The Rich Doing ‘All the Heavy Lifting’ in the Economy

There is no such thing as the consumer economy anymore. There is only spending by the rich, and spending by everyone else. In the current recovery, the trajectories of the two are moving in wildly different directions.

Sales of luxury goods are soaring, while sales at Wal-Mart are tepid. The affluent cardholders of American Express have rebounded, while Visa and MasterCard have yet to see the same surge. Mansions are selling again, ranch houses are not.

The reasons for the divergence are simple enough: The rich are benefiting from soaring stock markets, cheap money and rapid growth overseas. The rest of America is still weighed down by unemployment, poor credit, falling real-estate values and slow domestic growth.

Economists call this a plutonomy, or an economy dominated by the rich. “The heavy lifting is being done by the upper-income households,” Michael Feroli, chief U.S. economist at J.P. Morgan Chase & Co. told Bloomberg.

Mr. Feroli estimates the top 20% of wage earners account for about 40% of spending, while Mark Zandi of Moodys Analytics estimates it could be more. He says the top 5% of Americans by income may account for 37% of all consumer outlays. (Outlays include consumer spending, interest payments on installment debt and transfer payments).

The question is whether a plutonomy is sustainable. Can an island of spending by the rich overcome a sea of misery by the masses?

Mr. Zandi and others say this imbalance is inherently unstable. Relying on such a tiny slice of consumers, who are themselves highly reliant on volatile stock markets and asset prices, is no recipe for long-term growth.

“In the near term it highlights the fragility of the recovery,” he said.

But what if the plutonomy is more structural rather than cyclical? What if the wealth of the wealthy continues to grow while the rest of America falls behind, leaving the wealthy and affluent as the only lasting drivers of spending? Such a scenario would sustain the plutonomy, even if it failed to generate widespread growth and prosperity.

If you look at the chart above, showing the DJ Luxury Index and the DJ Consumer Goods Index, the blue line represents the wealthy consumer and the purple the rest. The two lines have grown wider apart since the start of the recession, with the exception a brief tip by the wealthy last summer. There has been no real change in the structure of the economy to suggest the lines will converge again.

It’s comforting to think of the plutonomy as temporary, as an unstable, top-heavy system that will soon crumble under its own weight. But right now, all signs point more to its permanence than its collapse.

Do you think the plutonomy is sustainable? Why or why not?

Can Rich Americans Get Into the Facebook Deal as ‘Overseas Investors’?

Goldman told its wealthy clients over the weekend that it’s locking them out of the Facebook deal just two weeks after asking for their participation. The deal will now be open only to overseas investors, the firm says.

That doesn’t mean that the deal is closed to U.S. citizens, however. The rules governing Goldman’s decisions leave a loophole through which some very wealthy Americans could feasibly still get into the deal.

As the Wall Street Journal first reported, Goldman locked out U.S. clients because it said the intense media spotlight left the deal in danger of violating securities laws governing private placements. To avoid possible violations, Goldman will only allow non-U.S. investors to buy the stock.

Goldman is adhering to Regulation S of the SEC’s securities rules on the definitions of “non-U.S.” investors. The rules state that investments “outside the U.S” have the following requirements:

1. The offer or sale is made in an offshore transaction;
2. No directed selling efforts are made in the United States by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing; and,
3. The sale must be to a “non-U.S. person.”

A U.S. person” means:
i. Any natural person resident in the United States;
ii. Any partnership or corporation organized or incorporated under the laws of the United States;
iii. Any estate of which any executor or administrator is a U.S. person;
iv. Any trust of which any trustee is a U.S. person;
v. Any agency or branch of a foreign entity located in the United States;
vi. Any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;
vii. Any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and,
viii. Any partnership or corporation if:
A. Organized or incorporated under the laws of any foreign jurisdiction; and
B. Formed by a U.S. person principally for the purpose of investing in securities not registered under the Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a)) who are not natural persons, estates or trusts.

All of these rules would seem to preclude the average American rich guy from transforming himself into an “overseas investor” to get into Facebook.

Yet many of today’s super-wealthy Americans (especially in finance) could still get into the deal as “non-U.S. Persons.” Many rich American clients with $100 million or more in investments have overseas homes, overseas holding companies and overseas investment vehicles. They also typically have family members or representatives overseas. So if an American hedge-fund manager who is a U.S. citizen, has homes in the U.S. and votes in the U.S., but currently “resides” in London or Singapore or has a London-based fund, they might still be eligible for Facebook shares.

