The Unz Review: An Alternative Media Selection
A Collection of Interesting, Important, and Controversial Perspectives Largely Excluded from the American Mainstream Media
 TeasersiSteve Blog
Why Billionaires Buy So Many Paintings
🔊 Listen RSS
Email This Page to Someone

 Remember My Information



=>

Bookmark Toggle AllToCAdd to LibraryRemove from Library • BShow CommentNext New CommentNext New ReplyRead More
ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
AgreeDisagreeThanksLOLTroll
These buttons register your public Agreement, Disagreement, Thanks, LOL, or Troll with the selected comment. They are ONLY available to recent, frequent commenters who have saved their Name+Email using the 'Remember My Information' checkbox, and may also ONLY be used three times during any eight hour period.
Ignore Commenter Follow Commenter
Search Text Case Sensitive  Exact Words  Include Comments
List of Bookmarks

One curious aspect of 21st Century life is that billionaires are nuts over modern art paintings, while non-billionaires are not. This is different from, say, 1961 when Norman Rockwell painted a gorgeous faux-Pollock for the cover of the Saturday Evening Post. There was a broad continuum of interest in modern art then, but today there is a sharp disjunction between people who can afford to buy certified modern art and people who can’t.

Today, the rest of us generally don’t go out and buy posters of the stuff the billionaires are investing in. Contemporary art is just something billionaires are into.

But why?

One piece of the puzzle, apparently, is a lucrative tax break on federal capital gains taxes if you roll your winnings on buying a painting over into buying other paintings. You can evade paying capital gains taxes for the rest of your life if you keep buying more paintings. But if your first score was a painting, you have to keep buying paintings.

From the NYT:

Investors can avoid all capital gains taxes by holding the artwork bought with money from a prior sale until they die or by donating it to a museum, two strategies that have made the tax break — also known as a 1031 exchange after the section of the tax code that permits it — an attractive tool in estate planning.

Other investors sell and repurchase a series of works of escalating value without paying tax until an ultimate sale many years down the road, a process that some liken to receiving a no-interest loan from the government.

“If you are doing five transactions over 25 years,” Mr. Baer said, “each time buying something more expensive, each time you don’t pay the capital gains tax on the way. At the end of the day you are way ahead.” …

To avoid taxes, the proceeds from one sale must be rolled into the purchase of a “like-kind” item, a categorization that the Internal Revenue Service has yet to fully define but that most experts advise allows exchanging a painting for another painting, for example, but not a painting for a sculpture. These rules mean that many investors own their artworks via separately established companies and store them in art warehouses away from their homes.

And the exchange, which has to use the help of an independent intermediary, must be completed within 180 days.

So this means the art (painting) bubble stays permanently inflated (at least until a catastrophic popping), because rich guys who made money in paintings in the past have to keep plowing their winnings back into buying more paintings, or they’ll have to write a big check to the IRS. They can’t reinvest their capital gains into baseball cards or dinosaur fossils or, God forbid, a factory.

They just have to keep playing the painting game. You can check out anytime you like, but you can never leave.

 
Hide 59 CommentsLeave a Comment
Commenters to Ignore...to FollowEndorsed Only
Trim Comments?
  1. I don’t know if I read this from you or elsewhere, but the rich also receive a tax write-off by “donating” their art to art galleries. Sometimes it’s a gallery that they (the rich) currently own and are only open to the public on a very limited basis.

    • Replies: @Steve Sailer
    And when you die you can skip paying taxes by starting an art museum with your heirs in charge of hosting glamorous fundraisers for it for the rest of their lives.
    , @Alfa158
    Years ago Otis Chandler, former owner of the LA Times, had his auto collection in a "museum" which was open to the public once a year for tax purposes. Today the building is occupied by Peter Mullin's collection of classic French cars which is open to the public one day a month.
  2. Money laundering in the art market is reputed to be frequent. It’s also a liquid and mobile store of value.

  3. I always thought Nelson Rockefeller had terrible taste in art. But maybe it was good business sense?

    But it could have been worse. His son Michael disappeared while collecting human heads.

    Applying “like kind” to that sounds pretty gruesome.

    • Replies: @athEIst
    Nelson Rockefeller had terrible taste in art

    That's why he had Megan Marshack to help him appreciate Art.
  4. @John
    I don't know if I read this from you or elsewhere, but the rich also receive a tax write-off by "donating" their art to art galleries. Sometimes it's a gallery that they (the rich) currently own and are only open to the public on a very limited basis.

    And when you die you can skip paying taxes by starting an art museum with your heirs in charge of hosting glamorous fundraisers for it for the rest of their lives.

    • Replies: @Twinkie
    They are called (family) foundations. Your heirs get the trappings and the practical control of all the financial resources, without paying taxes since they do not own it, nominally. And they are "non-profit" so hey, the greater good and all...

    I hear a recent American president, his wife, and his daughter have one.
  5. @Steve Sailer
    And when you die you can skip paying taxes by starting an art museum with your heirs in charge of hosting glamorous fundraisers for it for the rest of their lives.

    They are called (family) foundations. Your heirs get the trappings and the practical control of all the financial resources, without paying taxes since they do not own it, nominally. And they are “non-profit” so hey, the greater good and all…

    I hear a recent American president, his wife, and his daughter have one.

    • Replies: @Yojimbo/Zatoichi
    In that particular instance, the only "thing" that they actually do "own" is their name brand or personal label of their name.
  6. @Twinkie
    They are called (family) foundations. Your heirs get the trappings and the practical control of all the financial resources, without paying taxes since they do not own it, nominally. And they are "non-profit" so hey, the greater good and all...

