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The Rich begin feeling the pain in down economy

Published:

Last Edited: August 3, 2008, 8:11 pm

By MARK JEWELL - AP Business Writer
Published - Aug 03 2008 06:52PM EDT | AP

The rich are sharing your financial pain _ and contributing to it.

Itmay have taken longer and it may not be as acute, but there are earlyhints that the economic slump is crimping the lifestyles of the wealthy.

Theyare investing more conservatively, spending less on luxury goods andare being more thrifty with their credit cards. Many are asking theirpersonal shoppers and private-jet travel providers to seek the bestdeals rather than over-the-top extravagances.

That news may produce a shrug from many people who have lost theirjobs or homes in this economy. The problem is that when the wealthy getstingy, it trickles down to the rest of us.

"It's a sluggisheconomy, and its difficulties are felt all over," said Joseph DiRenzo,a married 38-year-old father of three who left a hedge fund two yearsago to enter commercial real estate.

DiRenzo says he's feelingthe hit in many places, especially in the value of his house on LongIsland's upscale Gold Coast in Muttontown, N.Y.

He owns the kindof place you'd expect a former hedge-fund manager would call home: sixbedrooms, seven full baths, hand-crafted Italian doors throughout,high-tech security and sound systems, and 9,000 square feet of livingspace on 2.4 acres.

It can be had for $7 million _ a good deal,he says, when you consider his next-door neighbor's comparable homesold for $9 million last fall. He has cut the price twice in the 12months it's been on the market.

DiRenzo is looking for a smaller,cheaper home. He also may buy a hybrid to supplement the two MercedesBenzes in his heated four-car garage. And, he's driving less these days.

The DiRenzos aren't unlike many American families cutting back to weather a downturn. They're just richer.

To be sure, the poor and middle-class are being hurt more, but uppercrust thriftiness could reverberate across the rest of the economy.

The10 percent of households with the highest incomes account for nearly aquarter of all spending, according to data compiled by research firmMoody's Economy.com from a 2006 federal survey.

"That doessuggest those folks are important for the spending outlook, and theoverall economic outlook," said Scott Hoyt, Moody's director ofconsumer economics.

Other government data show households in the top one-fifth of theU.S. population ranked by income earn about half of all total personalincome before taxes _ an imbalance that gives the wealthy immenseeconomic clout, said Sara Johnson, an economist at the research firmGlobal Insight.

"Consumer spending makes up 70 percent of grossdomestic product, and when one group accounts for a very substantialshare of consumer spending, they also account for a large share of theeconomic activity that creates jobs," Johnson said.

On Friday,the Labor Department reported that the unemployment rate had jumped tothe highest in four years. The housing slump, tighter credit, high fuelprices and a lack of confidence is causing employers to cut expansionplans, or even let employees go.

It doesn't help when your customer base is pinching its pennies, either.

"Alot of our clients stop by a deli on the way to the airport, ratherthan have a catered meal on the plane" costing $50 per boxed lunch,said Justin Sullivan. Sullivan is the founder of Regent Jet, anAndover, Mass.-based broker that buys blocks of aircraft time to trimcosts for high-end clientele whose multi-leg itineraries can sometimesexceed $100,000.

Trevor Gilman, a professional pilot, says hischarter service out of western Massachusetts' Berkshires Mountains hasflown about half as many miles so far this year compared with the sametime last year. Consequently, the service hasn't replaced a handful ofemployees who recently found other work or retired.

"We're down to a total of two crews for three airplanes," Gilman said.

Unity Marketing, a Stevens, Pa.-based firm whose clients includeretailers in the more than $322 billion U.S. luxury goods market, saidits latest poll of affluent people nationwide found a 20 percentdecline in spending on luxury goods in this year's second quarter, andthe lowest luxury consumer confidence level in the nearly five yearsthe survey has been conducted.

Just over half of the 1,024respondents earning an average income of $204,800 predicted they wouldspend less on luxury in the coming 12 months than they did a year ago.

Luxuryspending fell 4 percent last year, and this year's decline is expectedto be steeper, particularly for luxury handbags and clothing that don'thold value, Unity Marketing President Pam Danziger said.

"We face a very different environment for luxury indulgence in 2008as compared to 2007," said Danziger, who predicts "a very difficultmarketplace for luxury goods over the next five years."

For mostAmericans, the choice has been whether to give up small indulgences,such as eating out or going to the movies, to help defray the risingcost of food and fuel.

For the wealthy, the choices have been different.