For instance, if Blackstone Chief Steve Schwarzman takes up residency at his current Paris home, he could arguably be a Facebook investor with Goldman.

The rules are especially accommodating for institutional investors that may have overseas operations. Institutions that were first contacted by Goldman and that have operations overseas would still be able to participate in the overseas offering.

This is a small loophole, to be sure, since the investors have to “reside” overseas. But it’s a loophole nonetheless — especially for the increasingly global rich.

Do you think some ultra-wealthy American investors will use the loop-hole for Facebook shares?

Chinese Buyer Pays $200,000 for a Pigeon

The rich around the world tend to gravitate to the same status symbols: mansions, yachts, art, private jets and wine. Despite the increasingly global nature of the rich, their spending seems to be becoming increasingly homogeneous.

Now comes news that the Chinese may be breaking the mold with a new form of trophy purchase: pigeons.

A rich Chinese buyer paid $200,000 for a racing pigeon at a Belgium auction yesterday, setting a new world record. The bird’s name was Blue Prince, and he was one of the highly pedigreed Belgian racing pigeons that have long been considered the gold standard in the pigeon racing world.

One 218 bird-colony fetched $1.8 million at the same auction.

For the uninitiated, pigeon racing has a long and storied history in Western Europe. The sport dates back to the Romans and Charlemagne, who made pigeon-raising the exclusive privilege of nobles. Legend has it that the Rothschild family benefited from a pigeon bringing news of the British victory at Waterloo.

In today’s races, pigeons are launched hundreds of miles from their home, or “loft.” The first birds back win the race.

The sport has taken off in Asia, and especially China, which loves any kind of race that creates a betting opportunity. The races have also become big sponsored events, like horse racing in the U.S., and can bring big pay-days for the the winners.

I asked Karen Clifton, executive director of the American Racing Pigeon Union Inc., why racing pigeons has never caught on among the U.S. rich.

“We have some wealthy members,” she said. “But most of our members are what would be considered middle class.” She said the membership includes mechanics, teachers and retirees as well as the occasional doctor or judge.

She said prices in the U.S aren’t nearly as high as China. The record paid for a bird in the U.S. is probably around $25,000, she said.

Ms. Clifton speculated that the reason pigeon-racing hasn’t taken off among the American rich is that most Americans still think of pigeons as city scavengers — what Woody Allen famously called “rats with wings.” She also said government ordinances restricting pet ownership and flights have been an obstacle. She said Asian governments actually allow and encourage pigeon-racing, which makes it more popular.

Perhaps Mike Tyson can bring pigeon-racing some cache with his new pigeon-racing show.

Do you know of any other weird status symbols among the overseas rich?

Who’s Buying All That Luxury? Not the Rich

Luxury is soaring again, as brands like Tiffany, LVMH, Richemont and others report strong sales and rising outlooks. The reason for the boom, we’re told, is that the rich are on a spending binge again after the brief unpleasantness of the recession.

That’s true to a point. But a new study finds that the wealthy no longer dominate luxury spending like they did before the recession.

A study by American Express Business Insights, using data from Amex cardholder spending, finds that before the recession, the wealthiest 10% of luxury consumers accounted for 68% of luxury spending. The so-called “Aspirationals” — the non-wealthy who liked to trade up for the occasional hyper-priced hand-bag or watch — accounted for 70% of luxury consumers but only 12% of luxury sales.

The recession forced a big cut-back by the rich. Their share of spending plunged to 38% from 68%. The Aspirationals actually continued to hang around the luxury shops, growing their share to 13%. But the biggest change is the emergence of a new group American Express calls the Newcomers.

They’re called newcomers because they didn’t buy luxury before the recession. And they’re not all that rich. According to the study, the Newcomers fall into the bottom 90% of spenders. About a third of them are Gen Xers, another third are Boomers and about 10% are Gen Y. Most of the Newcomers are women.

“What’s interesting is that there are people who are spending on luxury today who weren’t spending before the recession,” said Ed Jay, a senior vice president, American Express Business Insights. He also noted that the shift in spending away from older wealthier consumers to younger, less wealthy ones is likely to endure.

