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Old 10-09-2019, 02:40 PM
Leaper is offline
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How much liquidity do the world’s billionaires generally have?


Inspired by an argument I’ve seen online a lot:

“The richest of the rich could give away 99% of their money right now to solve the world’s problems and still be able to live the rest of their lives in obscene luxury! Jeff Bezos does not need multiple billions!”

“But most of his wealth and income is tied up in Amazon stock! He can’t divest without screwing the company!”

“That just highlights the problem with the capitalist system!”

And so on. But it made me wonder: how much of their net worth could the world’s richest generally give away, right now on a whim, as a practical matter? IOW, what percentage of their assets are “real” (cash, property, etc.)?
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Old 10-09-2019, 03:17 PM
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For Jeff Bezos, Bill Gates, Warren Buffet and the like; most of their wealth is in the stocks of their companies. Since these companies are traded on public exchanges, it would be straightforward for them to sell. They would have to accept a lower price in order to unload it all at once, but it would not be hard to do.
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Old 10-09-2019, 03:26 PM
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Originally Posted by zimaane View Post
For Jeff Bezos, Bill Gates, Warren Buffet and the like; most of their wealth is in the stocks of their companies. Since these companies are traded on public exchanges, it would be straightforward for them to sell. They would have to accept a lower price in order to unload it all at once, but it would not be hard to do.
They may not be able to dump stock in companies they started and took public. They may be limited to selling that stock in small increments to prevent the stock prices from crashing if the public believes they are baling out.
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Old 10-09-2019, 03:54 PM
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Tripolar is correct, that public perception of the value of those companies would collapse if the most significant shareholders began dumping stock.

Aside from that argument, if all the billionaires were able to liquidate 99% of their holdings to be given away, who would buy it? There would be no wealthy people to acquire those holdings, as they are all liquidating....

….but hey lets have the governments around the world buy all of the holdings of these billionaires. Sounds like a fabulous idea.
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Old 10-09-2019, 04:20 PM
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Tripolar is correct, that public perception of the value of those companies would collapse if the most significant shareholders began dumping stock.
I'm not sure that's true. The price would fall, but if managed correctly, it probably wouldn't collapse.

Imagine that Jeff Bezos announces tomorrow that he's decided to devote his life to solving some charitable issue and has taken a vow of poverty. He's stepping down from his CEO position and announces some kind of orderly plan for liquidating his stock to be used for that cause.

Like, the value of Amazon would fall some. It would fall because Bezos is clearly a visionary CEO, and Amazon's prospects would be somewhat less certain without him at the helm. And it would fall some due to knowledge about the liquidation. But it wouldn't crater.

As long as his claim of philosophical transformation was credible and the liquidation plan wasn't crazy, I don't see a collapse. Amazon is still a profitable and gargantuan company with a credible story toward total economic domination. There will be plenty of people who want to buy it at a 10-15% discount and not that many people who think "Bezos is dumping his stock! He must know something we don't know! Sell sell sell!"

The above assumes that we're not parsing "The richest of the rich could give away 99% of their money right now" to literally mean at this instant. Realistically, any plan to fix major global problems doesn't need $billions showing up in a bank account tomorrow, so I don't see that as a major stumbling block. Bezos could liquidate his holdings over a few years, which would give plenty of time for the market not to run itself off a cliff and for whatever project he was funding to set itself up and start solving things in a reasonable way.

I'm open to the idea that every single billionaire doing this en masse at the same time would be pretty disruptive, but any single billionaire or group of them could do this without capitalism folding.

Last edited by iamthewalrus(:3=; 10-09-2019 at 04:20 PM.
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Old 10-09-2019, 04:35 PM
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I'm not sure that's true. The price would fall, but if managed correctly, it probably wouldn't collapse.

Imagine that Jeff Bezos announces tomorrow that he's decided to devote his life to solving some charitable issue and has taken a vow of poverty. He's stepping down from his CEO position and announces some kind of orderly plan for liquidating his stock to be used for that cause.

