On How the Wealthy Hide Money in New York City Real Estate

An excellent piece in New York Magazine on the booming real estate market with ultra high net worth individuals. Buildings such as 432 Park Avenue and 111 W. 57th are not yet completed but are selling out quickly.

The piece does a great job explaining how difficult it is to police the flow of money into real estate

The first rule of selling property to the ultrarich is that you can’t try to sell them property—you offer them status, or a lifestyle, or a unique place in the sky. A marketing video for 432 Park Avenue, scored to “Dream a Little Dream,” features a private jet, Modigliani statuary, and Harry Macklowe himself costumed as King Kong. One recent morning, at the development’s sales office in the GM Building, Wallgren led me down a hallway lined with vintage New York photographs, through a ten-by-ten-foot frame meant to illustrate the building’s enormous window size, to a scale model of Manhattan.

Extreme wealth demands extremely elaborate wealth management, and anyone who has a few million in spare cash will probably already have an entrée to the cloistered world of private banking. An anonymous high-net-worth client of Credit Suisse, who spoke to U.S. Senate investigators after taking advantage of an amnesty for tax cheats, described the process by which he would manage his funds when visiting Zurich. A remote-controlled elevator would take him to a bare meeting room where he and his private banker would discuss his money; all printed account statements would be destroyed after the visit.

The ways these ultra-rich go to to conceal their holdings is extreme:

Behind a New York City deed, there may be a Delaware LLC, which may be managed by a shell company in the British Virgin Islands, which may be owned by a trust in the Isle of Man, which may have a bank account in Liechtenstein managed by the private banker in Geneva. The true owner behind the structure might be known only to the banker. “It will be in some file, but not necessarily a computer file,” says Markus Meinzer, a senior analyst at the nonprofit Tax Justice Network. “It could be a black book.” If an investor wants to sell the property, he doesn’t have to transfer the deed—an act that would create a public paper trail. He can just shift ownership of the holding company.

The theatrical secrecy is designed to build personal trust between such bankers and their clients, which is especially vital when the goal of the transactions is to conceal assets from the prying eyes of rivals, vengeful spouses, or tax collectors. Moving the money itself is a relatively simple matter: A wire or a suitcase can convey cash from China to Singapore, or from Russia to an EU member state like Latvia, and once the funds have made it to a “white list” country, they can usually move onward without triggering alarms. Concealing the true ownership of a property or a bank account is trickier. That’s where the private bankers, wealth advisers, and lawyers earn their exorbitant fees.

Worth the read.

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Bonus: see this Vanity Fair piece from May 2014 which highlights the major high rise condos being built in New York City.

The Stanford Commencement Address by Bill and Melinda Gates

Bill and Melinda Gates jointly gave a commencement address at Stanford University earlier this month on June 15, 2014. The full transcript is here, but I wanted to highlight a few notable passages:

Melinda and I have described some devastating scenes. But we want to make the strongest case we can for the power of optimism. Even in dire situations, optimism can fuel innovation and lead to new tools to eliminate suffering. But if you never really see the people who are suffering, your optimism can’t help them. You will never change their world.

And that brings me to what I see as a paradox.

The world of science and technology is driving phenomenal innovations – and Stanford stands at the center of that, creating new companies, prize-winning professors, ingenious software, miracle drugs, and amazing graduates. We’re on the verge of mind-blowing breakthroughs in what human beings can do for each other. And people here are really excited about the future.

At the same time, if you ask people across the United States, “Is the future going to be better than the past?” most people will say: “No. My kids will be worse off than I am.” They think innovation won’t make the world better for them or for their children.

So who’s right?

The people who say innovation will create new possibilities and make the world better?

…or…

The people who see a trend toward inequality and a decline in opportunity and don’t think innovation will change that?

The pessimists are wrong in my view, but they’re not crazy. If technology is purely market-driven and we don’t focus innovation on the big inequities, then we could have amazing inventions that leave the world even more divided.

The key driver to make notable change is building empathy:

If our optimism doesn’t address the problems that affect so many of our fellow human beings, then our optimism needs more empathy. If empathy channeled our optimism, we would see the poverty and the disease and the poor schools, we would answer with our innovations, and we would surprise the pessimists.