    I hear a recent American president, his wife, and his daughter have one.

    In that particular instance, the only “thing” that they actually do “own” is their name brand or personal label of their name.

  7. Steve, in this post in passing you mentioned baseball cards. Why couldn’t the same thing be done with cards as is currently done with paintings? In other words, say a smart savy congressman representing the Cooperstown, NY district with the help of a few venture capitalists who have donated to his campaigns in the past were to introduce a little known tax law that only benefits baseball card collectors? All the same capital gains taxes that apply to owners of paintings would apply to owners of premium cards such as the 09 Honus Wagner (worth between 2-6million; the Topps 51 Mantle (worth between 13-18k) etc. The value of cards printed during those individual years ca.1910-30 could easily be inflated to several million apiece, not to mention certain HOFers rookie years.

    A Babe Ruth “rookie” card of say, 1914 or 1915 depending on which tobacco company first put his image out on a card could easily fetch 5-10 million, depending on the venture capitalist that would purchase it in a silent auction. Babe Ruth memorabilia today is a fairly lucrative market but his rookie year in a baseball card is just waiting for someone to drive the price up to astronomical levels.

    All it would take is the right congressman to pass the legislation that would greatly benefit the top 1% in a sub-category of paintings that affect the capital gains rates. Perhaps a Rockefeller brood is grown tired of paintings but grew up a rabid baseball fan. Now closing in on 75, he’d much prefer to leave his grandkids something of practical value that they can readily understand: baseball. Over time, perhaps the legislation could also include covering NFL and NBA cards over the years 1945-1975, with exceptions made for individual players post ’75 (rookie cards of Michael Jordan and Wayne Gretsky).

    If they can do it for paintings, stamps, and coins, why not for sports trading cards? The earliest baseball cards go back at least as far as the mid. 1880’s when they were posed in photographer’s studios. A form of artwork all their own, and its high time that they were recognized and given a chance to affect the tax code under charitable write offs.

  8. @Reg Cæsar
    I always thought Nelson Rockefeller had terrible taste in art. But maybe it was good business sense?

    But it could have been worse. His son Michael disappeared while collecting human heads.

    Applying "like kind" to that sounds pretty gruesome.

    Nelson Rockefeller had terrible taste in art

    That’s why he had Megan Marshack to help him appreciate Art.

    • Replies: @JohnnyWalker123
    His mistress was unbelievably ugly.

    See her picture: http://www.reformation.org/megan-marshak.jpg

    Which shows you that even having wealth and power doesn't really attract women.
  9. Is this supposed to be a scandal? So the government can’t rape you if you roll your sales proceeds into a similar asset? Oh, the humanity…

  10. anon • Disclaimer says:

    This is a bit lazy, for one the art that billionaires invest in is not usually contemporary but modern art (1920’s-60’s). Contemporary art markets exist at virtually all price points and most artists start out selling their work relatively cheaply (5000-10000). Many SWPL people own contemporary art regardless of whether they are lecturers, trust fund malingerers or dentists. A friend of mine bought an early work by Vik Muniz for his wife in the early 90’s for 300,000 and is likely to be worth 2,000,00 in another 5 years. If you look at the story of Herbert and Dorothy Vogel it is perfectly possible for relatively poor people to accumulate an extremely valuable collection of art; although this is of course unlikely. Of course at one end billionaires invest in, or evade taxes with, works by Picasso or Jeff Koons but that is more a function of being a billionaire than of the art market.

    • Replies: @anon
    i am not sure if I edited that correctly.
    it should read
    "bought an early work for 5000 that is now worth 300000
  11. @anon
    This is a bit lazy, for one the art that billionaires invest in is not usually contemporary but modern art (1920's-60's). Contemporary art markets exist at virtually all price points and most artists start out selling their work relatively cheaply (5000-10000). Many SWPL people own contemporary art regardless of whether they are lecturers, trust fund malingerers or dentists. A friend of mine bought an early work by Vik Muniz for his wife in the early 90's for 300,000 and is likely to be worth 2,000,00 in another 5 years. If you look at the story of Herbert and Dorothy Vogel it is perfectly possible for relatively poor people to accumulate an extremely valuable collection of art; although this is of course unlikely. Of course at one end billionaires invest in, or evade taxes with, works by Picasso or Jeff Koons but that is more a function of being a billionaire than of the art market.

    i am not sure if I edited that correctly.
    it should read
    “bought an early work for 5000 that is now worth 300000

  12. FT covered this a few weeks ago. There are art trading/storage depots in Switzerland, Monaco, Lichtenstein, Singapore etc. Easy way to move money without appearing to do so. Paintings don’t hang in a mansion. Stuck instead in storage armory where it can be moved, traded, sold etc. Great for money laundering.

  13. anon • Disclaimer says:

    To be fair, the like-kind exchange provision has been around for decades, and a 1031 exchange can be done with many other investment assets – commercial real estate is a common example among the merely affluent. But the IRS has ruled that stocks and bonds are each unique and cannot be 1031-exchanged; can’t sell your IBM shares and roll the proceeds into GM stock while avoiding tax.

    And really, what’s the cost of a billionaire taking his chips off the table? A 20%-odd capital gains rate? Plenty of people can and do pay that. I’m sure that the main drivers of the international modern art bubble are status-seeking, an odd notion of investment diversification, and simple tulip-bulbery. U.S. tax code provisions intended to help landlords get in and out of properties with less friction are a nice-to-have, but can’t explain much of what is happening in London, Hong Kong and Moscow.

