From the April 2009 issue of Investment Advisor • Subscribe!

Numerology: Whither the Wealth?

In a speech March 10 to the Japan Society in New York, the chairman and CEO of the private equity firm Blackstone Group, Stephen Schwarzman, lamented that "40% to 45% of the world's wealth has been destroyed in little less than a year and a half," Reuters reported. While that may sound hyperbolic to some ears, it turns out that, in fact, much wealth has been lost, especially in the United States, over the past 18 months.

On March 12, the Federal Reserve reported that U.S. households lost $5.1 trillion of their wealth in 2008's final quarter, or 9%. That is the biggest single loss in the 57 years the Fed's been keeping those records. In the fourth quarter, the S&P 500 fell 23%, while the value of residential real estate fell 4%.

For all of 2008, the Fed recorded an 18% drop in household wealth, or $11.1 trillion. That's the biggest drop in wealth since 2002, when household net worth fell 3% following the puncturing of the tech bubble.

In his March 10 speech, Schwarzman said he saw hope in the Treasury Department's unfolding plan to create a "bad bank" that would buy up toxic assets from commercial banks using public and private money. In a series of talks over the past week, Sheila Bair, the chair of the FDIC, said the proper term for this private/public "bad" bank should be "aggregator bank," that the program would be administered under TARP, and predicted that Treasury Secretary Geithner would announce such a plan "within the next few weeks," which would be around April 1. Stay tuned.

Another report by the Spectrem Group reported March 11 that the number of U.S. households with more than $1 million in assets, not including their primary residence, fell 27% in 2008 to 6.7 million, down from a record 9.2 million in 2007. The number of pentamillionaires fell 28%, to 840,000, from 1.16 million in 2007.

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