The question is: how do we build and develop empathy in others?

I like how Melinda closes the address, saying that young graduates shouldn’t be in a rush to change the world:

You don’t have to rush. You have careers to launch, debts to pay, spouses to meet and marry. That’s enough for now.

But in the course of your lives, without any plan on your part, you’ll come to see suffering that will break your heart.

When it happens, and it will, don’t turn away from it; turn toward it.

That is the moment when change is born.

Student Debt and The Boomerang Kids

The New York Times paints a bleak image on the student debt crisis in the United States of America in this magazine piece:

One in five people in their 20s and early 30s is currently living with his or her parents. And 60 percent of all young adults receive financial support from them. That’s a significant increase from a generation ago, when only one in 10 young adults moved back home and few received financial support. The common explanation for the shift is that people born in the late 1980s and early 1990s came of age amid several unfortunate and overlapping economic trends. Those who graduated college as the housing market and financial system were imploding faced the highest debt burden of any graduating class in history. Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000. (Kasinecz still has about $60,000 to go.) And more than half of recent college graduates are unemployed or underemployed, meaning they make substandard wages in jobs that don’t require a college degree. According to Lisa B. Kahn, an economist at Yale University, the negative impact of graduating into a recession never fully disappears. Even 20 years later, the people who graduated into the recession of the early ’80s were making substantially less money than people lucky enough to have graduated a few years afterward, when the economy was booming.

Worth the click for the slide show alone.

A Brief History of Announcers Pronouncing “GOOOOOAL”

I love watching the football highlights on Univision because of the spirit of its announcers. They call a goal with passion and personality. The jubilance that expands a commentator’s call of “goal” to fill five, six, or perhaps 10 seconds of time seems universal, but there is regional variation. Different languages play a part, but so do regional sensibilities and the spirit of individual announcers. The New York Times provides a sample in this interactive.

The related article, “A Chorus of ‘Gooooool’, The Siren Song of Soccer” is also great:

Fans scream goal; announcers swear that they sing it. Galvão Bueno, one of the best-known working sportscasters in Brazil, compared it to “a tenor’s high C,” one of the most challenging notes the tenor’s voice can carry.

“It’s your crowning achievement,” said Bueno, who is working his 10th World Cup narrating the games, mostly for Rede Globo, Brazil’s largest television network. “Or your moment of defeat.”

This is very interesting and surprising for the uninitiated:

Once an anomaly, the skill [of goooooal calling] has since become a requirement. Among sportscasters, the verdict is unanimous: There is no future in sports radio for announcers who do not know how to bellow an impressive, long and loud cry of “gol.” So they work at it daily, in much the same way that classical singers do before a big performance.

The Pivot, or the Luck Factor in Silicon Valley

A thoughtful take on the concept of the “pivot” in Silicon Valley, from Scott Adams (the creator of the Dilbert comic):

Smart observers in the valley look for the “tell” that an early stage start-up will be a winner, but none can be found. Oh, sure, the team needs to be smart, talented, and willing to work long hours. But nearly every start-up has that going for it. Most have great ideas as well. None of it predicts success. 

So imagine if you will, some of the smartest, most rational humans the world has ever created, wallowing around in the absurdity of Silicon Valley, where success is mostly based on luck. How does one feel good about that? And what is the solution?

Answer: You institutionalize the pivot.

I’ve been watching the TV show Silicon Valley, and the episode where Pied Piper tried to pivot comes to mind.

Adams argues that the pivot is basically a way to optimize one’s luck:

Here’s the system:

1.      Form a team
2.      Slap together an idea and put it on the Internet.
3.      Collect data on user behavior.
4.      Adjust, pivot, and try again.

Thanks to Google Analytics, Optimizely, Bitly, and other tools for measuring customer behavior in real time, a smart team can try different approaches and different products until something works out. A start-up in 2014 is a guess- testing machine.

Read the rest here.