    More interesting is the full deduction for the value of donated property, received without triggering a disposal for capital gains tax purposes. Suppose you have some stock which goes up from 10 to 25. If you sold it and donated the proceeds you’d pay tax on the 15 gain, and then get a deduction for the 25 donation. If you just gifted the stock as-is, you’d simply get a 25 deduction and the charity would sell the stock but avoid paying tax on the 15 gain, because it is a nonprofit. It makes no intellectual sense and is simply a loophole deliberately left in the code to benefit people with enough self-control to invest in stocks and watch them appreciate, and who also have causes or churches they are in the habit of supporting.

    • Replies: @Dave Pinsen
    I always thought an interesting example of Warren Buffett's hypocrisy was his calling for higher taxes at the same time he donates appreciated shares of Berkshire Hathaway to the Gates foundation (instead of selling the shares, paying the capital gains tax, and then donating the net proceeds to Gates).
  14. I’m establishing a Charitable Foundation to agitate for an official ruling that mattress-carrying Performance Art shall be deemed to be “like kind” to modern-art painting.

    Those few investors who step forward FIRST to be in the “angel” round of fundraising, will be given the closest access to the Performance Artists

    • Replies: @SFG
    Cute, but nobody wants to sleep with Emma Sulkowicz. I mean, even if she were cute, she'd charge you with rape the minute the relationship went bad.
  15. @anon
    To be fair, the like-kind exchange provision has been around for decades, and a 1031 exchange can be done with many other investment assets - commercial real estate is a common example among the merely affluent. But the IRS has ruled that stocks and bonds are each unique and cannot be 1031-exchanged; can't sell your IBM shares and roll the proceeds into GM stock while avoiding tax.

    And really, what's the cost of a billionaire taking his chips off the table? A 20%-odd capital gains rate? Plenty of people can and do pay that. I'm sure that the main drivers of the international modern art bubble are status-seeking, an odd notion of investment diversification, and simple tulip-bulbery. U.S. tax code provisions intended to help landlords get in and out of properties with less friction are a nice-to-have, but can't explain much of what is happening in London, Hong Kong and Moscow.

    More interesting is the full deduction for the value of donated property, received without triggering a disposal for capital gains tax purposes. Suppose you have some stock which goes up from 10 to 25. If you sold it and donated the proceeds you'd pay tax on the 15 gain, and then get a deduction for the 25 donation. If you just gifted the stock as-is, you'd simply get a 25 deduction and the charity would sell the stock but avoid paying tax on the 15 gain, because it is a nonprofit. It makes no intellectual sense and is simply a loophole deliberately left in the code to benefit people with enough self-control to invest in stocks and watch them appreciate, and who also have causes or churches they are in the habit of supporting.

    I always thought an interesting example of Warren Buffett’s hypocrisy was his calling for higher taxes at the same time he donates appreciated shares of Berkshire Hathaway to the Gates foundation (instead of selling the shares, paying the capital gains tax, and then donating the net proceeds to Gates).

    • Replies: @anon
    Re: Warren Buffet donating appreciated Berkshire Hathaway stock. To be fare to him, I'll bet his motivation is to see his full $10bn donation (or whatever the exact number) go to benefit the Gates Foundation causes, instead of seeing $2bn go straight off the top to the government. Only if he then tries to deduct the full $10bn against his ordinary income would he be taking advantage of the double-dip permitted by the loophole and being hypocritical in some sense -- but I don't think he has that much ordinary income to deduct against. By contrast, some lawyer earning $250,000 a year who donates $10,000 worth of Apple stock which he inherited from his grandmother 15 years ago would be able to claim the full $10,000 charitable deduction against his ordinary income, without also having to recognize and pay tax on the gains built into the stock -- and neither will the charity, because it is a non-profit.

    The "fair" answer would be to allow the taxpayer to choose his benefit: 1) Avoid capital gains recognition, but limit the deduction to the basis in the property; or 2) Recognize capital gains and pay the corresponding tax, and get a deduction worth the full value of the donated property. I'd bet Warren Buffet would choose option 1 -- heck, I think that's effectively his outcome anyway, given that there is nothing particularly useful he can do with $10bn of charitable deductions -- so I don't think he is being particularly hypocritical or aggressive in his tax planning on this particular point.
  16. @athEIst
    Nelson Rockefeller had terrible taste in art

    That's why he had Megan Marshack to help him appreciate Art.

    His mistress was unbelievably ugly.

    See her picture:

    Which shows you that even having wealth and power doesn’t really attract women.

    • Replies: @Reg Cæsar

    Which shows you that even having wealth and power doesn’t really attract women.

     

    Not if your address is Albany.
    , @Paul Mendez
    You think Megan Marshak was "unbelievably" ugly?

    When you turn 71, send us a photo of the 20-something you're banging.
    , @Art Deco
    She is not ugly. She has on the eyewear of the era, which was ugly. Megan Marshack was his Girl Friday. People who knew them both said she was almost like an aunt to him ("Nelson Rockefeller, where have you been? You're due at the National Press Club at 1:00"). Rockefeller's signature was collecting around him a mess of (non-ornamental) female aides on whom he doted, among them Nancy Maginnes, whom he introduced to Henry Kissinger. If the relationships had a sexual dimension, these women are not talking, and they speak well of him. The whole sequence of events surrounding Marshack and the sidelong comments of his younger sons make passably clear that she was involved with him, though the nature of that relationship has never been limned because she's been absolutely silent for 35 years about it.
    , @Jim Don Bob
    Yeah, but she was good at dictation. ;-)
  17. “Nine homes demolished to make way for new museum”

    What was once a quiet cul de sac of designer homes in Potomac now looks like an inner-city demolition zone. [This is exaggerated. It was a neat, prosperous-looking demolition.]

