In last week's Wall Street Journal blog, The Wealth Report, Robert Frank wrote about the "paralyzed plutocracy" and how the moneyed class of the country is still quite insecure about its wealth. Meir Statman, behavioral-investment expert at the Leavey School of Business, Santa Clara University in Santa Clara, California, explains some of the factors contributing to these insecurities.
According to Mr. Statman, "Some people have a loss on an investment, but they are reluctant to sell it and move and realize the loss to buy something else because they don't want to admit the loss. They're frozen." However, the issue speaks to a much larger truth about today's wealthy, which is that many are entirely more selfish than those in the past.
This is not to say the super rich aren't making large contributions to a great deal of causes. They are, but what isn't happening is the grand scale investment risk that once existed. Also, this isn't about hedge funds, vulture funds and private equity investors sitting on oodles of cash waiting to strike. It's about the individual investor that has yet to show up and place a bet on something new.
In 1928, John D. Rockefeller, Jr. leased a large plot of land in the geographical center of Manhattan from Columbia University with the idea to house the Metropolitan Opera. The stock market crashed in 1929 ushering in the Great Depression, the worst financial crisis in the country's history. The Metropolitan Opera pulled out of the project which didn't bode well for its completion. "It was clear that there were only two courses open to me," Rockefeller said. "One was to abandon the entire development. The other to go forward with it in the definite knowledge that I myself would have to build it and finance it alone." And he did take on the project as the sole financier, completing the largest private building project in modern times.
Here was a man with tremendous wealth who could have abandoned the entire project. Without a doubt he took some great losses during the stock market crash, although there was no reason to pass around a collection plate for him or his family. In true capitalist fashion, he understood that we would make it through this horrific time and not only could he provide a service through this creation, but in the long run, he could profit by it.
The question today is that while we're still sitting in some very uncomfortable times, where are the real industrialists who are willing to place their own names on a risk of this nature?
Jonathan A. Schein is CEO of ScheinMedia and publisher of MetroGreenBusiness.com.
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