Did you finance? Pay cash? What do you do?
11-30-03, 08:49 PM
#31
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Triggaice-This is not foolish talk
Trig;
You asked how we bought our SC's. I paid cash. I wouldn't have been able to do it if I hadn't followed the rules listed above.
I OWN my home-paid for, done, finished.
My son went through college, which I paid for and he has no student loans. He didn't go to an Ivy League school but a state school and received a competitive education.
This year I bought a NEW LS 430 Ultra AND an SC 430, also new. I paid cash for both. No payments, no leases. The dealer even commented that it is rare for someone to come in and pay cash for two Lexus'.
I also have a 98 4-Runner which I purchased new for cash.
How do you do it? I drove an 84 Toyota Cressida for 19 years, saving and investing until I could afford to pay CASH. I paid off my first house by making extra payments towards principal EVERY month.
Once you have your house and cars paid for you can save obscene amounts of money.
First things first. Get out of debt and stay out of debt.
If you don't remember anything else, remember this "YOU NEVER MAKE MONEY BY PAYING INTEREST".
What you have been reading here works. Money is power, and when you can pay cash all kinds of doors open.
Save and invest, my man, or else you will be forever poor.
Ron
You asked how we bought our SC's. I paid cash. I wouldn't have been able to do it if I hadn't followed the rules listed above.
I OWN my home-paid for, done, finished.
My son went through college, which I paid for and he has no student loans. He didn't go to an Ivy League school but a state school and received a competitive education.
This year I bought a NEW LS 430 Ultra AND an SC 430, also new. I paid cash for both. No payments, no leases. The dealer even commented that it is rare for someone to come in and pay cash for two Lexus'.
I also have a 98 4-Runner which I purchased new for cash.
How do you do it? I drove an 84 Toyota Cressida for 19 years, saving and investing until I could afford to pay CASH. I paid off my first house by making extra payments towards principal EVERY month.
Once you have your house and cars paid for you can save obscene amounts of money.
First things first. Get out of debt and stay out of debt.
If you don't remember anything else, remember this "YOU NEVER MAKE MONEY BY PAYING INTEREST".
What you have been reading here works. Money is power, and when you can pay cash all kinds of doors open.
Save and invest, my man, or else you will be forever poor.
Ron
12-02-03, 07:29 PM
#32
Originally posted by triggaice
lol this is the funniest thread i ever read. Join a forum dedicated to a 60k+ car that you want so bad and say "How did you guys get you car?? How did you do it???" From hyundai to Lexus SC430. Thats like going from section 8 ghetto housing to a 9000 sq ft ocean front house in palm beach, it doesnt happen over nite.
Dont want to be mean but this thread just sounds childish
lol this is the funniest thread i ever read. Join a forum dedicated to a 60k+ car that you want so bad and say "How did you guys get you car?? How did you do it???" From hyundai to Lexus SC430. Thats like going from section 8 ghetto housing to a 9000 sq ft ocean front house in palm beach, it doesnt happen over nite.
Dont want to be mean but this thread just sounds childish
12-02-03, 07:37 PM
#33
What do you all think about leasing a 3-5 year old CPO vehicle just to keep more money in my pocket. Our 1993 Ford Explorer with 185k miles on it will most likely need replacing (of some sort of major component) late next year. My wife and I are discussing our options and not until recently have I gotten her to actually put "leasing" on the option table. We would really like a CPO 2003 GX or wait until the new Lexus SUV comes out, but I am afraid those vehicles will be too expensive for our personal down payment requirement of 50%. I was crunching numbers and if, what I have done is correct, we will be able to lease a 2001 GS300 for $397/month with the 15k mile option (based on $32,000). For three years we would have a vehicle under a fantastic warranty and can continue to save more cash in the mean time. What are your opinions and how has Lexus treated any of you leasee's at vehicle turn-in time?
Many thanks,
Many thanks,
12-02-03, 07:42 PM
#34
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I personally dont think its a good idea. Leasing a pre owned car like GS300 which brand new is close to 40 and you found a 2001 for 31. Your probably going to get better deals leasing a new one if you were going to lease. When you lease a car thats 2-3 years old it doesnt make much sense, your investing alot of money into a car with no return at the end plus its already a 3 yr old car.
12-03-03, 05:06 AM
#35
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This thread is getting crazy. If Mistergrin works hard and wants this car and does NOT have half a million in assets, so be it. Do whatever makes you happy but have a backup plan. My thought is...live for today, plan for the future. Have balance in your life, ying and yang, good and bad, etc.
That's my four cents.
That's my four cents.
12-03-03, 11:06 AM
#36
We all end up paying for the irresponsible actions of others through higher costs of goods and interest rates...
Bankruptcies nearly double in the past decade
1.6 million people filed
By Marcy Gordon, Associated Press
WASHINGTON -- Bankruptcies have nearly doubled in the past decade, the total including more than 1.6 million people who filed for personal bankruptcy this fiscal year alone in a hangover of debt from the free-spending 1990s.
http://www.oaklandtribune.com/Storie...768934,00.html
Bankruptcies nearly double in the past decade
1.6 million people filed
By Marcy Gordon, Associated Press
WASHINGTON -- Bankruptcies have nearly doubled in the past decade, the total including more than 1.6 million people who filed for personal bankruptcy this fiscal year alone in a hangover of debt from the free-spending 1990s.
http://www.oaklandtribune.com/Storie...768934,00.html
12-03-03, 11:07 AM
#37
BUSTED
In the midst of the biggest economic boom ever, millionaires are going bankrupt. What's that say for the rest of us?
Busted
October 2, 2000
By Stephane Fitch
Forbes.com
NEW YORK DOCTOR Lawrence Levitan looks flush. An accomplished 45-year-old obstetrician, trained at Beth Israel Hospital and an assistant professor at New York University's School of Medicine, he had a practice that was pulling in nearly $300,000 a year. He's got a $725,000 house on Long Island and a 1998 Infiniti sedan. He and his wife send their kids to private school and a costly summer camp.