    Tall chain-link fencing lines both sides of Three Sisters Road, off Glen Road, as construction equipment operators work to tear down nine houses that, until just recently, were lived in.

    The homes were purchased as part of the expansion of Glenstone, a 200-acre private property that is the home of Mitchell Rales and his wife, Emily Wei Rales. It’s also the site of Glenstone museum, where the couple display their collection of post-World War II art.

    Rales, a Bethesda native and co-founder of the Danaher Corp. manufacturing company, is worth $3.9 billion, according to Forbes’ 2013 list of billionaires. His wife is an art historian and curator.

    . . .

    Brendan O’Neill of O’Neill Development said his company refurbished The Potomac Hunt clubhouse in the 1980s and built the other eight houses that made up the Three Sisters Road development. Each of the houses was designed and built in the style of a great Maryland home, he said.

    According to state records, the houses typically went for about $2 million when they were previously sold three to five years ago.

    “It’s a strange feeling” to see the houses being torn down, he said. “I’ve been building 38 years and I’ve never seen anything like this — perfectly good homes demolished to make way for open space. Usually it’s the other way around, green space going to houses.”

    Glenstone museum is open to the public Wednesday through Friday and select Saturdays from 10 a.m. to 4 p.m. To schedule an appointment email [email protected].

    I looked into scheduling a visit once. As I recall the museum allows four visitors at a time, or maybe it was eight. Demolishing the neighboring houses was a great touch; you’ve got to let the millionaires know who the billionaire is.

  18. Any sign of the republicans figuring this out and taking an easy step to hurt the wealthy art crowd who hates them? Ha…

  19. Art and other “collectibles” are actually taxed at a higher long-term capital gains tax rate (28 percent) than other capital assets (15-20 percent), so the benefit is really only if you never intend to sell it. For a rainy day or retirement fund, almost anything else is better.

  20. @Karl
    I'm establishing a Charitable Foundation to agitate for an official ruling that mattress-carrying Performance Art shall be deemed to be "like kind" to modern-art painting.

    Those few investors who step forward FIRST to be in the "angel" round of fundraising, will be given the closest access to the Performance Artists

    Cute, but nobody wants to sleep with Emma Sulkowicz. I mean, even if she were cute, she’d charge you with rape the minute the relationship went bad.

  21. One of the reasons why people aren’t interested in contemporary art is that a lot of the fashionable contemporary art is crap. Sure, Pop Art was a bit shallow — but Andy Warhol had a real aesthetic sense, as did Picasso. Those guys could paint.

    But Jeff Koons and Damien Hirst just make garbage.

    • Replies: @Buzz Mohawk
    Picasso was a gifted artist who could out-draw and out-paint adult artists by the time he was twelve. That guy could paint and do whatever he wanted.

    Warhol was a commercial artist, a graphic designer type whose skills were good but typical of professionals in his original field. It was his concept -- which has been run into the ground many times over now -- that made his art notable at the time.
  22. And I thought it was to keep their cronies trust fund kids employed in NYC art gallerias. Nice to see there is a rational reason for it. Tax code. Yup.

  23. James Rickards (author of Currency Wars) has discussed fine art as an investment vehicle. He points out that wealthy European families, in light of the massive turmoil on the continent over the last few centuries, utilize fine art as an investment strategy.

    1/3 art; 1/3 land; 1/3 gold. You can easily roll that $20 million painting up and carry it with you when the Huns invade.

    Art currently brings in massive returns and seems ridiculously inflated. However, Rickards argues this is how gold would behave if there weren’t massive price fixing schemes to keep its price in check. I don’t know much about the art market, but has it ever experienced a period of massive deflation?

    It’s possible for non-billionaires to utilize this strategy too. There are several “mutual funds” that invest in art, rather than certainly-not-over-valued-Apple-stock.

    I only heard Rickards talk about this on a 30 minute podcast, but I think it’s something you would find worth writing more in-depth about.

    • Replies: @Lagertha
    No, the art market doesn't really go through a period of massive deflation, which is why it is so attractive for investors since the 20th century. Prior to that, paintings and sculpture were commissioned to decorate homes or palaces; earlier art (European) was for churches.

    And, a previous poster mentioned the art/trading/storage depots scattered around the world. No one, not one organization or individual can declare what a painting is actually worth...so, for tax purposes, an investor can declare a painting worth millions (according to the last price at auction, I suppose) but down the road, claims can be made that the piece is actually, overvalued, and is significantly less now. Like an antique Ferrari is significantly more valuable than a 2011 Corvette, but they're both sports cars that look great - there are many Ferraris and many Corvettes, but only that one particular painting. The process to declare the value of a contemporary art piece is devoid of logic.

    I knew some people who only collected European Masterpieces, or masterpieces of their country, strictly because the price was established a long time ago (sometimes called blue-chip, but there are many works of living artists that fall into that category now) at least, during the time of purchase. And, these industrialists collected them as assets to be quickly sold if needed. The selling part of art is full of mystery. Many auctions are anonymous and auction houses (where majority of paintings are bought and sold) have long protected this discretion. It is really a fortress.

    Lastly, established art work (again: devoid of logic to deduce value) consistently goes up in value. Contemporary art is of interest for a really simple reason: there are not that many artists! No one who truly cares about economic survival chooses to paint or sculpt. It is a compulsion.

    Collecting art (the billionaires who buy) is similar to buying racehorses...you're not sure it's a winner, but you can afford to buy it...or give it away.

  24. @JohnnyWalker123
    His mistress was unbelievably ugly.

    See her picture: http://www.reformation.org/megan-marshak.jpg

    Which shows you that even having wealth and power doesn't really attract women.