Like, the value of Amazon would fall some. It would fall because Bezos is clearly a visionary CEO, and Amazon's prospects would be somewhat less certain without him at the helm. And it would fall some due to knowledge about the liquidation. But it wouldn't crater.

As long as his claim of philosophical transformation was credible and the liquidation plan wasn't crazy, I don't see a collapse. Amazon is still a profitable and gargantuan company with a credible story toward total economic domination. There will be plenty of people who want to buy it at a 10-15% discount and not that many people who think "Bezos is dumping his stock! He must know something we don't know! Sell sell sell!"

The above assumes that we're not parsing "The richest of the rich could give away 99% of their money right now" to literally mean at this instant. Realistically, any plan to fix major global problems doesn't need $billions showing up in a bank account tomorrow, so I don't see that as a major stumbling block. Bezos could liquidate his holdings over a few years, which would give plenty of time for the market not to run itself off a cliff and for whatever project he was funding to set itself up and start solving things in a reasonable way.

I'm open to the idea that every single billionaire doing this en masse at the same time would be pretty disruptive, but any single billionaire or group of them could do this without capitalism folding.
Yes it would be vital of Bezos or Gates to announce beforehand that they were liquidating their shares to donate to the proceeds to charity in order to mitigate a complete devaluation of Amazon or Microsoft stock respectively. I am sure that there would still be some devaluation but as long as they were forthcoming and assured people beforehand that they have complete confidence in the companies it would not be as bad if they just decided to start dumping their shares on the open market.

Last edited by dorvann; 10-09-2019 at 04:35 PM.
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Old 10-09-2019, 04:49 PM
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Again, who's going to buy these trillions in stocks?
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Old 10-09-2019, 04:58 PM
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Again, who's going to buy these trillions in stocks?
Nobody outright. Even a massive company would not pay outright to acquire such holdings, but they might engage in a conversion of stock that our hypothetical billionaire could sell more readily once the deal is done.
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Old 10-09-2019, 05:05 PM
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Jeff Bezos and his former wife together own almost 80 million Amazon shares (worth about 150 billion dollars) out of the almost 500 million outstanding, or 16% of the company.

So he could get rid of all his (and his wife's) shares if everyone who holds Amazon shares today would be willing to increase their holding by only 16% on average.

Even on a slow day people trade more than 2 million Amazon shares on the exchanges.

So they could conceivably sell a million shares a day every day ($2 billion/day) for a few months (he recently sold a million shares in three days and nobody noticed).

Last edited by Frankenstein Monster; 10-09-2019 at 05:08 PM.
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Old 10-09-2019, 05:34 PM
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Originally Posted by TriPolar View Post
...They may be limited to selling that stock in small increments to prevent the stock prices from crashing if the public believes they are baling out.
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Originally Posted by iamthewalrus(:3= View Post
I'm not sure that's true. The price would fall, but if managed correctly, it probably wouldn't collapse.

Imagine that Jeff Bezos announces tomorrow that he's decided to devote his life to solving some charitable issue and has taken a vow of poverty. He's stepping down from his CEO position and announces some kind of orderly plan for liquidating his stock to be used for that cause...
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Originally Posted by dorvann View Post
Yes it would be vital of Bezos or Gates to announce beforehand that they were liquidating their shares to donate to the proceeds to charity...
It's also worth mentioning that it would be illegal for someone like Bezos to sell stock for undisclosed reasons that are material to the value of the company - that's insider trading. So Bezos selling a few million shares without any prior announcement isn't likely to generate much of a stir among investors, since it can be assumed that he just needs some liquidity to build a spaceship or something.

