Comment by ChuckMcM | Hacker News Reader

Comment by ChuckMcM | Hacker News Reader

Parent Full thread

There are a couple of ways (disclosure, I am not a billionaire :-))

First, nobody really needs a billion dollars in "cash" it just doesn't make sense as "cash" deposits pay a below inflation rate return in most places (meaning it loses its "value" over time) and even a negative interest rate in some places.

Second, it isn't like there is a "fixed amount of money" in the world and if someone has all of it, everyone else has none.

So if you are a billionaire, and most of your billions are in stock of a particular company, and you are a US citizen. You file a form with the Securities and Exchange commission (SEC) to sell some shares every month or quarter or year. Or you file a form that says you will sell X shares 3+ months from now. The SEC posts this information publicly so that other investors will know about it ahead of time and decide what to do. The point being that you are a "big investor" or an "insider" and selling might be seen as a signal, and this makes the signal loud and with a time delay so that the other investors can respond. Then the appointed time comes and your shares get dumped on the market and you collect however much money they happen to bring in (less taxes).

You will see lists like this one (http://www.nasdaq.com/symbol/goog/insider-trades) for Google. Which itemize those sales. So lets say you need 15 million a month to operate your private jet, you set up a system that will sell enough stock to net at least 15 million a month to cover that. You don't want to sell it all since you might want to vote your shares but you have to get around so you let some go.

A lot of tech billionaires set up trusts for their children which they fund such that their children will never have to work and can live a comfortable lifestyle. A number of tech billionaires have been setting up foundations (like the Bill and Melinda Gates foundation) which can convert stock to cash in a tax advantaged way and do good things with it. Sometimes the foundations are created to give the billionaire a vehicle for influencing others while nominally keeping their hands clean. (not working so well for Trump and Clinton but I read about a number of foundations being used in this way.)

So generally if you look at the insider trading you will see billionaires selling stock in 10 to 100 million dollar chunks and using it for different things.

Somewhat related, if you or someone else knows: is there any special process for transferring or handling large amounts of money? For example, if you're buying a $5m private jet, how would you pay for it? A regular check or bank transfer?

Also, do the banks keep any security checks in place? e.g. If I had $10m and there was a request to transfer out $5m, I'd definitely like the bank to run it by me.

Short answer to your question is "Private Banking":

https://en.wikipedia.org/wiki/Private_banking

You have a specific account manager, who you know, and is in communication with you about that Jet purchase. Yes, it probably is a wire, but maybe to an escrow, depending.

You do not need to go the private banking way to have such level of service. I am living in Germany at the moment, I have an account in a Sparkasse (A savings bank).

As I needed to buy a car, I informed my account manager that I would buy one, gave her the bank account information of the car dealer and told her that if everything is in order, I would call and ask her to perform an "instant" money transfer.

Just went to the car dealer, looked at the car, call my account manager, 30 minutes later the money was available on the account of the car dealer and I was ready to go.

For the day-to-day stuff, we use a pure online bank, but I am happy to pay the higher fees of a Sparkasse for such cases where trust is needed.

I think there is a bit of a difference between buying a car and buying a jet.

I bought a car last year and just paid for it using my chip-and-pin debit card, my bank told me that they can identify accounts for car dealers and don't question large payments to them.

The car handlers in Germany do not allow that for large amount of money. You can authorize a transfer without limits with your card (Lastschriftverfahren), but the handler will not have the money directly so he cannot be sure he will be able to pull the money out of your account. They want money in an irrevocable way on their account, which I understand.

Well, I'm sure a bank has enough cash on its own accounts to pay for a car instantly. My parents had a problem few years ago when they were buying a warehouse for big $$$, and the bank literally asked them to wait a couple days until they could gather that much money to actually pay out the loan. Now imagine that times hundred - I guess it's not a simple operation.

Were they doing it in cash? I can understand it if the warehouse was literally being bought in hard currency, but otherwise it seems a little strange!

No, they were taking a loan from a small local bank and the bank literally didn't have enough money sitting in the account to pay out all of it instantly - they had to ask their other branches to make the transfer to their account first, before they could make the transfer to the account of the seller.