    Which shows you that even having wealth and power doesn’t really attract women.

    Not if your address is Albany.

  25. The ( inflated) market in art and collectibles is a good reason to impose a wealth tax on large pools of capital instead of taxing ‘income’ so heavily. It is simply ridiculous that a painting by a long dead artist can fetch $100 million or a 1960’s Ferrari $ 30 million no matter how rare, gorgeous or prestigious ownership maybe. It is a function of tax and economic policy that allows this kind of asset inflation.

    An annual wealth tax of 1% imposed on net worth over $100 million and 2% over $1 billion is not onerous and would allow Warren Buffet and other billionaire financial speculators who opine on wealth and tax inequality ( Here’s to you Mr. Soros) to put their tax returns where their mouths are and afford some tax relief to people who are paid $250,000 or more per year from their LABOR and who Obama and the Democrats call ‘The Rich” even if they can’t hang a single Vermeer or Edward Hopper on their mortgaged McMansion wall. It wouldn’t even prevent a sleazy insider trading crook like Stephen A. Cohen from enjoying his multi billion dollar private art collection if he was willing to pay 2% per year to own it which is far less than what most people must pay in property taxes on their house if you only consider they actual equity they have in the property.

    The benefit would be that instead of hoarding the art work of long dead artists or the creations of Enzo Ferrari as a way to avoid tax and the ( failing) efforts of modern governments to inflate away the debt they created to fund the welfare state, owners of large pools of capital would have to seek out investments that generate real economic returns by employing technology, capital and labor to pay the tax on their art and car collections. Want to spend $10 million on a painting or car. Go ahead and I’m happy you have the money to do it but it will cost you $100,000-$200,000 per year to keep it for your private enjoyment and pleasure!

  26. @JohnnyWalker123
    His mistress was unbelievably ugly.

    See her picture: http://www.reformation.org/megan-marshak.jpg

    Which shows you that even having wealth and power doesn't really attract women.

    You think Megan Marshak was “unbelievably” ugly?

    When you turn 71, send us a photo of the 20-something you’re banging.

    • Replies: @JohnnyWalker123
    Ok, fine.

    but compare Megan Marshack to what a financially struggling waiter named Ron Goldman was consorting with: http://pixshark.com/nicole-simpson.htm

  27. In the Expendables 3, the Eastern European mob (mobster played by Mel Gibson) used purchases/sales of rare art to cover for arms dealing.

  28. All sorts of financial games are played with rare art by the Rich.

    Suppose two billionaires want to swap paintings by the same artist. Instead of a simple trade, they could instead structure the deal as two purchases for $1 million and two sale for $1 million.

    Same net result, but Now instead of a painting, they have a million dollar asset. And if they can’t later find some sucker to give them a million dollars, they can claim tax losses if they ever do sell the painting.

  29. @JohnnyWalker123
    His mistress was unbelievably ugly.

    See her picture: http://www.reformation.org/megan-marshak.jpg

    Which shows you that even having wealth and power doesn't really attract women.

    She is not ugly. She has on the eyewear of the era, which was ugly. Megan Marshack was his Girl Friday. People who knew them both said she was almost like an aunt to him (“Nelson Rockefeller, where have you been? You’re due at the National Press Club at 1:00”). Rockefeller’s signature was collecting around him a mess of (non-ornamental) female aides on whom he doted, among them Nancy Maginnes, whom he introduced to Henry Kissinger. If the relationships had a sexual dimension, these women are not talking, and they speak well of him. The whole sequence of events surrounding Marshack and the sidelong comments of his younger sons make passably clear that she was involved with him, though the nature of that relationship has never been limned because she’s been absolutely silent for 35 years about it.

  30. The rich have lots and lots of money….most from unproductive endeavors. So spending some of it on crap means nothing.

  31. 1/3 art; 1/3 land; 1/3 gold. You can easily roll that $20 million painting up and carry it with you when the Huns invade.

    1/3 art; 1/3 land; 1/3 gold. You can easily roll that $20 million painting up and carry it with you when the Africans invade.

    Oh, wait…

  32. Anonymous • Disclaimer says:

    Steve, It’s very interesting that you (and the NYT) bring this topic up now, because in a recent (March 15, 2015) column about Hillary Clinton’s presidential campaign, Peggy Noonan brought up the topic of how the rich buy ugly art, but she offered an alternative explanation for it:

    “Maybe what happened to her, in part, is the homes of her Manhattan mega-donors. She’s been in the grand townhouses and Park Avenue apartments since 1992. She’d go in and be met and she saw what they had. Beauty. Ease. Fine art of a particular, modern sort, the kind that is ugly, that reminds its owners that just because they’re rich doesn’t mean they don’t understand that life is hard, painful, incoherent. It is protective, cautionary, abstract and costs $20 million a picture.

    When I first read this, I assumed that Peggy was giving us an explanation that she believed to be true, but now I wonder if perhaps her intention was actually to bring attention to the issue, in a non-inflammatory way, and gave what she knew was a false explanation – the sort of implausible explanation that the powers that be often give us for the things they do, and the sort of explanation that makes them look good and makes them appear to have a conscience.

  33. @John
    I don't know if I read this from you or elsewhere, but the rich also receive a tax write-off by "donating" their art to art galleries. Sometimes it's a gallery that they (the rich) currently own and are only open to the public on a very limited basis.

    Years ago Otis Chandler, former owner of the LA Times, had his auto collection in a “museum” which was open to the public once a year for tax purposes. Today the building is occupied by Peter Mullin’s collection of classic French cars which is open to the public one day a month.