A picture of upper-class contentment? Far from it. The crushing weight of $2.7 million in debt forced Levitan to file for bankruptcy late last year. He had borrowed heavily (and signed leases) to equip three gynecological offices. After a point there was no way he could manage a $6,500-a-month house mortgage, the $45,000 of credit card debt, as well as the $15,000 a month his family spent on education, food, clothes and entertainment.
Robert Kryvicky, 49, climbed the ladder to the $450,000-a-year rung as a partner at accounting firm Ernst & Young. There he doled out expensive advice to professionals. Apparently he took little of it himself. He piled up $267,000 in credit card and other debt, and $806,000 in mortgages on his apartment on West 57th Street in Manhattan--not to mention the $1.2 million owed his former wife and his son (by an ex-girlfriend) in back alimony and child support. When he lost his job last year, he was cornered. He filed for bankruptcy in July of last year and retreated to his home state of Michigan.
Peter Lordi is busted, too, though it's probably not obvious if you drive by his $550,000 house in Ulster County, N.Y. After he sold two medical technology companies he'd founded, Lordi took up horse breeding (including a thoroughbred named Saigon Eve). He began collecting expensive stuff--antique furniture, Swiss watches, a Porsche, a Mercedes, a second home in Florida. He also collected $1.4 million in debt and, without a salary, had no meaningful way to service it all. Lordi, 56, filed last October, and was trying mightily to keep his house, horse and Porsche.
What's going on here? In the midst of the longest economic expansion in the history of the world--and the greatest episode of individual wealth creation--a record number of people are going bankrupt. They've been filing for protection from creditors at the rate of more than 1 million a year since 1996, up fourfold since 1979.
Some are what you would expect: People struggling to pay rent and buy groceries. But far from all. A fair number are well-educated professionals like Levitan, Kryvicky and Lordi, according to Harvard professor Elizabeth Warren and University of Texas professors Teresa Sullivan and Jay Westbrook, who have studied the explosion in bankruptcies. "The debtors in our sample include accountants and computer engineers, doctors and dentists, clerks and executives, salesclerks and librarians," they write in their new book, The Fragile Middle Class: Americans in Debt. "They are middle-class folks who are supposed to be gathering around the barbecues on the patios outside their three-bedroom, two-bath houses"--not swearing on a Bible before a bankruptcy judge.
Overreaching has become the new American sport, financial hubris the new market psychology. "I've seen unreasonable levels of confidence in my clients that's clearly related to seeing the market go up and up," says Suzette Loh, a financial adviser with Richard A. Eisner & Co. in New York. "It becomes a sense of entitlement, where every investment of their money is expected to yield big results."
You can see it in a growing national profligacy. Consumer spending is rising twice as quickly as the rate of personal income. At the same time, the monthly personal savings rate scratched an all-time low, a negative 0.2% in July. A huge number of us are living beyond our means. No broad disaster has resulted--yet--because foreigners are gladly lending us the money we need to pay for our capital investment. But if financial strains are so apparent during an expansion, what's going to happen in a recession? Or a collapse in asset prices?
A snapshot of the American balance sheet shows immense prosperity--combined U.S. household net worth of $42 trillion, according to Federal Reserve statisticians, double what it was a decade ago, (see chart). But to a large degree that growth in net worth represents the explosion in asset prices--the quadrupling of stock prices over the decade, the 50% rise in home values. Alongside the gain in assets has come an increased ability to borrow against them and an increased tendency to spend as if the asset appreciation would go on forever.
Will it? So far, all the pessimists scolding us for our addiction to debt have been proved wrong. For many Americans--and particularly for driven, young self-starters who never lived through the Depression and whose memories of the 1973 to 1974 crash are dim if present at all--taking hefty financial risks has paid off. The stock market looked overvalued in early 1998, with a currency crisis under way in Asia and Alan Greenspan beginning to hike interest rates. But anybody who resisted the urge to move their money into a savings account and invested in the S&P 500 is now sitting atop a 65% return.
What if the debt Cassandras are right? There's quite an overhang. Americans owe $4.5 trillion on their home mortgages, up from $2.5 trillion a decade ago, $1.4 trillion on their cars, plastic and student loans, up from $811 billion in 1990. Today, the average family credit card balance is $1,700, compared with $1,100 in 1989.
In fact, the economy needn't swoon for a lot of people to get whacked. All it takes is for prices to stop going up--as they have this year in the stock market and in some overheated housing markets like Seattle and Dallas. Mortgage debt looms a lot larger when there is no price inflation to offset your 8% interest cost.
Luke Brugnara, an enterprising landlord in San Francisco, isn't close to bankruptcy. But his spendthrift habits, like the recent purchase of a $16 million home in Seacliff, have a certain universal what-me-worry resonance. "It's an $18 million house that I got for way less," he says. Sure, it's an $18 million asset, unless something bad happens to the dot-com economy and such homes start to sell for only $9 million.
Below, you'll find the cases of millionaires who went bust by grabbing far more than they could manage financially, victims of their own unbridled optimism. Foolish overextension, you might say. On closer inspection, these characters begin to look an awful lot like the rest of us.
THE MOONLIGHTER
Everyone knows a modestly successful guy who, discontented with his day job, had the nerve to start another venture on the side. Chicago attorney Salvatore Miglore, now 47, had a good law practice, specializing in criminal and family law, and managed to build assets worth $7 million. He and his wife of 20 years, Doreen, owned a $500,000 house on a quiet road on the outskirts of Hinsdale, one of Chicago's tonier suburbs. They had a condominium rental in Buffalo Grove and a handful of cars, including two Mercedes, a BMW and a Chrysler. Miglore could afford luxuries--$2,000 in tickets to see the fresh-from-jail Mike Tyson's 89-second knockout of Peter McNeeley in 1995. Or, after Doreen filed for divorce in 1996, a $55,000, 4.5-carat diamond ring for a lady friend.