Last edited by Riemann; 10-09-2019 at 05:37 PM.
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Old 10-09-2019, 06:24 PM
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Again, who's going to buy these trillions in stocks?
Lots of individual and institutional investors (like mutual funds, banks, etc.)
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Old 10-09-2019, 07:31 PM
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What defines a "sale" of stock? Could one of these hyper-rich people choose to take a loan or line of credit out from some financial institution, pledging the stock as collateral? Would that be a "sale"?
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Old 10-09-2019, 07:38 PM
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Alex, I'll take "Things I don't give a fuck about" for $400, pls.
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Old 10-09-2019, 07:42 PM
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What defines a "sale" of stock? Could one of these hyper-rich people choose to take a loan or line of credit out from some financial institution, pledging the stock as collateral? Would that be a "sale"?
If the stock can't be sold it can't be used as collateral.
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Old 10-09-2019, 09:27 PM
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Alex, I'll take "Things I don't give a fuck about" for $400, pls.
Moderator Warning

Marion Morrison, this is an official warning for threadshitting. If you don't care about something, then don't bother posting about it.

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Old 10-09-2019, 10:43 PM
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What defines a "sale" of stock? Could one of these hyper-rich people choose to take a loan or line of credit out from some financial institution, pledging the stock as collateral? Would that be a "sale"?
No, if you pledge the stock as collateral, you still own it - just as you own the house that you have pledged as collateral against your mortgage. Just as with a mortgage, you will only be allowed to borrow some fraction of the market value of the stock, precisely because are still the owner, and you must usually repay the loan regardless of the value of the collateral - i.e. you still bear the risk/reward of the stock going down or up. The proportion that you can borrow may be restricted by statute (Regulation T in the U.S.), and/or it may be based on the lender's assessment of how risky the collateral is, i.e. how volatile the stock price is expected to be.

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If the stock can't be sold it can't be used as collateral.
Cite? So far as I know, there are no regulatory restrictions (in the U.S.) on using restricted stock as collateral. Of course, increased risk may mean that the lender requires more onerous terms, but such loans are certainly available.

Last edited by Riemann; 10-09-2019 at 10:47 PM.
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Old 10-10-2019, 04:10 AM
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Cite? So far as I know, there are no regulatory restrictions (in the U.S.) on using restricted stock as collateral. Of course, increased risk may mean that the lender requires more onerous terms, but such loans are certainly available.
I'm finding mixed results on this. This one article states that such stocks can be sold, and then warns that they may not:

Quote:
The spending money is fairly easily had. Banks and brokerages offer loans against restricted stock with the stock as collateral. Sound good? Proceed with care. The business is growing fast, loan terms vary widely and many lenders are working out the kinks. Just figuring out how to value restricted stock can be hard, especially with Internet and other technology companies. Your average bank isn't playing this game, and you must choose your lender carefully (see box, p. 422).


Quote:
Whatever options you buy or sell, of course, mustn't violate the restrictions on your restricted stock. Standard calls of the sort traded in Chicago, for example, can be exercised at any time. But it might not be legal for you to sell your shares for some time, and the call you sell has to reflect that. A securities firm has to create custom-made options to deal with the situation; you can bet that option prices will be structured to compensate the firm handsomely.

This article states outright that restricted stocks may not be used as collateral:

Quote:
The federal government regulates the use of stocks and bonds as collateral for loans. There are limits on what securities can be used and how much can be borrowed against their value.

Any stocks and bonds to be used must be freely salable and unrestricted.

Last edited by TriPolar; 10-10-2019 at 04:11 AM.
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Old 10-10-2019, 05:23 AM
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This article states outright that restricted stocks may not be used as collateral:
I don't know what on earth that site is (living with HIV/AIDS?), but the information on that page seems to be entirely spurious. The detailed table showing how the proportion that you may borrow varies with the price of one share is nonsense. The U.S. regulation governing margin accounts is called Reg T. You can borrow 50% of the value of stocks, and that proportion does not vary according to the value of one share, which would make little sense.

https://www.investopedia.com/terms/r/regulationt.asp
https://en.wikipedia.org/wiki/Regulation_T

I can't find any credible reference to regulatory restrictions on using restricted stock as collateral, and googling "borrowing against restricted stock" indicates that such loans are certainly available, including from major firms such as Fidelity:
https://www.fidelity.com/products/st...edstocks.shtml