  34. You forgot to mention that buying and selling politicians won’t work. It’s quite technical to claim them as a cost of doing business, plus most of them are so unstable you can’t buy them, you have to rent.

  35. More or less why Ballmer bought the Clippers

  36. @JohnnyWalker123
    His mistress was unbelievably ugly.

    See her picture: http://www.reformation.org/megan-marshak.jpg

    Which shows you that even having wealth and power doesn't really attract women.

    Yeah, but she was good at dictation. 😉

  37. Anon • Disclaimer says:

    Re: On ordinary people not being able to afford art. Not quite true. I know an art dealer who says if you go attend auctions at Christie’s and Sotheby’s, and then look over the pieces that didn’t sell at all (and there are always some of these, but the auction houses keep quiet about them), you can make a lowball offer for them and you’ll usually be able to pick them up at bargain rate. Most of the time the owners are selling because they really need the money, and they’ll take what they can get. My art dealer makes plenty of cash by hanging onto his finds and reselling them later when the market is better. He’s always buying paintings for a few thousand dollars and selling them for much better than that.

    Secondly, my art dealer says there’s a whole range of art that sells for far lower prices than you would think. Second-tier Old Masters are surprisingly cheap because they’re not the ‘in’ thing, and any works painted from 1500-1900 that don’t have an attribution will automatically go cheap because no one knows who painted it. It doesn’t mean the work is bad, it’s just that having an attribution will give it a magical price boost. If you know what you’re doing, an ordinary person can afford fine art.

  38. I think you need to consider the social benefits of art collecting. The art world is the ultimate playground of the rich and famous. It’s where you go to see and be seen, to hob-nob with celebrities, to luxuriate in the fact that you — yes YOU, you big macher — are a certified, solid platinum Master of the Universe. It means you have arrived and are impregnably rich.

    It is also fabulously gay and oh so much fun! And honestly, there are lots of hot chicks there too, so whichever way you swing, you know?

    You think this social approval isn’t worth dropping a couple of hundred million a year on art you couldn’t care less about? Oh yeah it is. There is nothing in the world that tastes quite as sweet as EXCLUSIVITY and ACCESS. The neo-rich in particular eat this up.

  39. @Gender_Inflation
    James Rickards (author of Currency Wars) has discussed fine art as an investment vehicle. He points out that wealthy European families, in light of the massive turmoil on the continent over the last few centuries, utilize fine art as an investment strategy.

    1/3 art; 1/3 land; 1/3 gold. You can easily roll that $20 million painting up and carry it with you when the Huns invade.

    Art currently brings in massive returns and seems ridiculously inflated. However, Rickards argues this is how gold would behave if there weren't massive price fixing schemes to keep its price in check. I don't know much about the art market, but has it ever experienced a period of massive deflation?

    It's possible for non-billionaires to utilize this strategy too. There are several "mutual funds" that invest in art, rather than certainly-not-over-valued-Apple-stock.

    I only heard Rickards talk about this on a 30 minute podcast, but I think it's something you would find worth writing more in-depth about.

    No, the art market doesn’t really go through a period of massive deflation, which is why it is so attractive for investors since the 20th century. Prior to that, paintings and sculpture were commissioned to decorate homes or palaces; earlier art (European) was for churches.

    And, a previous poster mentioned the art/trading/storage depots scattered around the world. No one, not one organization or individual can declare what a painting is actually worth…so, for tax purposes, an investor can declare a painting worth millions (according to the last price at auction, I suppose) but down the road, claims can be made that the piece is actually, overvalued, and is significantly less now. Like an antique Ferrari is significantly more valuable than a 2011 Corvette, but they’re both sports cars that look great – there are many Ferraris and many Corvettes, but only that one particular painting. The process to declare the value of a contemporary art piece is devoid of logic.

    I knew some people who only collected European Masterpieces, or masterpieces of their country, strictly because the price was established a long time ago (sometimes called blue-chip, but there are many works of living artists that fall into that category now) at least, during the time of purchase. And, these industrialists collected them as assets to be quickly sold if needed. The selling part of art is full of mystery. Many auctions are anonymous and auction houses (where majority of paintings are bought and sold) have long protected this discretion. It is really a fortress.

    Lastly, established art work (again: devoid of logic to deduce value) consistently goes up in value. Contemporary art is of interest for a really simple reason: there are not that many artists! No one who truly cares about economic survival chooses to paint or sculpt. It is a compulsion.

    Collecting art (the billionaires who buy) is similar to buying racehorses…you’re not sure it’s a winner, but you can afford to buy it…or give it away.

  40. Tulip bulbs would be better, because at least the flowers are always pretty.

    Paintings began to leave the normal universe when photography came along. Artists had to face the fact that fooling the eye and depicting what they wanted on a flat rectangle was no longer sufficient. So they began inventing new ways to see things…or new ways of saying they saw things that others did not see. And so a long line of BS began…

    My father actually had a friend who bought an unknown van Gogh at an antique store or something. The man’s wife thought the painting was pretty, a lot of golden fields and stuff, so he bought it. It always hung in their living room, even after they found out what it was. (They were the kind of people who always had good luck investing anyway, so they didn’t feel the need to sell.) That was half a century ago. I don’t know what became of the painting, but somebody eventually got rich.

  41. No painters can’t compete with photographers and wise ones won’t bother trying. For better or worse the camera killed representational art.

    • Replies: @Chrisnonymous
    That depends what the meaning of the words "killed" and "representational" is.

