The Ranks of Global Billionaires: Not All Billionaires Are Made Equal

[Music] this is Jeff Bezos and Bill Gates two gentlemen fighting back and forth for the title of world's richest man as of early 2020 after a slump in Amazon stock price and a recent divorce Bill Gates seems to be out ahead but the recent price spike in Amazon stock means that Jeff Bezos could hold the title I mean it really is too hard to tell at this point these two individuals seem very very similar on paper for starters of course they are both billionaires an elite worldwide cub with around two and a half thousand members and more specifically they are both white male tech entrepreneurs from the United States and even more specifically than that they're both from Seattle and even more specifically their primary residence is in Medina a small town just outside of Seattle so it looks like these two are extremely similar but in reality their fortunes couldn't be more different a basic litmus test for this is to think about how they are accumulating money at the moment Gates's primary occupation is working as the chairman of the Bill and Melinda Gates Foundation which is a charitable foundation that more or less thinks up new and creative ways to give away money to worthy causes and it does great work Jeff Bezos on the other hand is a little bit more tight fisted when it comes to things like charity of course this is not to say that Jeff Bezos has not given to charities he has contributed a significant amount of money to some extremely worthwhile causes but it is nothing on the level of Gates who has to date donated over 40 billion u.s. dollars to charity now this is not to say that Jeff Bezos is some scrooge mcduck character it is just that Jeff Bezos can't donate as much money as Gates simply because he is a lower class of billionaire and now hold up I know what you might be thinking but yes there are very distinct classes of billionaires around the world you are probably familiar with the colloquial lower middle and upper class label slapped under people mostly in developed countries which are already upper-class on a global standing but it gets so much more granular than that and this isn't some weird conspiracy theory either rankings amongst billionaires are not based on something as juvenile a net worth but a range of factors that determine where they truly sit in the 0.0001% hierarchy what I want to do today is look at a select group of this select group and give you mere mortals watching an idea of how this is broken up and what truly classifies a top billionaire these are net worth of course it's still important liquidity political power and wealth security which brings us on to our entry-level billionaire I want to tell you a cool little trick that could legitimately give you a net worth of over a billion dollars as the head of your own company go down to your local solicitors offers set up a limited liability shelf company and make them create ten shares in your company you keep nine shares yourself and place the tenth for sale for one hundred million dollars congratulations you now have a paper net worth of 1 billion dollars now of course nobody would ever buy your worthless company share for 100 million dollars meaning your current equity position is really not worth 1 billion dollars and you're not really a billionaire but this isn't actually too far from the reality for a lot of billionaires around the world private companies are the primary vehicle that generate the wealth of most global billionaires a private company is a limited liability company the same as say Apple or Microsoft or Walmart but they are not listed on public securities exchanges like the New York Stock Exchange the Nasdaq or any of the hundreds of other global stock exchanges this is not to say that these companies aren't big some of these private companies are every bit as large as all but the largest public companies but it does limit things like influence wealth stability and above all Willa quiddity the Trump Organization is a fair fantastic example of a privately owned company currently Donald Trump is the sole owner of all the shares in this company which is in turn a conglomerate that owns over 500 other companies now while this business may be worth a lot it is limited in terms of liquidity if Donald Trump want to go out and raise a billion dollars in cash tomorrow it would be very very difficult for him to do so being a sitting US president aside his company is not listed on any Stock Exchange's meaning that he would have to create a market and court private investors to sell shares in the Trump Organization - what this means is that even though the Trump Organization might be worth one or two or ten billion dollars on paper it is very very difficult to turn that valuation into actual cash on top of this a lot of the value of the Trump Organization comes from Trump's name and the branding arrangement it can make with the figureheads of the business meaning that even if the company could be sold off it may actually lose a significant amount of its value in doing so this is the predicament that a lot of private company billionaires find themselves in great paper fortunes without being able to recognize any of this wealth or turn it into cash to buy mansions or jets or super yachts you know it's a hard-knock life indeed don't feel too bad for these guys though oftentimes their companies run great profits that means they are still bringing in a lot of cash every year but some actually don't a lot of tech startups in particular tend to run at a loss for the first few years of their operations think of companies like snapchat Instagram or LinkedIn the founders of these companies often take a one dollar a year salary and their companies are running at a loss so while they are billionaires on paper they take home less money than the janitor it's not all bad though some benefits of running a private company is that you are not at liberty to make financial statements publicly available which offers a level of anonymity that a lot of these individuals prefer over public companies that have every balance sheet every income statement lies by the public and again try not to feel too bad for these guys otherwise there is actually an entire private banking industry designed around accommodating for these individuals say the founder of super cool growth at all cost tech startup Incorporated wants to buy a new private jet well he doesn't have any money because his entire net worth is tied up in a company that is not publicly traded and is running at a loss they also don't receive a salary so what they do instead is this call up their private banker and say hey I need a line of credit for sixty million dollars okay you know to buy a jet and the bank would ask okay do you have a down payment any income verification or a strong credit file to which mr. tech entrepreneur would say I have no down payment I earn one dollar a year and I don't have a credit file now if this were a mere mortal like you or I applying for a car loan we would get laughed out of the dealership but it turns out that banks are a little bit more accommodating of rich people they basically offer a line of credit to these individuals under the impression that one day they will sell their company and be able to pay it all back this is basically a loan that you don't have to pay back for a very very long time sure it accumulates interest but you don't even have to pay that back until you are ready to this allows paper billionaires to live lavish before they really made any money at all remember this man Jeff Bezos well he actually epitomizes a middle-class billionaire and I know on paper he may be one of if not the richest man