In February 2019 Elon Musk took out a mortgage. Actually, he took out five mortgages, and while he borrowed a decent chunk of money ($61m to buy five houses in California) it represented a fraction of a percentage point of his net worth, then put at more than $20bn (enough to buy 77,500 houses at the 2019 US median price). The conditions – reportedly a 3.5 per cent initial rate and a 30-year term – weren’t much different to the loans then available to the average homebuyer in the US or Europe.
It’s not unheard of for a billionaire to borrow money to buy their house. Mark Zuckerberg used one to finance his house in 2012, despite being worth $58bn at the time, presumably because his wealth manager saw that he could borrow well below the rate of inflation, which meant it was profitable for him to owe money. But Musk and Zuckerberg are rich in a very particular way: their wealth is concentrated in the tradeable securities of the companies they lead – Facebook and Tesla stock – and as such it depends on the confidence of others.
While people like Musk hold on to their wealth, it is a strong signal to investors (especially ordinary “retail” investors) to follow their lead. And why not? It’s not illogical to look at how wealth is distributed today and conclude that the best strategy is to copy what rich people do. This is the thinking that made the stock-trading app eToro hugely popular when it allowed users to copy the portfolios of professional investors (the app now has more than 24 million registered accounts). It was also the reason special purpose acquisition companies (or Spacs) became popular: as empty shell companies, they offered retail investors no reason to hand over their money other than the fact that they were associated with wealthy individuals and celebrities. The truth, however, is that the wealth of these individuals wasn’t anything like as real as it seemed.
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As a store of socially agreed value, the high price of Tesla stock became what the Nobel laureate economist Robert Shiller has called a “naturally occurring Ponzi process”, in which an asset rises in price because people hear that others are buying it, and the price comes to depend on more people joining the bottom of the pyramid. In November 2021, however, Tesla’s richest, most famous and most vocal investor, Elon Musk, sold $14bn in stock (he said it was to pay his tax bill).
That month Tesla had a market value of $1.23trn. Since then Musk’s sales of Tesla stock have risen to around $40bn and the value of that stock has plummeted, devaluing the company by $850bn. The perverse mathematics of paper wealth and realised wealth means that by selling tens of billions of dollars worth of something that other people seem to value greatly, Musk has lost more money than anyone else in history, his wealth declining by an estimated $182bn – a fact now immortalised in the Guinness Book of Records.
Musk has now ceded his crown of World’s Richest Person to the French fashion tycoon Bernard Arnault, according to the Bloomberg Billionaires Index, but these indices necessarily look at narrow measures of financial net worth. If wealth is defined as the resources available to a person, how rich is Mohammed bin Salman, the Saudi crown prince, when the sands of his autocracy hold tens of trillions in oil? How rich is the Pope, when the land holdings of his church are bigger than France or Afghanistan?
This is something we in the press could acknowledge more carefully when we talk about wealth. There is obscene inequality across the world, but to overstate the winnings of a fortunate few only helps them get richer.
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