"Peopleare examining, 'Do you keep the yacht, do you go to the classic carauction, do you take the private jet?'" said Joseph Montgomery,managing director of investments at Wachovia Securities. "Those soundlike nice problems to have, but at the same time, they are issues."

Althoughthe rich may be suffering somewhat, most have a far bigger financialcushion to ride out hard times than folks living paycheck to paycheck.

DiRenzo said that despite two price cuts to his home totaling $200,000, he doesn't plan any more.

"The high-end buyers out there are maybe more selective now, but I'm willing to wait out the storm," he said.

That hasn't been an option for many Americans who have been swept up the maelstrom of foreclosures.

Entry #128

Comments

1.
justxploringComment by justxploring - August 4, 2008, 12:41 pm
I've read similar articles. I decided not to judge too harshly, although my heart doesn't bleed for these people. Recently I saw a couple of auctions in golf course communities where the homes list for well over a million.   Quail West was one of them. See if this MLS listing works so you can see the type of community I'm talking about.
http://www.levitanrealty.com/Naples-Community/Quail-West.htm

A few months ago, a friend had an appointment in Naples and the couple she met with complained about the economy, how they lost "everything" in the market in 2001-2002 and lost their home. When she told me where they live, my first reaction was "How can someone who lives in a $2,000 a month building cry poverty?" But maybe to them, the change was traumatic. If you are 75 years old and suddenly your lifestyle changes, it's not the same as going without food, but it's still very emotional. Don't misunderstand me since, when I sold furniture, I would roll my eyes after a customer would complain that they had to downsize from 5,000 s.f. to 2,000 s.f. because of taxes & insurance. These weren't millionaires, but they had no clue how the real world lives. That said, maybe they came from poverty and worked their way up, which is why I said I try not to pass judgment.
2.
TenajComment by Tenaj - August 4, 2008, 1:16 pm
Thanks for the comment Jxp. I guess that's why they fight so hard to keep the laws that favor them. And call Presidents that favor the rich - good presidents.
3.
justxploringComment by justxploring - August 4, 2008, 4:33 pm
Thanks for thanking me, Tenaj. LOL Hope this doesn't sound as if I'm starting an argument, but I don't think all wealthy people feel that way. Also, if the very rich voted for Bush (if that's one of the Presidents you're referring to) he would have lost, getting about 4% of the vote.   

I mean, who wouldn't want a tax cut? Doesn't mean the people aren't generous. Everyone hated Leona Helmsley (Queen of Mean) and applauded when she went to prison, but she left $4 billion to charity. Here's a list from 2007. http://www.slate.com/id/2184056/

Just a story I'm reminded of... When I was saw a dentist in Boston, he shared an office with a podiatrist (what a strange combination, huh?) Anyway, I was in the waiting room and saw an ad for a cruise on the QEII (think that was the famous cruiseliner) in a magazine. I forget, but let's say the cruise was $20,000 for 2 people. I made a comment that it was such a shame that people spend that much for a vacation when others are hungry, or maybe shook my head and said if they have too much money, they should give it way. The podiatrist walked out into the waiting room and said "I heard what you said. How do you know they don't give away more than that?" He was right.

Some people think I am a Liberal & others think I'm a Fascist. Maybe I've just got a split personality, because in my heart I believe in socialism, but it just doesn't work. If I owned Exxon/Mobil stock, maybe I'd be happy that they made a huge profit. Who wants to see their stocks go down? I had this discussion with a friend who was complaining about the multi-millionaires in Port Royal (an area in Naples) where they probably have a special alarm that detects ordinary people in the neighborhood. LOL   Anyway, I said "so let's say one of these wealthy people said "Here's a mansion overlooking the Gulf of Mexico as a free gift. It's a special tax write-off I'm getting, where I have to give it to someone who makes under $18,000 a year. You'll have full use of my staff (cook, housekeeper, etc.) and I'll take care of the bills, no strings attached." Would you say "No thanks. I can't take it. You see, I enjoy being needy and working at XXXXXX for $9 an hour!" Sure.

4.
justxploringComment by justxploring - August 4, 2008, 5:16 pm
Strange - I made a typo by writing a palindrome. LOL (saw & was) when I wrote "was saw a dentist in Boston"
5.
LittleoldladyComment by Littleoldlady - August 4, 2008, 7:25 pm
I think the rich give away a lot of money. Some of them. They are just as worried about their bottom line as we are. I am shocked at price increases for groceries and goods that people must have. The point is what can we do about it? Those rich folks will come up with something to help us..I am sure of it.

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