Miglore won't discuss his bankruptcy, so it's hard to know why he became dissatisfied with the solid income and quiet respectability of his practice. What is clear is that he developed a passion for real estate. In 1995 he bought four acres of land not far from his home in Hinsdale. With development evidently in mind, he got mortgages on the land, totaling $975,000, and obtained a second mortgage worth $330,000 on the couple's home. Doreen later complained in divorce court that he assured her he was "taking care of everything.... We're secure."
Not quite. A soil test on Miglore's land turned up hazardous chemicals that had been dumped there, probably illegally. Nothing could be built until those problems were cleaned up. The discovery added new costs to the development, and it slowed things down. Miglore was distracted from his law practice and couldn't make the payments on money he'd borrowed to fund the development.
By last July Miglore still hadn't developed his property. He couldn't keep up with any of his four mortgages, payments on his Mercedes or his $70,000 in credit card bills. He owed the government $72,000 in back taxes and was even in the hole $10,000 to his new wife. His debts totaled $2 million, against assets of $1 million. Doreen got the house, and the undeveloped land went to his lenders. Miglore has asked the bankruptcy court to approve a plan that will let him gradually repay a portion of the debts, contributing $100,000 a year (half his salary from his law practice).
THE GAMBLER
A lot of people are in the stock market these days--half of all households with incomes greater than $100,000. And a lot of them are making money; it would be hard not to, if you have owned stocks over the past five years. But success leads to overconfidence and overconfidence to disaster. Consider the case of Matthew Geller, whose overconfidence led to a bankruptcy. His sin, as it happens, was betting against the bull market.
A onetime scriptwriter for television producer Aaron Spelling, Geller, 52, has been the senior biotechnology analyst for CIBC World Markets in New York since 1997. His annual salary and bonus top $1.3 million, and he, his wife and their two children lived well, renting an apartment on Manhattan's Upper East Side and keeping a home in Los Angeles
A salary with two commas in it and a senior job on Wall Street. There would be very little else to say about Matthew Geller if he had been able to resist using his personal account at CIBC to make highly leveraged, seven-figure bets on the biotech stocks he knew so well.
New York bankruptcy attorney Sandra Mayerson doesn't know Geller, but she has helped more than a dozen millionaires avoid bankruptcy. Many of her clients were experts in finance who took risks they would never counsel their clients to take. "Some consultant sees a half billion dollars of debt cross his desk every day, and says, 'Why shouldn't I get my piece of the pie?' " she explains. "So he borrows $5 million and does no due diligence because it seems like pocket change. When the deal blows up and the bank calls, this guy's yelling: 'Don't you know who I am?!' "
Geller had a reputation for being conservative, bearish even, on biotech stocks. When it came to his own finances, he took that skepticism to a level that many of his big, institutional clients would have regarded as far too risky. Using a margin account at CIBC, Geller mostly shorted biotech stocks. (Not, evidently, in any way that conflicted with his job as analyst; a CIBC spokesman says that the company is comfortable with Geller's conduct.)
His risky strategy worked for a while. Biotech indexes slumped in 1994, 1996 and 1997. The value of his CIBC margin account topped $20 million.
But the gambit came to a terrible end in the fall of 1998. Between October and January the Nasdaq biotech index nearly doubled. In the end, he was left in hock to CIBC for $670,000.
Losing $20 million doesn't quite mean you're busted--yet. It was Geller's soon-to-be-ex-wife, Nora Kavner, who dropped the other shoe. A New York State court awarded Kavner a big cut of the analyst's dwindling fortune. She got the house in Los Angeles, $180,000 of annual support for their two children, plus $4 million. The court later gave her first dibs on Geller's bonus for 1999. Meanwhile, a CIBC client filed a complaint with the National Association of Securities Dealers blaming Geller and the bank for losses and seeking $900,000 in damages.
By the time he finally sought bankruptcy protection in January this year, Geller had $7 million in liabilities and remarkably little in the way of assets: $650,000 in savings, a $22,000 security deposit on his old East Side apartment, a childhood coin collection, some baseball cards and a smattering of art. In July Geller and his wife settled their divorce and his attorney asked the bankruptcy court to dismiss his case. The NASD complaint was dropped. According to court documents filed this summer, Geller doesn't believe he will lose his job at CIBC.
THE BIG SPENDER
Barry P. Pachman, 53, and his wife, Penny H. Griffith, also 53, never had 20 million bucks to squander. But they certainly lived comfortably--he, pulling in $100,000 to $150,000 a year from his practice as a family physician in the wealthy town of Torrance, Calif., and she as a real estate developer turned consultant. According to court documents at the time he filed for bankruptcy, Pachman listed $700,000 in assets and $1.07 million in debts.
They didn't flash money. Pachman, Griffith and their two children, one in elementary school and another in high school, live in a $750,000 duplex with a tiled roof in a quiet area off Wilshire Boulevard in West Los Angeles. They drive a Ford Explorer, a Kia and an old Cadillac, and they have $20,000 in retirement savings, including some stock in May Department Stores and Payless ShoeSource.
But, Dr. Pachman and his wife had a weakness for shopping sprees. According to their filing, they charged a total of $150,000 on 30 credit cards by the end of 1998. Macy's, Driver's Edge Visa, AT&T, Bank of America, Discover and on and on, with balances ranging from $325 to $9,600.
The debt that apparently brought the shopping sprees to an end--and forced the couple to file for protection--was a $144,000 variable-interest-rate loan from Imperial Bank in July 1997. In applying for the loan, the couple apparently understated the amount of outstanding credit card debt by 37%. (Was it self-delusion or deliberate deception? That same year, they told a business reporter that their assets exceeded $3 million.) The loan, which Pachman and Griffith may have intended to use to pay off their credit card balances, was set at 1.5% over prime, making its interest rate roughly 10%, and the couple agreed that the rate would increase to 6.5% above prime in event of default. Almost immediately, though, they defaulted on the loan.