The fact that older wealthier consumers are going to become less important to luxury spending over time may not be a surprise. (For an interesting “smack-down” debate on the role of Aspirationals versus the rich in the luxury market, click here).

Yet what’s surprising to me, and puzzling, is why younger, less affluent consumers have grown their share of luxury spending. Unemployment, already high, is even higher among the young and less affluent.

Perhaps the younger, less affluent avoided the worst of the real-estate crash, since they may have been renting rather than buying and owning, Or perhaps they figure they have years to make back any money they lost in the recession so they might as well spend. Yet that still doesn’t explain why they are spending now and not before the recession, when times were better.

Who do you think is doing all the spending on luxury these days? The rich or non-rich?

Bloomberg to Launch Ranking of World’s Super-Rich

Since 1982, Forbes has been the only real game in town when it comes to ranking America’s ultra-rich.

Until now.

Bloomberg News is expected to announce that it has hired Forbes veteran Matthew Miller to be editor-at-large in charge of its expanded coverage of “the world’s wealthiest individuals.” The company is staying mum on its plans, but people familiar with the matter say part of Mr. Miller’s job will be to launch a ranking of the world’s rich.

The list probably won’t appear until 2012, and it is unclear where the list will run. One likely platform is Bloomberg Markets Magazine, which already has a wealthy readership.

Mr. Miller worked at Forbes for seven years and left in 2010. He edited the Forbes 400 list of richest Americans and co-edited the list of the World’s Billionaires. The lists remain the lifeblood of the Forbes empire and drive huge traffic to its website. The lists have also become annual rituals of American capitalism, with their commensurate Horatio Alger stories and news about who’s up and who’s down.

Of course, estimating people’s personal wealth is a risky game. Rich people can easily disguise their debt, valuations and ownership stakes. Just look at any recent divorce among the rich. Forbes has had it’s share of flubs, including its recent estimation of Madoff investor Jeffry Picower’s wealth at $1 billion, even though his widow just coughed up $7 billion to settle claw-back claims. I’ve met at least five billionaires who have never turned up on the list.

It’s unclear whether Bloomberg and Mr. Miller will invent a better mouse-trap. But with 1,900 journalists around the world, and their already strong coverage of wealth, they have more resources than Forbes.

What’s more, as wealth becomes more global, Bloomberg may have a better shot at flushing out the newly rich in China, India, South America and elsewhere. Bill Gates and Warren Buffett have had a lock on the top two slots for ages, but it won’t be long before the top five includes names like Zong and Ambani.

A spokesperson for Forbes has not yet commented. I, for one, will be curious where Michael Bloomberg will rank on the Bloomberg list.

Do you think it’s possible to create an accurate list of the world’s rich?

The Art of Becoming a Rockefeller in the Facebook Age

Impersonating a Rockefeller seems to have become something of a cottage industry.

First, there was Clark Rockefeller, the convicted kidnapper who’s now got his own biopic. And now we have news of the even more wily Malcolm Rockefeller.

Alex Beam of the Boston Globe tells the colorful tale of how a former car salesman named Eric Price transformed himself from a confessed bank fraudster into a New England Brahmin who drove a Jaguar and developed a refined taste for rare books and antiques. (Mr. Price has disappeared so he couldn’t be reached for comment).

What’s most interesting about the tale is how Mr. Price used the new tools of Facebook and e-mail to create his persona. He used a Harvard student e-mail (m.rockefeller.md@harvard.edu) to pretend to be a Harvard pediatrician. Then he created Facebook interactions with “Mitzi Rockefeller” and other regal-sounding but presumably fictitious friends and exchanged news and gossip about the Rockefeller family.

His act only came undone after he made the mistake of attending a dinner at the home of an actual Rockefeller. Before he was unmasked, he allegedly made away with bank statements from the family’s home. He was indicted by police but has since vanished.

The joys of creating fake identities online is nothing new. Nor is impersonating a rich person. But the practice of using online tools to create a real-life identity as a rich guy is likely to become increasingly common as people’s lives become more virtual.

Of course, many of today’s Rockefellers aren’t all that rich anymore, after multiple generations of spending and taxes. So rather than using the Rockefeller name, tomorrow’s online faux riche might want to become a Gates or Buffett.

Rich Investors Plan to Pour Money Overseas

Where do the rich plan to put their money this year?