The Goldman Sachs World Cup 2014 Prediction Model

As someone who is both a fan of the World Cup and statistical modeling, it was with great interest that I read “The World Cup and Economics 2014,” a report issued by Goldman Sachs. They have outlined their predictions in a 67 page report. Goldman Sachs estiamtes that Brazil, the host nation, has a 48.5% chance to win the tournament, while Argentina, Germany, and Spain are the follow-up favorites (14.1%, 11.4%, and 9.8% to win the World Cup 2014, respectively).

The Goldman Sachs methodology is rather straightforward:

The explanatory variables in the regression analysis are as
follows:

1. The difference in the Elo rankings between the two
teams. The Elo ranking is a composite measure of
national football team success that is based on the entire
historical track record. Unlike the somewhat better
known FIFA/Coca-Cola rating, the Elo rating is available
for the entire history of international football matches.
Statistically, we find that the difference in Elo rankings is
the most powerful variable in the model.

2. The average number of goals scored by the team over
the last ten mandatory international games.

3. The average number of goals received by the opposing
team over the last five mandatory international games.

4. A country-specific dummy variable indicating whether the
game in question took place at a World Cup. This variable
is meant to capture whether a team has a tendency to
systematically outperform or underperform at a World Cup.
We only include this variable for countries that have
participated in a sufficient number of post-1960 World Cup
games (including Brazil, Germany, Argentina, Spain,
Netherlands, England, Italy and France).

5. A dummy variable indicating whether the team played in
its home country.

6. A dummy variable indicating whether the team played on
its home continent, with coefficients that are allowed to
vary by country.

From there, it’s up to Monte Carlo simulation to make the predictions:

We generate a probability distribution for the outcome of each
game using a Monte Carlo simulation with 100,000 draws,
using the parameters estimated in the regression analysis
described above. We use the results of this simulation
analysis to generate the probabilities of teams reaching
particular stages of the tournament, up to winning the
championship. We use the rounded prediction of the goals
scored to determine the outcomes of each game during the 
group stage and the unrounded forecast to pick the winner in
the knockout stage.

Unfortunately, the model has some limitations:

To be clear, our model does not use any information on the
quality of teams or individual players that is not reflected in a
team’s track record. For example, if a key player who was
responsible for a team’s recent successes is injured, this will
have no bearing on our predictions. There is also no role for
human judgment as the approach is purely statistical.

You can read the entire report here: Goldman Sachs – World Cup 2014 Economic Report

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For further reading, compare the Goldman Sachs predictions to the Five Thirty Eight World Cup Model (both models have pegged the probabilities of Brazil, Argentina, Germany, and Spain to win World Cup 2014 to within a couple of percentages, and in the same rank order of winning the tournament):

538_model_WorldCup2014

Richard Lewis Explains How Cultures Interpret Time

In this fascinating post, Richard Lewis (author of When Cultures Collide) explains how various cultures consider/view/understand time. Most of us in the West are used to “Linear Time” (i.e., event A happens, followed by event B, and so on) whereas people in southern Europe interpret time as being “multi-active”:

Southern Europeans are multi-active, rather than linear-active [read Lewis’s analysis of cultures as multi-active, linear-active, and reactive]. The more things they can do at the same time, the happier and the more fulfilled they feel. They organize their time (and lives) in an entirely different way from Americans, Germans and the Swiss. Multi-active peoples are not very interested in schedules or punctuality. They pretend to observe them, especially if a linear-active partner or colleague insists on it, but they consider the present reality to be more important than appointments. In their ordering of things, priority is given to the relative thrill or significance of each meeting.

In countries inhabited by linear-active people, time is clock- and calendar- related, segmented in an abstract manner for our convenience, measurement, and disposal. In multi-active cultures like the Arab and Latin spheres, time is event- or personality-related, a subjective commodity which can be manipulated, molded, stretched, or dispensed with, irrespective of what the clock says.

“I have to rush,” says the American, “my time is up.” The Spaniard or Arab, scornful of this submissive attitude to schedules, would only use this expression if death were imminent.

There are also other great bits from the piece. This part about Japanese culture I had never known before:

Another example is the start and finish of all types of classes in Japan, where the lesson cannot begin without being preceded by a formal request on the part of the students for the teacher to start. Similarly, they must offer a ritualistic expression of appreciation at the end of the class.

Read the rest here.