Global Policy Forum

By Blain Harden

Yes, the rich do feel something when the stock market gallops south, but it would be imprecise to call it pain. Allow a veteran Upper East Side butler, who manages homes in Manhattan, East Hampton and Colorado, to explain the subtle shadings of unease that have descended recently on the Silk Stocking district.

The butler, who noted that he would be fired if he or his employer were identified by name, said he had stopped pouring '89 Chí¢teau Palmer ($195 a bottle) at dinner parties, downshifting instead to a slightly more shallow and marginally less complex '89 Chí¢teau Talbot (about $40 a bottle). Though if there is a connoisseur among the guests, the butler said, he pours the better Bordeaux. Instead of using an East Side florist who charges $300 for a dining- room arrangement, the butler eliminates the middleman and drives to the flower market himself to buy something equally delightful for $100. Laundresses are not being hired this summer for some of the finer homes in the Hamptons, he said. Many maids will find that they must wash clothes themselves, he said.

Government statistics do not measure how the rich pull in their wings when markets turn bumpy, but it's safe to assume that the current downturn has caused little upset, at least so far, in the living standards of the well-to-do, said Prof. Edward Wolff, an economist at New York University who edits the Review of Income and Wealth, an academic journal. He said that while the rich have lost a great deal of money in the stock market in recent months, those losses are coming out of the enormous gains they piled up in the last decade. "They are certainly better cushioned" than the middle class, he said.

By at least one key measure of financial stability, the rich are sitting prettier than they have been since the early 1980's. The relation of debt to wealth for the top 1 percent of American households was just 3.3 percent in 1998, according to Dr. Wolff's analysis of a Federal Reserve Board survey of consumer finances. The surveys are done every three years, and the data for 1998, the most recent year available, are still considered a strong indicator of wealth.

The surveys show a substantial decline in indebtedness among the rich since 1983, when debt amounted to 5.9 percent of their net worth. For the middle class, the indebtedness trend has flowed in exactly the opposite direction. Federal Reserve figures show that debt as a percentage of net worth for the middle class rose to 51.3 percent in 1998, from 37.4 percent in the 1980's.

"It means that the very rich are in a much more secure position now than they were 20 years ago, and downturns in the economy are not going to really threaten their wealth position," Dr. Wolff said. "The middle class is much more vulnerable."

Howard Rubenstein, the public-relations man who has been doing damage control for New York's rich and powerful for more than four decades, said the market tailspin was making the rich "uptight." Brooding about stock-market losses, he said, has begun to sour dinner-party chitchat on Fifth Avenue. But Mr. Rubenstein said that the extremely rich, at least so far, were still extremely rich, and that they did not anticipate, even in their darkest moments, being anything else. "Some of them are cutting back symbolically," he said. "They are saying, `We got to show everybody it's time to tighten belts.' Some are cutting back on lawyers, P.R. and advertising. They are telling their staffs to cut back on car services and take Yellow cabs. Some are having sandwiches instead of going to restaurants. These people didn't get where they are by being frivolous."

With some pleasure, Mr. Rubenstein noted that he was finding it much easier in recent weeks to get reservations at New York's best restaurants. With considerably less pleasure, a Manhattan chauffeur spoke of being on the losing end of a cut. "The guy who I am driving cut my salary in early March," said the chauffeur, who also said he would lose his job if he were identified by name. He said his boss worked on Wall Street at an investment firm. The chauffeur, 41, who has been driving a Mercedes-Benz S 500 for the last two years, said that his base salary had been $57,000, but that with overtime in 1999 and 2000 he made about $95,000 a year. "The guy put me at a flat salary of $40,000 and he said no overtime," he said. "He sent me a letter saying it was because the market was blah, blah, blah. I threw the letter away, I was so angry."

For those hoping to understand how the downdraft of a falling stock market can rattle America's rich, the weather vanes in and around New York are worth watching. About 20 percent of the 275,000 American households worth more than $10 million live in the New York area, Dr. Wolff said.

At Ermenegildo Zegna's flagship store on Fifth Avenue, sales of $2,000 Italian suits have slumped. "The consumer who would have bought four suits last year will buy three now," said Djordje Stefanovic, fashion and public relations director for the clothing company. Sales of Chí¢teau Petrus, a legendary Bordeaux that, depending on the vintage, sells for between $300 and $1,200 a bottle, have declined at the Sherry-Lehmann wine shop on Madison Avenue.

"For a few days in mid-March after the market went down, you could have shot a cannon through Sherry-Lehmann," said Michael Aaron, the owner of the store. "We were down almost 30 percent, but it has come back and now we are holding our own." In the last four months, new Jaguars have stayed in New York area showrooms for an average of 47 days before they sold. That's 8 days longer than during a similar period last year, according to J. D. Power & Associates, a marketing firm. Its figures show that new Cadillacs have been hanging around 30 days longer than before, Lincolns 39 days longer and Porsches 2 days. Auto industry analysts say the luxury car market is softening, not collapsing.

Perhaps the most telling indicator of a change in the psychic climate for the rich and near-rich in the New York area is the cork bulletin board at the Sagaponack General Store, in the heart of the Hamptons. Summer houses renting for as much as $65,000 are on offer there because, owners say, real-estate agents have been unable to find tenants.

Lynda Miller recently pinned a note to that bulletin board, offering to rent her three-story California-style beach house with its 20-foot ceilings and secluded pool ("You can swim in the nude," she said). She is offering it at $55,000 for the summer, slightly more than last year. But in a decided break from the recent past in the Hamptons, she said she was flexible.

She resorted to the bulletin board, she said, because she badly needs to find a renter. "This year it hasn't happened," said Ms. Miller, who rented her place last year to two young investment bankers from Lazard Frí¨res, both of whom drove new Porsches. "Money is money, and people are not spending as quickly as before. I never had to wait this late to rent it before. But New York has enough money. My house will go. The Hamptons are the Hamptons."

And the price of luxury real estate in the Hamptons, as well as elsewhere in New York and across the country, is certainly not collapsing, at least not yet. "Anything that comes to market at a real honest price has sold quickly," said Diane Saatchi, president of Dayton-Halstead Real Estate, which publishes a quarterly report on home prices in seven markets in the Hamptons. And real honest prices, she said, are still up about 20 percent over last year.

What has collapsed are what Ms. Saatchi described as the "out of whack" prices that many Hamptons homeowners began demanding in late 1999. "Our statistics found that the average asking price jumped about 100 percent between '99 and 2000," she said. "People priced their houses not on anything rational, or anything related to demand, but according to their inflated notion of their net worth. The story is somewhat comical. Most of those houses never sold."

A kind of reality has returned this year, Ms. Saatchi said, as what she called the "bubble-pricing phenomenon" for real estate has sunk along with the Nasdaq. One builder who feels the bursting of the bubble is Jay Lieberman, who completed a 12,000-square-foot Southampton house last year that he hoped would sell for $8 million, preferably in cash. He said he pulled out all the stops in construction, including installing English shower fixtures that cost up to $3,000 each.

"Whoever takes this house will be a client with a lot of money who walks in and says, `Wow,' " he told The New York Times last summer. So far, though, the house is empty. Mr. Lieberman said he did not have a buyer lined up. He is willing to consider $7 million.

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