Not in cash or muni bonds, among the favored destinations of not so long ago.

According to a new survey, 64% of wealthy investors plan to add money to long-only global stocks this year, making overseas stocks the biggest likely winner in the race for rich people’s cash.

The survey, part of the Institute for Private Investors’ Family Performance Tracking studies, polled 72 families, more than 80% of whom have assets of $50 million or more.

After global shares, the next biggest winners were hedge funds or fund-of-funds. Roughly 38% of the respondents said they planned to increase their allocations to hedge funds. Coming in third was U.S. stocks (at 35%), followed by commodities (33%) and real-estate investments (30%).

All told, the U.S. holdings of American millionaires are expected to drop to 68% in 2011 from 76% in 2009, according to Merrill Lynch and Capgemini.

While wealthy investors are still heavily invested in the safe havens of cash and munis after the shock of the financial crisis, they are starting to come out of hiding to put more of their cash overseas, where they perceive higher returns. They are also putting less new money into munis, where they perceive higher risks.

This isn’t to suggest the wealthy hold the secret to great returns. The survey found that the respondents averaged gross returns of 9.6% in 2010. That compares with a nearly 13% return for the S&P and 11% for the Dow Jones Industrial Average.

Yet the call of faster economic growth in India, China, Brazil and other overseas markets is clearly beckoning the wealthy away from the U.S. “To me, the 64% was a stunning number,” said Charlotte Beyer, founder and CEO of IPI. “I think it marks a turning point for the wealthy.”

Ms. Beyer said that by investing in “long only” stocks overseas, the wealthy not only are shifting out of the U.S., but also doing so in a way that may avoid the fees and complexities of international hedge-funds and other complex alternative investing products.

“They’re saying, why do I need all that complexity, the tax implications and the fee structure?” she said. “Maybe it’s more attractive to just buy mid-companies in Brazil.”

This could have big implications for the U.S. economy just as financial markets are staging a strong recovery. With America’s millionaires holding more than 80% of the nation’s publicly traded stocks, their decisions can move markets. A drop from 81% to 68% means that more than $1.3 trillion is being re-directed by the wealthy from the U.S. to Latin America, Asia and other parts of the world.

That is good news for China and India. But not so great news for the U.S.

Do you think the wealth flight by the rich will affect U.S. markets this year?

How Rich Do you Have to Be to Get a Facebook Share?

Goldman Sachs Group’s announcement that it is offering its private clients a chance to invest in Facebook has touched off a battle for the shares among its rich clients.

Time will tell, of course, whether the $50 billion valuation on the social networker implied by the deal turns out to be a good investment. But for now, wealthy clients want in.

To be a client of Goldman’s Private Wealth Management division, which is doling out the shares, clients must have a net worth of at least $10 million. (That is the official cut-off, though plenty of Goldman clients are worth less).

Goldman told clients in a memo this morning that in order to get Facebook shares, they need to commit at buy at least $2 million of the shares and are prohibited from selling them until 2013. Wealth advisers say a family needs to have a net worth of at least $30 million to feasibly invest $2 million in one stock that is illiquid for two years.

In an email, Goldman declined to comment on the deal or the terms to clients.

Clients also were told in this morning’s memo that the information about Facebook is highly confidential could constitute material nonpublic information if improperly disclosed. “This information is not to be used other than in connection with your investment,” the memo states.

Yet people familiar with the deal say it is likely to get subscriptions for as much as three or four times the amount available. So the allocation of the shares to clients is quickly turning into a hotly contested round of horse-trading to determine which clients get the most shares.

Clients asking for $2 million of shares, for instance, may get only $500,000 of shares. As a result, some clients are asking for $5 million to $10 million of shares, hoping to get $2 million.
This over-bidding has the effect of weeding out the smaller (i.e., less rich) clients, since clients must prove they have the ready cash to buy the requested number shares in the unlikely event that they get the full amount.

“We’re hearing that the bigger clients will get the largest allocations and the smaller client may get little or none,” said one wealth-management adviser working with several Goldman clients. “But that’s not unusual in this business. They want to treat their biggest clients best.”

Goldman clients who are invested with the Goldman Sachs Investment Partners fund, an investment fund for private clients, also will get a slug of the stock, though probably much less. Those clients may get only $25,000 to $50,000 of the shares, according to two Goldman clients.