    It transformed representational art, so that modern figurative painters are people like Odd Nerdrum. Those who complain that Odd Nerdrum is not actually representing things fail to see that going back to paintings of nobility in front of made-up scenes or back to Greek statuary, "representational" art has never been pure representation.

    http://upload.wikimedia.org/wikipedia/commons/0/0c/William_Dobson_-_Charles_II,_1630_-_1685._King_of_Scots_1649_-_1685._King_of_England_and_Ireland_1660_-_1685_(When_Prince_of_Wales,_with_a_page)_-_Google_Art_Project.jpg

    It is true that photography killed the market for low- to mid-range portraits and landscapes. We will probably never have another John Singer Sargent or Joseph Turner in the future--great artists whose vision would be expressed in photographs today.
  42. @Paul Mendez
    You think Megan Marshak was "unbelievably" ugly?

    When you turn 71, send us a photo of the 20-something you're banging.

    Ok, fine.

    but compare Megan Marshack to what a financially struggling waiter named Ron Goldman was consorting with: http://pixshark.com/nicole-simpson.htm

    • Replies: @JohnnyWalker123
    This actually reminds me of a show called "Average Joe."

    In the reality show, a woman has the chance to meet a large group of men over a few weeks. These men are typical looking "Average Joes." Every week, she does dates with the men and eliminates one man.

    Then after about half of these men are eliminated, a new group of men is introduced. These new men are exceptionally handsome, but often arrogant or have character flaws. The woman has to keep eliminating men until she's left with the one man she wants to eventually marry. The show tests just how much women value attraction over relationship qualities.

    In the first season, I recall the two final contestants were a moderately good looking Wall Street trader and a barely employed waiter with male model looks. The woman finally selected the male model-looking guy.

    https://www.youtube.com/watch?v=tZ_M2xKlkws

    https://www.youtube.com/watch?v=24NXjLWG5Zg

  43. Perhaps a Chinese view also sheds some light on this. In China, luxury items are often used, not for their intrinsic value, but as high-status gifts, as a way to give bribes, or as a way to launder money. This has created world-wide bubbles in several areas, like art and wine.

    Throughout history, people have given each other mooncakes as presents, but as with many things in China, corruption has crept in and the “giving” has spurred a dubious industry.
    Typical mooncakes are round pastries with a filling of lotus seed paste, sometimes with a salted egg yolk – but there are many varieties.
    A deluxe box of mooncakes made with shark’s fin, bird’s nest or abalone cost up to 2,000 yuan ($326), and those made of gold and silver can set you back by 160,000 yuan ($26,120) – and everybody knows you don’t buy these for an ordinary relative or friend.

    According to a report by the Chinese Economic Weekly … the gift industry is huge in China, worth an estimated $130 billion annually.

    As the popular saying goes, “those who buy Maotai don’t drink it, and those who drink Maotai don’t buy it“. In other words, Maotai is mainly used at dinner parties or as a “gift”.

    In recent years, art auctions have also become a hotbed for money laundering. Many fake paintings and art objects have been sold for high prices. It is believed that the buyers are not ignorant or stupid; they simply use this to launder money.

    “Why taste for luxury fuels China corruption”, by Yuwen Wu, BBC Chinese, 19 September 2013

  44. Does it have to be all about tax breaks and pedestrian stuff like that? If I were a billionaire, I would be buying art because it’s such an awesome thing to own. Also, to support the kind of art that I like.

  45. @JohnnyWalker123
    Ok, fine.

    but compare Megan Marshack to what a financially struggling waiter named Ron Goldman was consorting with: http://pixshark.com/nicole-simpson.htm

    This actually reminds me of a show called “Average Joe.”

    In the reality show, a woman has the chance to meet a large group of men over a few weeks. These men are typical looking “Average Joes.” Every week, she does dates with the men and eliminates one man.

    Then after about half of these men are eliminated, a new group of men is introduced. These new men are exceptionally handsome, but often arrogant or have character flaws. The woman has to keep eliminating men until she’s left with the one man she wants to eventually marry. The show tests just how much women value attraction over relationship qualities.

    In the first season, I recall the two final contestants were a moderately good looking Wall Street trader and a barely employed waiter with male model looks. The woman finally selected the male model-looking guy.

    • Replies: @Chrisnonymous
    This doesn't model reality well, then. In reality, she would marry the Wall Street broker and then start cheating on him with the waiter.
  46. @Zippy
    One of the reasons why people aren't interested in contemporary art is that a lot of the fashionable contemporary art is crap. Sure, Pop Art was a bit shallow -- but Andy Warhol had a real aesthetic sense, as did Picasso. Those guys could paint.

    But Jeff Koons and Damien Hirst just make garbage.

    Picasso was a gifted artist who could out-draw and out-paint adult artists by the time he was twelve. That guy could paint and do whatever he wanted.

    Warhol was a commercial artist, a graphic designer type whose skills were good but typical of professionals in his original field. It was his concept — which has been run into the ground many times over now — that made his art notable at the time.

  47. anon • Disclaimer says:
    @Dave Pinsen
    I always thought an interesting example of Warren Buffett's hypocrisy was his calling for higher taxes at the same time he donates appreciated shares of Berkshire Hathaway to the Gates foundation (instead of selling the shares, paying the capital gains tax, and then donating the net proceeds to Gates).

    Re: Warren Buffet donating appreciated Berkshire Hathaway stock. To be fare to him, I’ll bet his motivation is to see his full $10bn donation (or whatever the exact number) go to benefit the Gates Foundation causes, instead of seeing $2bn go straight off the top to the government. Only if he then tries to deduct the full $10bn against his ordinary income would he be taking advantage of the double-dip permitted by the loophole and being hypocritical in some sense — but I don’t think he has that much ordinary income to deduct against. By contrast, some lawyer earning $250,000 a year who donates $10,000 worth of Apple stock which he inherited from his grandmother 15 years ago would be able to claim the full $10,000 charitable deduction against his ordinary income, without also having to recognize and pay tax on the gains built into the stock — and neither will the charity, because it is a non-profit.