Last edited by Riemann; 10-10-2019 at 05:24 AM.
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Old 10-10-2019, 06:09 AM
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I don't know what on earth that site is (living with HIV/AIDS?), but the information on that page seems to be entirely spurious. The detailed table showing how the proportion that you may borrow varies with the price of one share is nonsense. The U.S. regulation governing margin accounts is called Reg T. You can borrow 50% of the value of stocks, and that proportion does not vary according to the value of one share, which would make little sense.

https://www.investopedia.com/terms/r/regulationt.asp
https://en.wikipedia.org/wiki/Regulation_T

I can't find any credible reference to regulatory restrictions on using restricted stock as collateral, and googling "borrowing against restricted stock" indicates that such loans are certainly available, including from major firms such as Fidelity:
https://www.fidelity.com/products/st...edstocks.shtml
You certainly may be correct because I don't have any recent info on this. It is about time for an economic collapse, banks taking lottery tickets as collateral that can't be cashed in even if they win will certainly help bring that on. I have some money in a Fidelity account, time to move that to something more secure.

Last edited by TriPolar; 10-10-2019 at 06:09 AM.
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Old 10-10-2019, 06:19 AM
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I see no reason to infer that financial institutions lend any more recklessly against restricted stock than they do against other assets. Restricted stock may not be a lottery ticket, it covers a range of possible situations.
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Old 10-10-2019, 06:31 AM
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I see no reason to infer that financial institutions lend any more recklessly against restricted stock than they do against other assets. Restricted stock may not be a lottery ticket, it covers a range of possible situations.
I was being facetious. I hope banks would not take stocks of questionable value or unsalable on a practical basis. But I am surprised if there are no regulations in this area.
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Old 10-10-2019, 06:40 AM
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OP should recall that wealth is a spooky thing. Some tens of trillions of dollars vanished (in the US) during the last recession and even more has been created since. It didn't go anywhere or come from anywhere.

Depending on who the "richest of the rich" are, converting any of that wealth to cash becomes more difficult the more of it you try to move.
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Old 10-10-2019, 10:06 AM
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I assume by "restricted stock" we mean stocks awarded, say, as bonus or such with the proviso "cannot be sold for X years". The implication being sooner or later they can be sold. Meanwhile, I assume any collateral arrangement would likely include things like "can take dividends to apply against overdue payments, etc. Maybe even "can dictate stockholder vote choices if loan is overdue". But basically, there's a dollar amount risk discount associated with "we have an asset that cannot be sold for X years".

I suppose the other question too is - how much of the stocks and bonds held in the world economy - the North American economy - are held by the 1%ers? My impression is that far more is held by assorted funds - insurance companies, pension and retirement savings funds, assorted other mutual funds... Like the point about Amazon being only 16% Bezos - probably the majority of funds are held by institutions. If you have decent 401k or such - that's stocks and bonds, and those are the funds that would buy whatever Bezos or Gates or Buffet tried to sell.
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Old 10-10-2019, 12:52 PM
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Credit Suisse has a Global Wealth Report with some useful data presented in plain language.

From the 2018 report:

Total Global Wealth is $317 Trillion.

High and Ultra-High net-worth individuals:
149,890 people with > $50 million in assets
50,230 > $100 million
4,390 > $500 million

They don't list billionaires, but that progression is (as you'd expect it to be) exponential with a ~1/3 reduction with every net worth doubling, so we can make a pretty good guess that there'd be about 1500 billionaires

Forbes says there are just over 2000 billionaires in the world, with total wealth about $8 trillion.

So even if every billionaire sold off all their assets, it's less than 3% of global wealth.

There are still plenty of buyers out there.
  #25  
Old 10-10-2019, 07:42 PM
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Originally Posted by dorvann View Post
Yes it would be vital of Bezos or Gates to announce beforehand that they were liquidating their shares to donate to the proceeds to charity in order to mitigate a complete devaluation of Amazon or Microsoft stock respectively. I am sure that there would still be some devaluation but as long as they were forthcoming and assured people beforehand that they have complete confidence in the companies it would not be as bad if they just decided to start dumping their shares on the open market.
In fact, Bill Gates has unloaded over 35 billion worth of Microsoft stock over the years and it doesn't seem to have lowered investor confidence at all.
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