Still, the largest allocations are likely to go to the biggest clients.

Then again, accredited investors can simply go on sharespost.com, an online marketplace for shares of closely held companies, and try to buy the shares without having to beg their Goldman broker.

Rich Are Urged to Give Away Their Tax Breaks

Now that the Holidays are over, the tax holidays have begun.

The extension of the Bush tax cuts (or lack of tax increases, as some call them) for the wealthy over the next two years has stirred debate about how those tax breaks will be spent. Will the rich pour the money into the consumer economy and revive sales? Will they hire more people in their companies? Or will they just dump it into gold or ship it overseas?

Some professors at Yale and Cornell have another idea. They suggest that people should give their tax breaks to charity. Their website, giveitbackforjobs.com, has an easy one-click calculator that enables you to figure out your tax benefit. You can then click to pledge your money to one of four charities or a different charity of your choice.

The site is the brainchild of Yale Law School professor Daniel Markovits and political science professor Jacob Hacker, along with Cornell Law School professor Robert Hockett. (Mr. Hacker is also the author of the popular new book “Winner-Take-All Politics: How Washington Made the Rich Richer–and Turned Its Back on the Middle Class.”)

“When the Bush administration took power in 2001, it enacted massive tax cuts that disproportionately benefited the wealthiest Americans,” the professors state on their site. “These beneficiaries represented the very segment of American society that had already seen their share of national income balloon over the prior generation.”

They ask that Americans who benefited “should give what they can afford–in large amounts or small–back to the public, by supporting organizations that promote fairness and economic growth.”

If nothing else, the tax-break calculator is a fun website feature. For those who are generously paid, the calculator will make you feel instantly wealthier–at least for a moment.

The idea is also noble, in the same way that The Giving Pledge is noble. It is hard to argue with the effort to give others to give to charity. So far, donations through the site total about $1.8 million.

But if the aim is to secure a “vibrant middle class,” it will take a lot more than voluntary contributions to Habitat for Humanity.

How much will you save from the tax breaks (or lack of increases)? Will you give any to charity?

Non-Charitable Rich Should Lose Their Passport, Rich Guy Says

Bill Gates and Warren Buffett have been accused of being too preachy in their drive to get the rich to give. They are rhetorical lightweights compared with Australia’s Dick Smith.

Mr. Smith reaped millions of dollars from launching food and electronics companies. He also is adventurer who is fond of ballooning, driving solar cars and flying around the world in his helicopter.

Mr. Smith has been on a crusade recently to persuade wealthy Australians to be as charitable as Americans. He says wealthy Australians donate only 1% of their wealth to charity, compared with somewhere from 10% to 15% in the U.S.

“It’s just greed,” he told the Australian media. “What they’ll say is ‘we don’t do it publicly’, but I find the ones who say they don’t do it publicly in fact hardly give anything away.”

Mr. Smith started with a public letter-writing campaign, writing to the chiefs of the four largest Australian banks and asking them to give away 20% of their $40 million in combined annual income. Only one responded, to say that he gives privately.

Now Mr. Smith is turning up the heat with another proposal: revoke the passports of the un-charitable wealthy.

“Take away their passports,” he told the Australian press, only half-joking. “If I was dictator, I’d say, if you’re going to be wealthy, there’s an absolute obligation that you’re a philanthropist, you don’t do it secretly and if you don’t give a decent amount away, we don’t want you in this country or we’ll take your passport away so you can’t travel–I reckon it’s at least 20 per cent of your income or, if you’re a billionaire, I like the idea of Bill Gates saying 50 per cent.”

If he weren’t a millionaire entrepreneur, it would be easy to dismiss Mr. Smith as a socialist nut-job. And his proposal is silly, of course.

But even Americans such as Jack Bogle and Warren Buffett have made the argument that no-one is truly “self made” and that the rich in every country have benefited from their nation’s assets and systems to become wealthy. They say the rich should therefore give back to support that system.

Mr. Smith has taken it a giant step further. He argues that if you don’t give back to your country, you should lose one of wealth’s greatest benefits–the ability to leave.

What do you think of Mr. Smith’s modest proposal?

The Five Species of Luxury Consumer

With luxury on the rebound, companies once again are obsessed with the mythical “luxury consumer.”

