I’m well aware that billionaires may own all kinds of stock, etc, so that their net worth is in the multi-ten-figure-and-up range.
Do rich people ever normally leave a billion just sitting in a bank account? Could they with little notice write a cheque to someone for 1,000,000,000.00 and have it clear and everything, just like us mere mortals? Or do they normally keep their money in other forms, and they’d have to go and sell a bunch of stuff to gather the funds?
(“New subway line? I’ll take care of it.” <scribble> “Here.” )
No, they wouldn’t normally have a cool million sitting in a bank account. But they could still probably “write a cheque” against some sort of equity account, a margin account or have an open line of credit that would allow them to write such a cheque.
If there are any here on this Board, I’d like to encourage them to demonstrate this by writing a cheque payable to John Mace. I’ll gladly cash it in the interest of demonstrating that it can be done.
It’s unlikely that a financial institution would just pass this sort of cheque along in their usual process. I’m sure some sort of special communication would have to take place between the institution and the billionaire. And that would be true for sums much less than that, too.
Apparently Texaco once wrote a cheque for over $4bn - $4,071,051,264 to be precise. And that was only the second biggest ever written in the US, according to this page: http://www.tarpley.net/bush19.htm
Most billionaires do not have more than a few hundred million in liquid accounts. By liquid, I am including stock(not in closely held companies), bonds, money market, and checking. In my profession, I have had the ability to look at the financial statements of a few notable billionaires. $400MM is the most I have seen in liquid accounts.
No, because the FDIC and FSLIC only insures you up to $100K. So if the bank fails, you’re out of luck for nine hundred and ninety nine million and nine hundred thou.
Accounts are insured to 100k. If you have a Mil either set up 10 accounts at one bank, or 1 account at 10 banks. Also, you could buy a 1 Mil CD and get the bank to make a loan on it if you need the cash sooner. This is kind of a Spartan response, and there are MANY other ways to handle this, just saying it can easily be done.
Yes, as long as they are in a liquid market and can be sold with minimum price disturbance.
For instance, if you own $500 dollars worth of microsoft stock it would be considered liquid. If you are Bill Gates and you own $50B in microsoft it would not be considered liquid because it can not be sold with minimum price disturbances. Also, if you own stock in Bill’s Hardware and it is not traded on a common exchange like NYSE than that would not be considered liquid.
Companies keep millions of dollars in bank accounts, because of the their liquidity needs. Just because it’s not insured by the federal government does not mean that having an account greater than $100k is prohibited. Companies will do credit analysis on the financial institution to determine their credit worthiness to decide how much exposure they are willing to have to a particular institution.
It would be impractical to have hundreds of bank accounts each with only $100k in them!
Yep. And bank failures are pretty rare in the US these days. The enormous banking behemoths like Citigroup and better banking regulations tend to insulate financial institutions from collapse, even in relatively dire circumstances.
OK, I’m gonna traipse about a bit, filling in holes and sanding down high spots. Here we go:
Re: FDIC insurance on a bank account. Just because one’s account isn’t insured by the FDIC doesn’t mean it’s not insured at all. A private insurance company could write insurance on an account, and a person could keep more than $100K at one bank and just decide to self-insure for any losses, so that the person’s insurance is the financial health of the institution (as someone else pointed out).
Re: liquidity. Stocks and bonds can be considered “liquid assets” for some purposes and illiquid assets for other purposes. Sure someone can sell a small holding in a large publicly traded company with no price disturbance, but that person may also have to (1) wait a couple of days for the trade to clear before the cash can be used, (2) suffer adverse tax consequences by having to realize income before the person wanted to, possibly at a higher rate than he otherwise would have, and (3) suffer adverse investment consequences by not being able to participate in further increases in the stock or by having a portfolio of investments that is no longer weighted and balanced to the person’s liking. So, one person may consider his stock liquid while another doesn’t, or one person could consider one stockholding more liquid than another. (all this applies to bonds, too)
Re: rich people’s money management. (a) Really rich folks use all kinds of different arrangements to take care of their money, but you can be sure that alot of the time they don’t just have a checking account like us normal slobs, they have a banker at a private bank, several accountants, brokers, lawyers, etc., that take care of stuff. I’ll let y’all know more about it once I’ve made my first billion. (b) Most large commercial transactions (i.e., the purchase of a building or a company) are not accomplished using cash or cash equivalents, they are accomplished with various debt and equity instruments, so there’s no need to write big checks or do big wire transfers.
So what does a “private banker” do that a regular banker doesn’t? Does a private banker simply provide a more luxurious banking experience, one-on-one, far from the lineups and crowds… or are there services offered through private banking that I simply cannot get through my Joe Sixpack bank?
And what’s with “offshore banking”? Suppose I get an account in Europe or the States… if I have some kind of transaction going on that dumps money into that account, I’d still have to pay taxes on it once I brought the money home to my own country, right? (I’m in Toronto–I wish the SDMB’d restore the “Location” indicator next to the user name). Then again, it might come in useful if I went to Europe or the States…
John please note that Sunspace said Billion and not Million. That does not negate your answer, since if they are unlikely to have a cool million sitting in a bank account, it is 1000 times less likely they would have an even colder billion sitting in an account.
I don’t get it. I’m going to have a hypothetical example so maybe someone can straighten me out.
Friday night I win the Mega-Millions jackpot in the Illinois Lottery. Cash value of the jackpot, after taxes, is around $18.1 million. So I turn in my ticket (incidentally, the Illinois Lottery office is just down the road from my home; they have a little parking space in their lot designated for “our newest millionaire”); photos are snapped, interviews are conducted, etc. A few weeks later I get my check in the amount of $18.1 million.
Now what? Can I just deposit it into my account at Prairie State Bank & Trust? When I buy my $1,450,000 summer home on the Lake of the Ozarks, do I just write a check out of my check book? And what of insurance? Do I need to open accounts at 181 different banks to insure the money?
I expect you could just deposit the check at your bank. You would want to meet with the branch manager, or a bank executive, to work out the details. (For an $18M deposit, I’d expect the branch manager will clear their schedule to talk with you. Are there any banking execs on the board who can speak to this point?)
Once the deposit clears, your personal check for $1.45 million would go through the banking system just like any other personal check.
You would want to have a nice long talk with your lawyer and your financial advisor about account insurance, and where to put your money to best manage your risk.
An equity acc’t is just an acc’t set up with a broker to keep your equities (like stock). A margin acc’t is the same thing, except that the broker lets you spend money “on margin” witht he equities as collateral. Usually you can only spend some % of the value of the equities, and if their value drops enough so that you have outstanding debts greater than that %, you have to pay off the difference. This is referred to as a “margin call”.
Ex: Say you own $400k of IBM stock. Your broker might let you use (just hypothetically) 50% of that as collateral to buy other stock. So say you then buy $100k of MSFT (on margin). You can do that w/o selling your IBM, but if that stock drops by 1/2 so that your stock is not only worth $200k, you will get a margin call if it drops any further (since you spent $100K on the MSFT stock). It’s a neat way to make money in a rising market, but you can get skinned alive if the market goes south. You don’t usually want to be forced to sell, say, your IBM stock when it’s going down.
Back when fortunes were measured in millions, not billions, it was said that the only millionaire who could just sit down and write a ten million dollar check was Joe Kennedy, who kept significant amounts in liquid assets to fund his son’s political campaigns. Most wealthy people kept the bulk of their assets in more protected or more remunerative forms.
I have no idea if this is still the case today, when there are many more alternative forms of investment than there were fifty years ago.
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