Author Robert Frank Explores Life Among the "High-Beta Rich" in Age of Unstable Wealth

In Robert Frank's new book The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust, the Wall Street Journal "Wealth Report" writer returns to the moneyed landscape he explored in his 2007 bestseller Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich. What a difference an economic collapse makes. He finds fortunes lost and lives upended in cautionary tales that could have a profound impact beyond Richistan's borders.

The book takes its title from an economic term that refers to a highly volatile investment. What does it mean to go from having more than $1 billion to zero? In the book, Frank revisits Edra Blixseth, who with her now ex-husband Tim had gone from making the Forbes 400 list of the world's richest people in 2006, to living alone in a 30,000 square foot house. The household staff numbering 110 had been dismissed, the phones were cut off, and the private golf course was browning. Gone, too, were the two Roll-Royce Phantoms and the Aston Martin DB-9. A 100-gallon fish tank that was once the living room's centerpiece now contained two clown fish.  "What happened to the coral?" Frank asks Edra. "It got repossessed," she replies.

The High-Beta Richis by no means a mere smackdown of fools and their money parted. "The Blixseths can be accused of a lot of things," Frank told Millionaire Corner, "but stupid would not be one that would normally apply. Yes, we've heard of celebrities, athletes and lottery winners (squandering and mismanaging their fortunes), but these were entrepreneurs who were very smart about money. I found that a lot of very smart families were making and losing record amounts of money. They made it quickly and lost it quickly."

Frank began to "poke around" to try and isolate the contagion that is shaking Richistan (and the American economy) to its foundation. He interviewed more than 100 people with net worths (or former net worths) of $10 million or more, and discovered charts created by Jonathan Parker and Annette Vissing-Jorgensen, economists at Northwestern University, that found that America's top 1 percent was the most unstable income group in America. The High-Beta Rich is the result of his year-long journey to find out why wealth has become so manic. "It's not just the occasional fool and his money," he said. "It's the structure of wealth in American that has become more unstable."

Frank coined the term "Richistan" following a chance encounter in 2006 at a Florida yacht show. "I’m standing at this dock looking out at dozens of giant yachts," he said, "and this Texas yacht owner comes up to me, and regarding all the boats, said, 'It's like a different country, isn’t it?'"

The High-Beta Richcould be the Bible of the Occupy Wall Street movement. It is rich with compelling dramas of "caviar dreams" dashed and deferred, including a couple that constructed and was forced to abandon their plans to build the biggest house in America (subject of the upcoming documentary, The Queen of Versailles), and making the rounds with a new breed of repo-man charged with taking back yachts, private jets, and racehorses from the overextended wealthy.

But Frank, a former foreign correspondent, is first and foremost a reporter. The book, as with his blog, "is not judgmental or political," he said. "I'm more like a scientist. An economist recently called me a 'plutologist' (the study of the science of wealth)."

Like a modern-day Jim Fowler, who as the host of the classic Mutual of Omaha's "Wild Kingdom" TV series, observed the behaviors of the untamed creatures with whom we share our planet, Frank has been reporting on the wealthy. Instead of a safari jacket, he dons "a nice suit," which is more appropriate attire to "go in and find out how the natives live, what their culture is like, and what their attitudes are."

Frank has been covering wealth for nine years now. It has been an eye-opening experience and one that has altered his views on fortune. "Before I started covering the wealthy," he reflected, "I thought a lot of them inherited their money, but that is a very small portion of today's millionaires. Most people today get rich by starting a company and selling it. I also used to think that having wealth would bring some magic stability, security and contentment, and in many cases, it doesn’t."

Case in point: self-made millionaire Jack Warner, who went from reveling in the Florida Keys nightlife to sleeping in his truck and doing odd jobs for money.

"Today's wealth is built on the stock market," Frank said. "(For many of the people profiled in the book), a lot of their wealth was not real. It was wealth on paper. The simple, but surprising conclusion of this book is that we are now in an age of volatile wealth. Rather than the rich always getting richer, rather than the millionaires next door who make their money scrimping and saving and never spending, we are in an age where the wealthy are prone to euphoric highs and depressive lows."

The rich, as F. Scott Fitzgerald once observed, may be different, but they are prone to the same money mistakes that plague the so-called 99 percent. A theme throughout the book is households that do not have rainy day funds, or who find themselves in destructive debt, borrowing for their lifestyle instead of their business.

So why should this concern the rest of us? Because, Frank points out, consumer spending accounts for 70 percent of the economy, and the top 5 percent of earners account for perhaps half of that. "When the middle class cuts their spending, they are cutting around the edges. They still need necessities, such as toothpaste or bread. A large percent of spending by the wealthy is discretionary, luxury items. They can stop a large percentage of their spending overnight and that affects the broader economy."

Frank cites California, where the wealthiest 1 percent pays more than 40 percent of income taxes. That's great when their incomes shoot up, Frank said, not so great when the incomes crash. And now, California is stuck.

"State governments need to understand that their number one customer is unstable and manic and they need to figure out how to cushion those blows," he said.

The High-Beta Richis a fascinating glimpse into the multi-millionaire mindset. The people in the book who have suffered the severest financial setbacks seem the most poised. "The wealthy people who are best able to survive these ups and downs are those with the strongest grounding," Frank said. "They really want to contribute something of value to the world as opposed to wanting to take something from the world. Some people spend their whole lives pursuing wealth only to learn what it cannot do for them. Those who think it can fill the hole in their life just get unhappier when it doesn’t. But those have a job they like and a family they love and they contribute something they feel is meaningful, these are the people for whom wealth adds to their life."

But what can be done to fix the high-beta wealth is an enduring mystery," Frank said. "I can't answer. There are solutions, such as states having rainy day funds, building more savings into our lives and spending less; easy to say, hard to do. The underlying problem is the structure of the global economy and the structure of wealth today, which is that the things that make people very wealthy are the things that can tear a fortune down very quickly. If your readers have a solution I’d love to hear it."