in the world but he also has almost his entire fortune wrapped up in a single company now it is a very very big company granted but it is still a single company middle-class billionaires tend to be large stakeholders in post IPO companies things like Facebook's Mark Zuckerberg or Amazon's Jeff Bezos they still attribute a majority of their wealth to a single company but it is a public company what that means is that it allows these individuals to actually get cash for themselves by selling off portions of their company ownership on through public stock exchanges for example Jeff Bezos cashes out about two billion dollars worth of Amazon stock every year to pay for every day billionaire staff as well as to contribute towards other projects like his space project Blue Origin there are still limitations on this class of billionaire though they are still at the mercy of a single company if Amazon file for bankruptcy tomorrow Jeff Bezos would lose a vast majority of his fortune meaning that there will is a little bit more unstable overall though middle-class millionaires that own public companies tend to have a higher net worth and those who own private companies they have more liquidity because they can sell their shares onto the public market they have more political influence because they are powerful figures in institutions that can impact a whole economy Jeff Bezos for example had cities fighting over him and his company when a decision was being made about where Amazon second global headquarters should be located but all of this aside they are still less liquid and less secure in the next level of billionaires Microsoft has more than tripled in value in the last five years which would go a long way to explaining why mr. Bill Gates's wealth has grown so much in recent years despite his best attempts to give it all away and it would go a long way to explaining it if it weren't completely untrue you see Bill Gates is an upper-middle-class billionaire his wealth is actually almost completely divested from Microsoft shares it doesn't even make up a quarter of his portfolio anymore instead he is almost like his own hedge fund the gates family office is a company that operates exclusively to invest the wealth of Bill and Melinda Gates and his company has invested into a wide array of companies that provides the gate family with strong income returns as well as offering diversity and stability in a portfolio this means that Gates can easily raise a lot of cash very quickly by selling off stocks in many companies without crashing their individual market and also has a wider spread of influence over a diverse range of companies in different areas this is the logical end goal of most Western billionaires start a really really successful company slowly sell it off and turn that paper wealth into tangible wealth with a whorl diversified and stable portfolio investments the billionaires that achieve this level tend to be further on in their careers think Sergey Brin of Google Larry Ellison of Oracle Bill Gates of Microsoft Warren Buffett of Berkshire Hathaway and yeah even people like save jay-z and Beyonce and you might think at this point it can't get much better these billionaires have almost unlimited access to cash their asset position is very secure they can have huge political influence if they choose to exercise this power and they have net worth that seems to accumulate regardless of how hard they try to give their money away but there is still a level of billionaires even above these guys welcome to the true old-money elite this is a class of individual that have been wealthy for generations they are Royals or nobility or from a lineage of wealth that extends back to recorded history they don't own companies they own countries they are Saudi royals were Russian oligarchs European nobility or American old money a lot of these individuals don't show up on things like Forbes lists for a few reasons firstly their wealth is a lot harder to quantify to work out Jeff Bezos as well for example it's very very easy the market capitalization of Amazon times 16 for his ownership stake plus maybe some incidental billions as a margin of error and tada there is his net worth slap it on the Forbes list upper-class billionaires don't really hold wealth like this though they will be one and the same thing with national Treasuries they will directly own state enterprises that aren't open to the general public to buy and they do their darndest to fly under the radar oftentimes these individuals lured over countries that are quite poor it is a bit of a bad look for a Multi multi billionaire to be flexing in Western media if your constituents are struggling to feed themselves but it does show in a few places you ever wonder who these people are buying billion-dollar super yachts or half-billion-dollar paintings well they are the people from the upper class of billionaires need liquidity it's not a matter of doing anything as common as selling your shares in an open market you just ring up the Treasury Department of your own nation well stability is crazy high as well normally these individuals are so well diversified and their money is so entrenched international industries that the only way they're going broke is taking an entire nation down with them as for political influence well I mean they are either oligarchs pulling the strings of government or they are direct heads of state so it doesn't get much better than that now the net worth of these individuals may on paper be lower either through creative hiding of it of their books to avoid scrutiny or because it has just been diluted amongst hundreds of family members that share the lineage of the wealth they actually kind of have the opposite problem of lower-class billionaires no paper wealth at all that almost unlimited money and power at their disposal now this of course all sounds a bit tinfoil Hattie like I am one step away from talking about the lizard people that secretly rule the world but oddly enough though these classes of billionaires are very very widely recognized amongst groups in high financing circles wealth inequality is a hotly debated issue worldwide and it is of course no excuse at all to say that any of these individuals are hard done by monetarily but it is still very very interesting to understand the dynamic of how this very foreign world works so before you feel like complaining about your minimum-wage job not covering your crippling repayments on your student loan debt spare a thought for the tech billionaire that can't even afford to feed himself or fuel his jet without taking out a personal loan hi guys thanks for watching as always a huge thank you to our new patrons over on patreon your support continues to make this channel possible as always we will be hosting a Q&A session live streamed on the second channel linked in the video description if you want to be involved in that coming over there to participate or join indirectly by hopping onto our discord server otherwise if you did enjoy the video please consider liking and subscribing thanks guys bye

Channel: Economics Explained

Views: 1,257,125

Rating: 4.9042721 out of 5

Keywords: the economy of global billionaires, the economics of global billionaires, the economy of global billionaires explained, the economics of global billionaires explained, global billionaires economics explained, economics explained global billionaires, global billionaires economy explained, global billionaires economy economics explained, economics, global billionaires economics, how global billionaire economics works, the economics of the inequality, economics explained

Id: 0MeRN7LE1LQ

Length: 16min 21sec (981 seconds)

Published: Thu Feb 06 2020