Imperial sued, but Pachman and Griffith declined to appear in court. The bank was granted a summary judgment allowing it to hike the debt to $168,500 in December 1998. The couple's bankruptcy brought Imperial to the negotiating table, but they still had to agree to pay back most of the money.
THE ENTREPRENEUR
Up-and-comers sometimes get their comeuppance when they take their eyes off the business--and devote their full attention to the first real pocket change they've ever had. It's what Brad L. Melby, a financial adviser in Minneapolis, calls "the desire to acquire." It's often nothing more than a primitive urge to impress others.
Dino Miliotis, who made his living selling sports memorabilia to conventioneers and private collectors, wanted to impress others. The memorabilia never made him much money. Then he hit a gold mine: a disposable, snap-on wristband covered with insect repellent.
The Bug Ban was not his invention. It was the brainchild of William Canale, an engineer and part-time inventor in Queensbury, N.Y. When Miliotis saw it at a 1994 convention for vendors of knickknacks and memorabilia, it didn't look very promising. The wristbands smelled terrible, and Canale didn't have approval from the Food & Drug Administration to pitch it as a repellent. But Canale ironed out the wrinkles, and in 1996 he and Miliotis cut a deal--Canale would manufacture Bug Ban, and Miliotis would be his exclusive U.S. distributor.
The next two years were a blur of sales calls with corporations like Pepsi or Miller Brewing, which ordered dozens of cases of wristbands with their logos printed on them to give away at golf tournaments and the like. Miliotis kept accounts fast and loose. Whenever he met anyone who said he could sell Bug Ban, he'd give him a case and tell him to send back checks. By the spring of 1997 he was shipping cases of product to several hundred people in 20 states.
Miliotis' big smile turned up on the pages of the Chicago Tribune and People magazine, on CNNfn and Sally Jesse Raphael's syndicated TV talk show.
"Mondays used to be my favorite days," Miliotis recalls wi****lly. "They were the money days." He'd return to the office from his weekend, gather the checks his ragtag sales force mailed in from around the country. "Some weeks we'd net $20,000," says Miliotis, 35.
That's a staggering amount of dough for a guy who once raided his five-year-old's piggy bank to buy gas. When the Bug Ban checks started coming in, Miliotis made up for years of squeaking by.
He bought dinner for his family, friends and in-laws. And drinks. And gifts. And trips to Florida and other places far from his home in Roselle, Ill. He got used to reserving tables for a dozen. "Everything was on me, and everybody came along. It got so bad that I'd feel poor if I didn't have $1,500 in my pocket." Miliotis bought himself a wardrobe of expensive golf clothes, several Rolex watches, a dozen pairs of Armani sunglasses and a Corvette. He balked, though, on acquiring a 12,000-square-foot house in Barrington, Ill. He worried that his omnipresent in-laws would see how big the place was and move in with him. "I knew I wouldn't be able to say no," he says.
Busted
The Bug Ban brought in $1 million in a year and then came to a swift collapse as the weather cooled in the fall of 1998. Miliotis had anticipated a slowdown, but suddenly there wasn't enough coming in to pay his electric bills, much less to live in style. He discovered that salesmen had been straying into one another's areas, stealing customers from one another by offering cut-rate prices. He got fewer and smaller checks, but more and more phone calls from one angry salesman or another.
Last November Miliotis declared Chapter 7 bankruptcy--the equivalent of leaving the keys to your car at the bank and walking away. (The alternative for individual bankruptcies is Chapter 13, which allows the debtor to retain significant assets in return for a promise to make monthly payments to creditors. A similar, though rarer option, is Chapter 11.) Miliotis had assets of $3,800. His $9 million in liabilities are mostly the sum of potential judgments in lawsuits by some of his former salesmen. He owes Canale $220,000.
One asset remains intact--the unchecked optimism of a salesman. He's excited about what he's sure will be his next big winner: a powder, ground from the dried stink-glands of skunks, that's supposed to alleviate the symptoms of psoriasis. "This is going to be huge someday," he crows.
Until then, he'll enjoy small victories. Like the rainy day he managed to sell his oversized fish tank for $300--exactly what he needed to pay off the attorney who handled his Chapter 7 bankruptcy. "I don't have the time to take care of them anyway," Miliotis says, staring at the murky water in the coffin-sized tank. Four sucker fish loll about, gasping for oxygen.
Busted
October 2, 2000
By Stephane Fitch
Forbes.com
NEW YORK DOCTOR Lawrence Levitan looks flush. An accomplished 45-year-old obstetrician, trained at Beth Israel Hospital and an assistant professor at New York University's School of Medicine, he had a practice that was pulling in nearly $300,000 a year. He's got a $725,000 house on Long Island and a 1998 Infiniti sedan. He and his wife send their kids to private school and a costly summer camp.
A picture of upper-class contentment? Far from it. The crushing weight of $2.7 million in debt forced Levitan to file for bankruptcy late last year. He had borrowed heavily (and signed leases) to equip three gynecological offices. After a point there was no way he could manage a $6,500-a-month house mortgage, the $45,000 of credit card debt, as well as the $15,000 a month his family spent on education, food, clothes and entertainment.
Robert Kryvicky, 49, climbed the ladder to the $450,000-a-year rung as a partner at accounting firm Ernst & Young. There he doled out expensive advice to professionals. Apparently he took little of it himself. He piled up $267,000 in credit card and other debt, and $806,000 in mortgages on his apartment on West 57th Street in Manhattan--not to mention the $1.2 million owed his former wife and his son (by an ex-girlfriend) in back alimony and child support. When he lost his job last year, he was cornered. He filed for bankruptcy in July of last year and retreated to his home state of Michigan.
Peter Lordi is busted, too, though it's probably not obvious if you drive by his $550,000 house in Ulster County, N.Y. After he sold two medical technology companies he'd founded, Lordi took up horse breeding (including a thoroughbred named Saigon Eve). He began collecting expensive stuff--antique furniture, Swiss watches, a Porsche, a Mercedes, a second home in Florida. He also collected $1.4 million in debt and, without a salary, had no meaningful way to service it all. Lordi, 56, filed last October, and was trying mightily to keep his house, horse and Porsche.
