Steve Schwarzman’s Exaggerated Numbers
There have been some scary figures about the destruction of global wealth being bandied about in the past couple of days. First the Asian Development Bank put out a report by Claudio Loser along with an associated press release headlined "Global Financial Market Losses Reach $50 Trillion, Says Study". And then Steve Schwarzman said that "between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half".
Can we trust these figures? My feeling is that the former smells roughly right, but that Schwarzman is way off base.
Loser’s report doesn’t actually spend any time totting up global financial market losses. He finds $2.2 trillion of losses in Latin America, or 37% of the end-2007 levels, and $9.6 trillion of losses in Asia, a 35% fall. But if you follow his footnotes, you eventually end up at Table 3 on page 185 (page 204 of the PDF file) of the IMF’s 2008 global financial stability report. That’s where Loser is getting his end-2007 figures, and that’s where we can see that the total value of the world’s bonds, equities, and bank assets was $230 trillion at the end of 2007.
If Loser is right and that figure has fallen by $50 trillion since then, the total decline in global wealth would be about 22% — just half of the numbers that Schwarzman is bandying around.
Since Loser doesn’t say where the $50 trillion number is coming from, though, we’ll have to make some guesses. Let’s say that global stock-market wealth — which was $65 trillion at the end of 2007 — has fallen by about $30 trillion. Let’s also say that public debt securities, in aggregate, haven’t fallen in value at all: while the value of emerging-market debt has fallen, the value of Treasury bonds has risen. Then there would need to have been a reduction of $20 trillion, or about 15%, in the value of all private bonds and bank assets, which totaled $136 trillion at end-2007.
That 15% number seems a little high to me, but given the amount of asset-backed debt which was being carried at overinflated levels, it’s within the bounds of possibility.
So my feeling is that if you’re being charitable to him, Schwarzman is actually doubling the extent of global wealth losses. But in fact it’s worse than that, because he probably was mentally including property values as part of "the world’s wealth". And while property values globally have fallen, they haven’t fallen anything like 40-45% on a global aggregate basis.
Schwarzman’s own wealth, of course, has suffered greatly: it’s largely tied up in Blackstone stock, which ended 2007 at about $21 a share, and his now somewhere around $6. But the world in general hasn’t suffered nearly as much — on a percentage basis — as Schwarzman has.
Reprinted from Portfolio.com