This dream spender is, we are told, wealthy, young, beautiful and prone to buying $4,500 bicycles for their dogs. As for the global financial crisis…well, what financial crisis?

But a new report from BCG Research digs deeper to divide the luxury consumer into five distinct species. BCG surveyed six luxury markets–the U.S., Brazil, China, Japan and Russia, and Europe. They found that each of the five species has experienced the financial crisis differently. They are:

The Aspirationals. Those with $85,000 or more in annual income in developed markets or $29,000 in emerging markets account for four out of every five luxury purchases in the markets studied, according to BCG. They aren’t big spenders individually, but together they account for a third of all luxury spending. There are 115 million of these households in the studied markets.

Rising Middle Class. This oddly named group has incomes of $170,000 or more in the U.S. and $55,000 in emerging markets–making them fare more affluent than the real “middle class.” But they account for 25% of luxury spending in the studied markets. There are 25 million of these households in the markets studied. They spend most of their money on cosmetics and fragrances, and they like leather goods.

New Money Households. The New Money crowd has investible assets of $1 million or more, and they spend about $90 billion a year on traditional luxury, or about a third of the market. There are six million of these households in the markets studied. They like fashion and clothing.

Old Money Households. The Old Money group inherited its money and is far more frugal, accounting for only 7% of luxury sales. There are one million of these households in the markets studied.

Beyond-Money Households. This group may be self-made but it shuns status spending as ostentatious and tasteless. “Their disdain for luxury brands is, in a way, an affirmation of their elite status.” There are about a half million of these households. When they do spend, they spend on watches, jewelry, furniture decorations.

The financial crisis has changed the first three groups most. As money became tight, or as they grew tired of more stuff, they began to question why they buy luxury goods. They are now more frugal, looking for understated brands and more value and discounts.

“Luxury has lost much of its mystique,” the report said. “The challenges posed by this conceptual shift will be more fundamental and lasting than the challenges that arose from the crisis.”

Do you know of any other species of luxury consumer? Are they still spending?

The 10 Top-Earning Counties in America

Last week, I posted about the richest U.S. states, as measured by the number of ultrahigh net-worth residents. The post generated a number of requests for more-precise data, since the ultrarich list was really just a list of the largest states. Many also wanted incomes.

Right on cue come fresh data from the U.S. Census. The data, gathered from 2005 through 2009, show the top 10 counties as ranked by median income.

The list follows below. But it reflects two interesting trends. First, high-income and high-education households are “clumping” into tighter and tighter geographies, according to a University of Maryland professor.

“The dispersion of income is larger than it’s ever been,” said Douglas Besharov, a professor at the University of Maryland’s School of Public Policy told Bloomberg. “There used to be a much wider spread of incomes within geographic areas than there is now. There’s much more of a clumping together.”

The other trend is that the suburbs of Washington D.C. have replaced New York, California, Connecticut and New Jersey as home to the top-earning counties. Four of the highest earning areas in the U.S. are commuting towns to D.C., either in Virginia or Maryland.

Government, it seems, is catching up to finance and technology as the largest generators of high incomes.

Here is the list:

Top 10 U.S. Areas by Median Household Income (in 2009 inflation-adjusted dollars).

Falls Church city, Va. — $113,313
Loudoun County, Va. — $112,021
Fairfax County, Va. — $104,259
Hunterdon County, N.J. — $102,500
Howard County, Md. — $101,003
Los Alamos County, N.M. — $100,423
Douglas County, Colo. — $99,522
Morris County, N.J. — $96,316
Somerset County, N.J. — $96,233
Fairfax city, Va. — $96,232

Do you see any other trends in the list?

The Paul Tudor Jones Christmas Spectacular

Earlier this month I wrote about the angst in Greenwich over whether Paul Tudor Jones III’s annual Christmas light show would return this year.

It did of course. And the Wall Street Journal now has the exclusive video of the show, along with its synchronized sound track.

The WSJ’s Alan Murray filmed the show in 2008. This year’s is even more elaborate. We’ll let you be the judge. Do you prefer the 2008 version or the 2010 version?

Here’s the show from last year.

How Much Was Picower Worth?

The last year that Jeffry Picower and his wife were on the Forbes list was in 2009. Forbes put their net worth at $1 billion. The Picowers weren’t even on the 2008 list, or the 2007 list or any other list that I could find before that.