What's going on here? In the midst of the longest economic expansion in the history of the world--and the greatest episode of individual wealth creation--a record number of people are going bankrupt. They've been filing for protection from creditors at the rate of more than 1 million a year since 1996, up fourfold since 1979.
Some are what you would expect: People struggling to pay rent and buy groceries. But far from all. A fair number are well-educated professionals like Levitan, Kryvicky and Lordi, according to Harvard professor Elizabeth Warren and University of Texas professors Teresa Sullivan and Jay Westbrook, who have studied the explosion in bankruptcies. "The debtors in our sample include accountants and computer engineers, doctors and dentists, clerks and executives, salesclerks and librarians," they write in their new book, The Fragile Middle Class: Americans in Debt. "They are middle-class folks who are supposed to be gathering around the barbecues on the patios outside their three-bedroom, two-bath houses"--not swearing on a Bible before a bankruptcy judge.
Overreaching has become the new American sport, financial hubris the new market psychology. "I've seen unreasonable levels of confidence in my clients that's clearly related to seeing the market go up and up," says Suzette Loh, a financial adviser with Richard A. Eisner & Co. in New York. "It becomes a sense of entitlement, where every investment of their money is expected to yield big results."
You can see it in a growing national profligacy. Consumer spending is rising twice as quickly as the rate of personal income. At the same time, the monthly personal savings rate scratched an all-time low, a negative 0.2% in July. A huge number of us are living beyond our means. No broad disaster has resulted--yet--because foreigners are gladly lending us the money we need to pay for our capital investment. But if financial strains are so apparent during an expansion, what's going to happen in a recession? Or a collapse in asset prices?
A snapshot of the American balance sheet shows immense prosperity--combined U.S. household net worth of $42 trillion, according to Federal Reserve statisticians, double what it was a decade ago, (see chart). But to a large degree that growth in net worth represents the explosion in asset prices--the quadrupling of stock prices over the decade, the 50% rise in home values. Alongside the gain in assets has come an increased ability to borrow against them and an increased tendency to spend as if the asset appreciation would go on forever.
Will it? So far, all the pessimists scolding us for our addiction to debt have been proved wrong. For many Americans--and particularly for driven, young self-starters who never lived through the Depression and whose memories of the 1973 to 1974 crash are dim if present at all--taking hefty financial risks has paid off. The stock market looked overvalued in early 1998, with a currency crisis under way in Asia and Alan Greenspan beginning to hike interest rates. But anybody who resisted the urge to move their money into a savings account and invested in the S&P 500 is now sitting atop a 65% return.
What if the debt Cassandras are right? There's quite an overhang. Americans owe $4.5 trillion on their home mortgages, up from $2.5 trillion a decade ago, $1.4 trillion on their cars, plastic and student loans, up from $811 billion in 1990. Today, the average family credit card balance is $1,700, compared with $1,100 in 1989.
In fact, the economy needn't swoon for a lot of people to get whacked. All it takes is for prices to stop going up--as they have this year in the stock market and in some overheated housing markets like Seattle and Dallas. Mortgage debt looms a lot larger when there is no price inflation to offset your 8% interest cost.
Luke Brugnara, an enterprising landlord in San Francisco, isn't close to bankruptcy. But his spendthrift habits, like the recent purchase of a $16 million home in Seacliff, have a certain universal what-me-worry resonance. "It's an $18 million house that I got for way less," he says. Sure, it's an $18 million asset, unless something bad happens to the dot-com economy and such homes start to sell for only $9 million.
Below, you'll find the cases of millionaires who went bust by grabbing far more than they could manage financially, victims of their own unbridled optimism. Foolish overextension, you might say. On closer inspection, these characters begin to look an awful lot like the rest of us.
THE MOONLIGHTER
Everyone knows a modestly successful guy who, discontented with his day job, had the nerve to start another venture on the side. Chicago attorney Salvatore Miglore, now 47, had a good law practice, specializing in criminal and family law, and managed to build assets worth $7 million. He and his wife of 20 years, Doreen, owned a $500,000 house on a quiet road on the outskirts of Hinsdale, one of Chicago's tonier suburbs. They had a condominium rental in Buffalo Grove and a handful of cars, including two Mercedes, a BMW and a Chrysler. Miglore could afford luxuries--$2,000 in tickets to see the fresh-from-jail Mike Tyson's 89-second knockout of Peter McNeeley in 1995. Or, after Doreen filed for divorce in 1996, a $55,000, 4.5-carat diamond ring for a lady friend.
Miglore won't discuss his bankruptcy, so it's hard to know why he became dissatisfied with the solid income and quiet respectability of his practice. What is clear is that he developed a passion for real estate. In 1995 he bought four acres of land not far from his home in Hinsdale. With development evidently in mind, he got mortgages on the land, totaling $975,000, and obtained a second mortgage worth $330,000 on the couple's home. Doreen later complained in divorce court that he assured her he was "taking care of everything.... We're secure."
Not quite. A soil test on Miglore's land turned up hazardous chemicals that had been dumped there, probably illegally. Nothing could be built until those problems were cleaned up. The discovery added new costs to the development, and it slowed things down. Miglore was distracted from his law practice and couldn't make the payments on money he'd borrowed to fund the development.
By last July Miglore still hadn't developed his property. He couldn't keep up with any of his four mortgages, payments on his Mercedes or his $70,000 in credit card bills. He owed the government $72,000 in back taxes and was even in the hole $10,000 to his new wife. His debts totaled $2 million, against assets of $1 million. Doreen got the house, and the undeveloped land went to his lenders. Miglore has asked the bankruptcy court to approve a plan that will let him gradually repay a portion of the debts, contributing $100,000 a year (half his salary from his law practice).
