Is this real?...Financial Distress of the Wealthy?

Another reminder about excessive spending came out in the news today. Ed McMahon, former sidekick to Johnny Carson and presenter of giant sweepstakes checks is about to lose his home to foreclosure. I don't see this as any harbinger about real estate for most folks, its more a statement about human nature and the carelessness often accompanied by easy wealth. I think I'll count my blessings!

According to news reports, McMahon is behind on his mortgage in excess of $600,000.

ReconTrust, a unit of mortgage lender Countrywide Financial, on Feb. 28 filed a notice of default on a $4.8 million Countrywide loan backed by Mr. McMahon's home. The notice was filed with the Los Angeles County Recorder's Office but hasn't previously come to light. According to the filing, Mr. McMahon was then about $644,000 in arrears on the loan.

The home is currently listed for sale at $5.75 million. It's been on the market for two years. McMahon joins the list of celebrities who have lost their homes or come close to it like Whitney Houston, Jose Canseco and Michael Jackson.

In New York, the uber-rich are struggling to come to terms with just being rich. A tough spot to be in I'm sure. Mike Shedlock brought this recent article to our attention.

One of her clients recently confessed that his net worth had decreased to $8 million from more than $20 million, and he thinks that his wife will leave him. He has hidden their fall in fortune by taking on debt to pay for her extravagant clothes and vacations.

“I literally had to sit there and tell him that he had to tell his wife that she had to stop spending,” she said. “He was actually scared she would leave him because their financial situation changed so drastically.”

Other wealthy clients are cutting luxuries that they think their friends and relatives won’t notice, according to Mr. Del Gatto of Circa. At Circa’s midtown offices, he said, the seven consultation rooms have been busy with customers selling their precious gems. Some older couples, he said, are selling estate jewelry to help support their children who have lost Wall Street jobs. Bankers are paring down their collections of Patek Philippe watches. Wives from Greenwich and Scarsdale are selling 2-carat to 35-carat single-stone diamond rings. One recent client explained to Mr. Del Gatto that she was selling $2 million in diamonds she rarely wore, because her friends wouldn’t notice that they were gone.

This article also mentions a real estate developer who has slashed his private air budget. The executive must now suffer the indignities of a Lear jet instead of the Gulfstream he had last year. Pity me, I don't know the difference! More importantly, I don't care.

The point of both of these stories boils down to the same thing; it doesn't matter how much you make, it matters how much you spend. When things get tough financially, less spending is the cure. It applies on all levels of life, including government spending.

Mr. McMahon's case is of particular concern. Here he is, 85 years old and he still needs to work to keep up with his lifestyle.

Mr. McMahon broke his neck in a fall about 18 months ago and hasn't been able to work, Mr. Bragman said. That health problem, along with the weak housing market and economy, has forced Mr. McMahon into foreclosure proceedings, Mr. Bragman said.

McMahon should have had plenty of savings for his golden years and should have downsized his lifestyle to match his income once he retired. This is a lesson for all those nearing retirement, particularly the "baby boomers" who are famous for having little savings.