system. Unlike CRS, FATCA, the US law that first broke the back of Swiss secrecy only works in one direction. Financial institutions from more than 100 countries have to share information on assets held by US citizens or residents, but US institutions don’t have to send anything back in return.
The United States had bullied the rest of the world into scrapping financial secrecy, but hadn’t applied the same standards to itself.
The trust is American under foreign law, and foreign under American law: it doesn’t exist anywhere. Nevada’s magical trusts have played jurisdictional Twister in a way that would have warmed Siegmund Warburg’s heart: it’s American when it wants to be; and foreign when it doesn’t.
itself. This is not a conspiracy – it never is – but a natural consequence of the laws of the ant hill.
Once upon a time – before Andy Murray spoiled it by being both British and good at tennis – this could have been called the Wimbledon hypothesis: it doesn’t matter if you don’t win the trophy, as long as you host the tournament.