THE GAMBLER
A lot of people are in the stock market these days--half of all households with incomes greater than $100,000. And a lot of them are making money; it would be hard not to, if you have owned stocks over the past five years. But success leads to overconfidence and overconfidence to disaster. Consider the case of Matthew Geller, whose overconfidence led to a bankruptcy. His sin, as it happens, was betting against the bull market.
A onetime scriptwriter for television producer Aaron Spelling, Geller, 52, has been the senior biotechnology analyst for CIBC World Markets in New York since 1997. His annual salary and bonus top $1.3 million, and he, his wife and their two children lived well, renting an apartment on Manhattan's Upper East Side and keeping a home in Los Angeles
A salary with two commas in it and a senior job on Wall Street. There would be very little else to say about Matthew Geller if he had been able to resist using his personal account at CIBC to make highly leveraged, seven-figure bets on the biotech stocks he knew so well.
New York bankruptcy attorney Sandra Mayerson doesn't know Geller, but she has helped more than a dozen millionaires avoid bankruptcy. Many of her clients were experts in finance who took risks they would never counsel their clients to take. "Some consultant sees a half billion dollars of debt cross his desk every day, and says, 'Why shouldn't I get my piece of the pie?' " she explains. "So he borrows $5 million and does no due diligence because it seems like pocket change. When the deal blows up and the bank calls, this guy's yelling: 'Don't you know who I am?!' "
Geller had a reputation for being conservative, bearish even, on biotech stocks. When it came to his own finances, he took that skepticism to a level that many of his big, institutional clients would have regarded as far too risky. Using a margin account at CIBC, Geller mostly shorted biotech stocks. (Not, evidently, in any way that conflicted with his job as analyst; a CIBC spokesman says that the company is comfortable with Geller's conduct.)
His risky strategy worked for a while. Biotech indexes slumped in 1994, 1996 and 1997. The value of his CIBC margin account topped $20 million.
But the gambit came to a terrible end in the fall of 1998. Between October and January the Nasdaq biotech index nearly doubled. In the end, he was left in hock to CIBC for $670,000.
Losing $20 million doesn't quite mean you're busted--yet. It was Geller's soon-to-be-ex-wife, Nora Kavner, who dropped the other shoe. A New York State court awarded Kavner a big cut of the analyst's dwindling fortune. She got the house in Los Angeles, $180,000 of annual support for their two children, plus $4 million. The court later gave her first dibs on Geller's bonus for 1999. Meanwhile, a CIBC client filed a complaint with the National Association of Securities Dealers blaming Geller and the bank for losses and seeking $900,000 in damages.
By the time he finally sought bankruptcy protection in January this year, Geller had $7 million in liabilities and remarkably little in the way of assets: $650,000 in savings, a $22,000 security deposit on his old East Side apartment, a childhood coin collection, some baseball cards and a smattering of art. In July Geller and his wife settled their divorce and his attorney asked the bankruptcy court to dismiss his case. The NASD complaint was dropped. According to court documents filed this summer, Geller doesn't believe he will lose his job at CIBC.
THE BIG SPENDER
Barry P. Pachman, 53, and his wife, Penny H. Griffith, also 53, never had 20 million bucks to squander. But they certainly lived comfortably--he, pulling in $100,000 to $150,000 a year from his practice as a family physician in the wealthy town of Torrance, Calif., and she as a real estate developer turned consultant. According to court documents at the time he filed for bankruptcy, Pachman listed $700,000 in assets and $1.07 million in debts.
They didn't flash money. Pachman, Griffith and their two children, one in elementary school and another in high school, live in a $750,000 duplex with a tiled roof in a quiet area off Wilshire Boulevard in West Los Angeles. They drive a Ford Explorer, a Kia and an old Cadillac, and they have $20,000 in retirement savings, including some stock in May Department Stores and Payless ShoeSource.
But, Dr. Pachman and his wife had a weakness for shopping sprees. According to their filing, they charged a total of $150,000 on 30 credit cards by the end of 1998. Macy's, Driver's Edge Visa, AT&T, Bank of America, Discover and on and on, with balances ranging from $325 to $9,600.
The debt that apparently brought the shopping sprees to an end--and forced the couple to file for protection--was a $144,000 variable-interest-rate loan from Imperial Bank in July 1997. In applying for the loan, the couple apparently understated the amount of outstanding credit card debt by 37%. (Was it self-delusion or deliberate deception? That same year, they told a business reporter that their assets exceeded $3 million.) The loan, which Pachman and Griffith may have intended to use to pay off their credit card balances, was set at 1.5% over prime, making its interest rate roughly 10%, and the couple agreed that the rate would increase to 6.5% above prime in event of default. Almost immediately, though, they defaulted on the loan.
Imperial sued, but Pachman and Griffith declined to appear in court. The bank was granted a summary judgment allowing it to hike the debt to $168,500 in December 1998. The couple's bankruptcy brought Imperial to the negotiating table, but they still had to agree to pay back most of the money.
THE ENTREPRENEUR
Up-and-comers sometimes get their comeuppance when they take their eyes off the business--and devote their full attention to the first real pocket change they've ever had. It's what Brad L. Melby, a financial adviser in Minneapolis, calls "the desire to acquire." It's often nothing more than a primitive urge to impress others.
Dino Miliotis, who made his living selling sports memorabilia to conventioneers and private collectors, wanted to impress others. The memorabilia never made him much money. Then he hit a gold mine: a disposable, snap-on wristband covered with insect repellent.
The Bug Ban was not his invention. It was the brainchild of William Canale, an engineer and part-time inventor in Queensbury, N.Y. When Miliotis saw it at a 1994 convention for vendors of knickknacks and memorabilia, it didn't look very promising. The wristbands smelled terrible, and Canale didn't have approval from the Food & Drug Administration to pitch it as a repellent. But Canale ironed out the wrinkles, and in 1996 he and Miliotis cut a deal--Canale would manufacture Bug Ban, and Miliotis would be his exclusive U.S. distributor.
