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How does an UHN individual leverage their wealth? Do they in fact do so, and should for example Bill Gates' 80 billion be understood as 800 - 900 billion dollar if he leverage his wealth 10 x?
Someone else said that this leveraging indeed occurs and magnifies the impact of these fortunes on an economy. But how should this be understood precisely?
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Leveraging is done with debt. Most high net worth individuals are debt free and even if they take out loans, it is to reduce taxes.
However, high net worth individuals normally have their wealth in a form of equities or stocks. For example Bill Gates' wealth is mostly in Microsoft stock, Warren Buffet's is in Berkshire Hathaway's, etc. The corporations that these rich people own can take on a lot of debt and therefore become leveraged. Debt to equity ratio of corporations like Microsoft and Berkshire Hathaway is not very high though, in fact it is below 50% for those two. You can say that Microsoft's use of debt, or leverage, amplifies its impact on the economy by 1.4x, which is not a bad thing.
A hedge fund or some investment institution, on the other hand, can easily have several times more debt on their balance sheet than equity. On top of that, hedge funds can buy/sell leveraged derivatives like futures, for examples, which have a 10x leverage of their own. As a result, owners of such investment institutions CAN have a considerably impact on the economy as a result of the use of leverage.