In other words, according to Forbes, he wasn’t even a billionaire until 2009. (His 2009 entry lists his source of wealth as “Investments, Self-made”).

Now we hear that the Picowers were worth at least $7 billion, gained from years of huge profits from investing with Madoff. Some years Mr. Picower made 950% returns. Ms. Picower today reached a settlement with the trustee in the Madoff bankruptcy to hand over $7.2 billion that the family made from the Madoff fraud.

The big unanswered question is how much the family has left. Is it billions? Millions? Thousands?

Mr. Picower’s lawyer told Forbes that Mr. Picower was worth up to $7 billion at the time of his death. Forbes says it could have been much more, since Mr. Picower had as much as $3 billion in unrealized gains in investment accounts at the time of his death (he was found dead in his Palm Beach pool in 2009). Yet it’s unclear how much of that will go to the settlement.

Mr. Picower’s will left $200 million to his wife, $25 million to his daughter Gabrielle and $10 million in a trust for his longtime assistant April Freilich.

Regardless of the settlement, it appears Ms. Picower will have enough money to continue her philanthropy.

“We believe that following the settlement with the Madoff Trustee … the substantial assets acquired by Mr. Picower through his many successful investments over the years (separate from Bernard Madoff) will be available and sufficient to fund the new charitable foundation,” William Zabel, the Picower family lawyer, told Reuters.

Figuring out where to draw the legal line between ill-gotten gains and profits made legitimately off of some of those ill-gotten gains is, of course, difficult. Yet while Mr. Picard may have gotten “every penny” that the Picowers made from the Madoff fraud, it looks the family will have more than a few pennies left over.

UPDATE: Barbara Picower, through her lawyer, William D. Zabel of Schulte Roth & Zabel LLP, said the following as part of a prepared statement: “I am absolutely confident that my husband Jeffry was in no way complicit in Madoff’s fraud and want to underscore the fact that neither the Trustee nor the U.S. Attorney has charged him with any illegal conduct. I believe that the Madoff Ponzi scheme was deplorable, and I am deeply saddened by the tragic impact it continues to have on the lives of its victims. It is my hope that this settlement will ease that suffering.

“My late husband was a talented and active investor who had extraordinary successes in business investments during his career, which will allow me to make this settlement and return to the philanthropic work that was so important to Jeffry and me.”

Does the Estate Tax Hurt Farmers and Family Businesses?

Once again, the U.S. is debating the estate tax. And once again, partisan pundits and politicians are invoking farmers and family-owned businesses as the true estate-tax victims.

The debate is being prompted by the Obama-GOP tax deal, which calls for taxing estates over $5 million at 35%. The Democrats want a 55% rate on estates worth $3.5 million or more.

The Democrats argue that higher tax is needed to lower the deficit and inequality (the latter being the real motivation). The Republicans say the lower rate would hurt farms and family businesses.

Sen. Chuck Grassley, a Republican from Iowa, says that “this legislative agreement makes sure the government can’t take more than half the estates of farmers and small business owners who have scrimped, sacrificed and saved their entire lives to build up a family business.”

A recent IRS report, however, casts doubt on the claim that farmers and small-businesses are the main victims. According to a white paper by Brian Raub, an economist with the IRS Special Studies Special Projects section, farms and family-owned business account for a small fraction of estates worth $3.5 million or more.

The study shows that in 2007, investment real estate — which includes farms, undeveloped land, real-estate investment funds, real estate partnerships and other investments — accounted for only 15% of total portfolios for estates over $3.5 million. Farms are only a fraction of the 15%.

Limited partnerships and business assets account for about 5.5% of their total assets.

So what is in the big estates? Mostly publicly traded stock. The study found that publicly traded stock accounted for more than a third of the assets held by estates of $3.5 million or more.

Of course, some small businesses and farmers would get hurt from a $3.5 million rate. And there may be other good arguments for ditching the estate tax. But it’s misleading to say farmers and small businesses would bear the brunt of the tax. Unless of course, Paris Hilton’s brief stint on “Simple Life” makes her a farmer.

The real victim of the Democratic proposal would be wealthy shareholders and the stock market. Yet strangely, we don’t see politicians championing the rights of the stock market and big shareholders in their death-tax crusade.

Do you think the estate threshold go to $5 million or $3.5 million?