The next two years were a blur of sales calls with corporations like Pepsi or Miller Brewing, which ordered dozens of cases of wristbands with their logos printed on them to give away at golf tournaments and the like. Miliotis kept accounts fast and loose. Whenever he met anyone who said he could sell Bug Ban, he'd give him a case and tell him to send back checks. By the spring of 1997 he was shipping cases of product to several hundred people in 20 states.
Miliotis' big smile turned up on the pages of the Chicago Tribune and People magazine, on CNNfn and Sally Jesse Raphael's syndicated TV talk show.
"Mondays used to be my favorite days," Miliotis recalls wi****lly. "They were the money days." He'd return to the office from his weekend, gather the checks his ragtag sales force mailed in from around the country. "Some weeks we'd net $20,000," says Miliotis, 35.
That's a staggering amount of dough for a guy who once raided his five-year-old's piggy bank to buy gas. When the Bug Ban checks started coming in, Miliotis made up for years of squeaking by.
He bought dinner for his family, friends and in-laws. And drinks. And gifts. And trips to Florida and other places far from his home in Roselle, Ill. He got used to reserving tables for a dozen. "Everything was on me, and everybody came along. It got so bad that I'd feel poor if I didn't have $1,500 in my pocket." Miliotis bought himself a wardrobe of expensive golf clothes, several Rolex watches, a dozen pairs of Armani sunglasses and a Corvette. He balked, though, on acquiring a 12,000-square-foot house in Barrington, Ill. He worried that his omnipresent in-laws would see how big the place was and move in with him. "I knew I wouldn't be able to say no," he says.
Busted
The Bug Ban brought in $1 million in a year and then came to a swift collapse as the weather cooled in the fall of 1998. Miliotis had anticipated a slowdown, but suddenly there wasn't enough coming in to pay his electric bills, much less to live in style. He discovered that salesmen had been straying into one another's areas, stealing customers from one another by offering cut-rate prices. He got fewer and smaller checks, but more and more phone calls from one angry salesman or another.
Last November Miliotis declared Chapter 7 bankruptcy--the equivalent of leaving the keys to your car at the bank and walking away. (The alternative for individual bankruptcies is Chapter 13, which allows the debtor to retain significant assets in return for a promise to make monthly payments to creditors. A similar, though rarer option, is Chapter 11.) Miliotis had assets of $3,800. His $9 million in liabilities are mostly the sum of potential judgments in lawsuits by some of his former salesmen. He owes Canale $220,000.
One asset remains intact--the unchecked optimism of a salesman. He's excited about what he's sure will be his next big winner: a powder, ground from the dried stink-glands of skunks, that's supposed to alleviate the symptoms of psoriasis. "This is going to be huge someday," he crows.
Until then, he'll enjoy small victories. Like the rainy day he managed to sell his oversized fish tank for $300--exactly what he needed to pay off the attorney who handled his Chapter 7 bankruptcy. "I don't have the time to take care of them anyway," Miliotis says, staring at the murky water in the coffin-sized tank. Four sucker fish loll about, gasping for oxygen.
12-03-03, 01:39 PM
#38
Greed sure can have its pitfalls.
But the more important issue is what is missing from "wi****lly"?
I thought I knew every dirty word in English (I've even made up some), but I can't figure out this one. Someone please tell me so I can add it to my expletive vocabulary.
But the more important issue is what is missing from "wi****lly"?
I thought I knew every dirty word in English (I've even made up some), but I can't figure out this one. Someone please tell me so I can add it to my expletive vocabulary.
12-04-03, 08:15 AM
#40
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12-04-03, 10:49 PM
#41
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I'm a little confused by two of these posts...
For the person who mentioned bankruptcy... If I were to pay 100% cash for the auto, why would it put a burdon on me? Heck, that 60k lexus that I was able to pay CASH for would be cheaper than the 9k hyundai that I currently make payments on, wouldn't it? Also, owning my lexus outright would give me a depreciating asset that, upon a worst case scenario, I could liquidate for cash almost immediately...
And as for the quip about the hyundai. I see it as economical. Would I be more respected if I was making 500+ payments for a 25k+ car? I sold my new accord to buy 2 hyundais. My total cash out of pocket for payments is lower, the cars were new rather than used, and we have a fantastic warranty and roadside assistance that I've already made great use of (I highly recommend Hyundai's roadside assistance, they are quick and fantastic, not something I'd expect from a budget car company. Both instances, embarassingly enough, were for me locking the keys out of my car
).
If I were going to finance ANY part of the SC, then I could understand the comments about being irresponsible, but setting a goal, which I won't achieve for over 365 days, that will allow me to pay 100% cash for the car, seems like a fairly responsible thing to do. Next December, if my debt is not paid and I don't have 60k in disposable cash, I simply don't get the car. Goal was not met, reward not earned...
I could drive a hyundai for 20 years until I had a net worth of a million dollars, but I spend more time in my car each day than I spend at home with my family (as most working individuals do). I spend the majority of time at the office, so I see rewarding myself with something that I can use each and every day as something that is very wise. Each morning, stepping out into my garage to see my reward for working so hard, I can only imagine that I'll feel more enthusiastic about working even harder to begin affording nicer things.
I have a fantastic 4bd/2ba 1800 sq. ft. house with enough room for another child we plan on and I don't see the need to upgrade. As I mentioned, we spend most of our time OUTSIDE of our home, so upgrading that would only be a waste of money - I'd rather spend it investing in properties that our team comes across. We see many, and having already bought my reward for working hard my first year, I can use the rest of my extra money to build a strong asset base with which I can reward myself in the future.
Perhaps it was just a misunderstanding, but I believe that we live day to day with the possibility of being struck down by a jet engine (for those that have seen the movie Donnie Darko
) at any time, so finding a smart way to reward yourself as soon as possible (if it's wise to do so), would be a good thing. That way, you've bought your toy, and can refocus all extra monies into ventures that will reap even more rewards in the future when other goals are met.