How much money are we talking about here? It sounds like a lot of money if a bank had to call other banks.

Few million - but it was a small bank. Obviously BoA has that kind of money available at any moment, but that bank didn't. But I imagine even BoA would need a bit of notice if you wanted to pay $250M for a jet.

For a slightly unrelated but perhaps interesting side note, I doubt most billionaires are flying around in $5m private jets. A Gulfstream G650 runs around $66m. Roman Abramovich owns an Airbus A340-300, among other aircraft, that Wikipedia lists at $238m. $5m might get you a custom interior with a nice exterior paint scheme.

If anyone is interested, here's a link to a firm that designs custom interiors/exteriors for private jets. I believe the Airbus with "Bourkhan" written on the side is Abramovich's. http://www.pegasusdesign.mc/

Disclosure, I'm not a billionaire, I just like airplanes.

at the $millions level, although technically you could, you generally don't "send money" like you or i or even a typical rich person would do as individuals paying a regular bill. you talk to a person at the bank who calls up another person at another bank, and they wire the money from bank to bank or some kind of intermediary, like an underwriter or escrow co.

think of it like financing a new car purchase, on a grand scale. how many people were involved in a $30k car transaction? you, your SO, maybe your kids, the sales guy, the sales manager, the finance manager, the underwriter at the bank, the underwriter's manager at the bank, etc. sure you wrote the dealership a check for the down payment, but did you "send" anyone $30k? no, you were the centerpiece in a large, coordinated effort to get $30k sent from a bank to the car dealership, so you could drive off in a new car without much hassle or cash. scale up from there.

so, yes, there are all sorts of checks in place. on a $millions deal, possibly a dozen people or more will be involved either directly or tangentially. bankers, accountants, lawyers, sales people, etc. deals in the $millions range get complicated, and everyone wants extensive, exacting paperwork to ensure both that they get paid and they don't get accused of fraud.

rich people do not buy expensive things in cash. they tend to hold on to as much cash as possible, because cash is the only kind of money with direct control. avoiding 'debt' is a middle class phenomenon, i assure you. the poor and the rich are drawn to it like flies to shit because it helps them achieve their short term goals fabulously effectively, however different they may be, and however expensive (one can afford it, the other can't. guess who.)

yes, some genius solo entrepreneur could just do all of this himself but in reality it rarely happens that way. more money means more people.

>>think of it like financing a new car purchase, on a grand scale. how many people were involved in a $30k car transaction? you, your SO, maybe your kids, the sales guy, the sales manager, the finance manager, the underwriter at the bank, the underwriter's manager at the bank, etc. sure you wrote the dealership a check for the down payment, but did you "send" anyone $30k?

I'm not disagreeing with you, but I recently bought a car for much more than $30k, and I just paid using my chip-and-pin debit card at the dealership - so yeah, I guess the dealership got a transfer directly from Visa.

Not a personal finance discussion but tying up large amounts of cash in a depreciating asset is almost always the worst possible use of it.

Sure, but if you like cars and want a brand new one, then it doesn't really matter if it's a bad or a good decision, does it? Just like buying a new phone every year is a "bad" financial decision, but it doesn't matter when that's how you want to spend your money.

What I meant was you can usually finance it and save money. There are no additional incentives for cash buyers, while you can often get incentives to finance and sub-inflation rates or even get additional incentives to finances at a higher rate.

There isn't anything different really different in the transfer, as both the buyer and the seller have their own banks, the buyer tells his bank to send the funds to the seller's bank, it does, and the seller hands him the jet. Bank to bank transfers can easily be 10's of millions and hundreds of millions per transfer.

As for security, once you get to a couple of hundred thousand dollars in a bank they will generally assign you your own account manager and you can work out security restrictions with them. Generally you won't be doing a lot of "online banking" with those accounts but I could imagine people do. If you have a lot of money they probably would call your accountant to verify the transfer prior to enacting it if it didn't come directly from them.

Reply on news.ycombinator.com