Just my opinion, I could be wrong, but I do feel that setting goals, rewarding your achievement when your goals are met, and doing so in a way that doesn't compromise your financial standing (paying cash rather than burdoning yourself with paying interest), is something that is smart to do
Great posts thus far though, I do appreciate all the comments
Oh, and the name is GIN, not GRIN It's a pet peeve of mine :P
Ginnie
For the person who mentioned bankruptcy... If I were to pay 100% cash for the auto, why would it put a burdon on me? Heck, that 60k lexus that I was able to pay CASH for would be cheaper than the 9k hyundai that I currently make payments on, wouldn't it? Also, owning my lexus outright would give me a depreciating asset that, upon a worst case scenario, I could liquidate for cash almost immediately...
And as for the quip about the hyundai. I see it as economical. Would I be more respected if I was making 500+ payments for a 25k+ car? I sold my new accord to buy 2 hyundais. My total cash out of pocket for payments is lower, the cars were new rather than used, and we have a fantastic warranty and roadside assistance that I've already made great use of (I highly recommend Hyundai's roadside assistance, they are quick and fantastic, not something I'd expect from a budget car company. Both instances, embarassingly enough, were for me locking the keys out of my car
).If I were going to finance ANY part of the SC, then I could understand the comments about being irresponsible, but setting a goal, which I won't achieve for over 365 days, that will allow me to pay 100% cash for the car, seems like a fairly responsible thing to do. Next December, if my debt is not paid and I don't have 60k in disposable cash, I simply don't get the car. Goal was not met, reward not earned...
I could drive a hyundai for 20 years until I had a net worth of a million dollars, but I spend more time in my car each day than I spend at home with my family (as most working individuals do). I spend the majority of time at the office, so I see rewarding myself with something that I can use each and every day as something that is very wise. Each morning, stepping out into my garage to see my reward for working so hard, I can only imagine that I'll feel more enthusiastic about working even harder to begin affording nicer things.
I have a fantastic 4bd/2ba 1800 sq. ft. house with enough room for another child we plan on and I don't see the need to upgrade. As I mentioned, we spend most of our time OUTSIDE of our home, so upgrading that would only be a waste of money - I'd rather spend it investing in properties that our team comes across. We see many, and having already bought my reward for working hard my first year, I can use the rest of my extra money to build a strong asset base with which I can reward myself in the future.
Perhaps it was just a misunderstanding, but I believe that we live day to day with the possibility of being struck down by a jet engine (for those that have seen the movie Donnie Darko
) at any time, so finding a smart way to reward yourself as soon as possible (if it's wise to do so), would be a good thing. That way, you've bought your toy, and can refocus all extra monies into ventures that will reap even more rewards in the future when other goals are met.Just my opinion, I could be wrong, but I do feel that setting goals, rewarding your achievement when your goals are met, and doing so in a way that doesn't compromise your financial standing (paying cash rather than burdoning yourself with paying interest), is something that is smart to do
Great posts thus far though, I do appreciate all the comments
Oh, and the name is GIN, not GRIN
It's a pet peeve of mine :PGinnie
02-20-04, 12:04 AM
#42
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Gekko, you love to shoot your mouth off dont you? This guy comes onto the MB boards shooting his mouth off. It is apparent he is a bitter old man who is jealous of people who are younger who make good money. This fool calls me a wannabe because I said those of us who own MB, Lexus, BMW, ec. are in the top 1% of people who own cars qualitywise. Little does he know I am a Lexus owner too and have 3 times as many posts as he does.....
Your opinion is worthless. I am 23 and have a 70k car, big deal. You want to know why people are going bankrupt? People put all their money into stocks, bonds, all this garbage....Ill prefer to make my money in green and keep it in that form unless its in the bank. Got news for you Gekko...if a young person wants to buy a 60k car, let them, its very obvious you wont get a loan unless you make much more than that per year anyways.
Your opinion is worthless. I am 23 and have a 70k car, big deal. You want to know why people are going bankrupt? People put all their money into stocks, bonds, all this garbage....Ill prefer to make my money in green and keep it in that form unless its in the bank. Got news for you Gekko...if a young person wants to buy a 60k car, let them, its very obvious you wont get a loan unless you make much more than that per year anyways.
02-20-04, 11:27 AM
#43
Lexus Champion
Originally posted by mjr24
Gekko, you love to shoot your mouth off dont you? This guy comes onto the MB boards shooting his mouth off. It is apparent he is a bitter old man who is jealous of people who are younger who make good money. This fool calls me a wannabe because I said those of us who own MB, Lexus, BMW, ec. are in the top 1% of people who own cars qualitywise. Little does he know I am a Lexus owner too and have 3 times as many posts as he does.....
Your opinion is worthless. I am 23 and have a 70k car, big deal. You want to know why people are going bankrupt? People put all their money into stocks, bonds, all this garbage....Ill prefer to make my money in green and keep it in that form unless its in the bank. Got news for you Gekko...if a young person wants to buy a 60k car, let them, its very obvious you wont get a loan unless you make much more than that per year anyways.
Gekko, you love to shoot your mouth off dont you? This guy comes onto the MB boards shooting his mouth off. It is apparent he is a bitter old man who is jealous of people who are younger who make good money. This fool calls me a wannabe because I said those of us who own MB, Lexus, BMW, ec. are in the top 1% of people who own cars qualitywise. Little does he know I am a Lexus owner too and have 3 times as many posts as he does.....
Your opinion is worthless. I am 23 and have a 70k car, big deal. You want to know why people are going bankrupt? People put all their money into stocks, bonds, all this garbage....Ill prefer to make my money in green and keep it in that form unless its in the bank. Got news for you Gekko...if a young person wants to buy a 60k car, let them, its very obvious you wont get a loan unless you make much more than that per year anyways.
BTW, I also own stock, bonds, and all that "garbage" and it's because of it that I was able to own an SC430 and trade it within a year for another car that is fully paid for. I'll also be trading that one within a year. As for Gekko loving to shoot his mouth off, as the old saying goes, "People who live in glass houses..."
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