    The “fair” answer would be to allow the taxpayer to choose his benefit: 1) Avoid capital gains recognition, but limit the deduction to the basis in the property; or 2) Recognize capital gains and pay the corresponding tax, and get a deduction worth the full value of the donated property. I’d bet Warren Buffet would choose option 1 — heck, I think that’s effectively his outcome anyway, given that there is nothing particularly useful he can do with $10bn of charitable deductions — so I don’t think he is being particularly hypocritical or aggressive in his tax planning on this particular point.

  48. “One piece of the puzzle, apparently, is a lucrative tax break on federal capital gains taxes if you roll your winnings on buying a painting over into buying other paintings. You can evade paying capital gains taxes for the rest of your life if you keep buying more paintings. But if your first score was a painting, you have to keep buying paintings.”

    Ok, so, what’s the problem here? Is there a suggestion here that this loop hole be closed? Is there a suggestion here that we applaud the actions of the billionaires “gaming the system”? Is there a suggestion here that da Joos are benefitting mightily from this tax break?

    Oh, the humanity, the humanity!

    • Replies: @Anonymous
    Close it! 1031 exchanges are great for productive property like real estate but not collectibles.

    Also severely limit the charitable contribution deduction for non humanitarian contributions. Animals (humane society) environment (Sierra Club) conservation easements, arts and humanities.
    Allow for medical, religious, humanitarian (food bank), educational, except college athletics.

    Then lower the top tax rate on business income with the savings.
  49. Priss Factor [AKA "The Priss Factor"] says:

    Just put Andy Warhol on the $1,000,000 bill.

    in mod we trust

  50. Supposedly, traditional art is making a comeback. At least that’s what UK Spectator reports from the Frieze Art Fair: http://www.spectator.co.uk/arts/arts-feature/9348652/frieze-art-fair-where-great-refinement-meets-harrowing-vulgarity/

  51. Steve,

    While you don’t see people buying many posters of Rothko, actually you can find posters of Jackson Pollock paintings. Maybe not as popular as van Gogh (admittedly not a modern painter) or Warhol, but still you can find them.

    I think the reason is that, while Pollock is usually derided for throwing paint on the canvas when people want to poke fun at modern painters, the reality is that he is probably one of the few modern painters whose work should be taken seriously. It’s interest comes from just the fact that it is possible to see that it is not just paint thrown on a canvas. The patterns are fascinating and prompt you to keep looking to try to understand why. (If you Google “Pollock fractals” you can find plenty of links that will suggest why Pollock might be of interest to the human brain.)

    While I admire Norman Rockwell, The Connoisseur does not look like a Pollock. It has no flowing or dynamic quality and no spatial depth. It is flat, blotchy, and disjointed. When Rockwell painted this painting, he had a local window-washer dump a can of white paint onto the painting (which I guess you can see just to the left of the man’s left arm in The Connoisseur). This demonstrates that Rockwell did not actually understand either Pollock’s aesthetics or methodology. Pollock did not just randomly dump things on a canvas to see how they would turn out.

    Appropos this post, notice that the man in Pollock’s painting is wearing gloves that match his suit and that the hat he is holding is a homburg. This is not just a connoisseur, it is your billionaire collector.

    Also of interest to iSteve readers might be the fact that if you Google the painting, you are not likely to see the entire cover the 1962 Saturday Evening Post, as it advertised in large letters an article entitled
    “The Little Known World of OUR NEGRO ARISTOCRACY.”

  52. @JohnnyWalker123
    This actually reminds me of a show called "Average Joe."

    In the reality show, a woman has the chance to meet a large group of men over a few weeks. These men are typical looking "Average Joes." Every week, she does dates with the men and eliminates one man.

    Then after about half of these men are eliminated, a new group of men is introduced. These new men are exceptionally handsome, but often arrogant or have character flaws. The woman has to keep eliminating men until she's left with the one man she wants to eventually marry. The show tests just how much women value attraction over relationship qualities.

    In the first season, I recall the two final contestants were a moderately good looking Wall Street trader and a barely employed waiter with male model looks. The woman finally selected the male model-looking guy.

    https://www.youtube.com/watch?v=tZ_M2xKlkws

    https://www.youtube.com/watch?v=24NXjLWG5Zg

    This doesn’t model reality well, then. In reality, she would marry the Wall Street broker and then start cheating on him with the waiter.

    • Replies: @JohnnyWalker123
    She didn't marry the waiter.
  53. @Dr No
    No painters can't compete with photographers and wise ones won't bother trying. For better or worse the camera killed representational art.

    That depends what the meaning of the words “killed” and “representational” is.

    It transformed representational art, so that modern figurative painters are people like Odd Nerdrum. Those who complain that Odd Nerdrum is not actually representing things fail to see that going back to paintings of nobility in front of made-up scenes or back to Greek statuary, “representational” art has never been pure representation.

    It is true that photography killed the market for low- to mid-range portraits and landscapes. We will probably never have another John Singer Sargent or Joseph Turner in the future–great artists whose vision would be expressed in photographs today.

  54. Anonymous • Disclaimer says:
    @Corvinus
    “One piece of the puzzle, apparently, is a lucrative tax break on federal capital gains taxes if you roll your winnings on buying a painting over into buying other paintings. You can evade paying capital gains taxes for the rest of your life if you keep buying more paintings. But if your first score was a painting, you have to keep buying paintings.”

    Ok, so, what’s the problem here? Is there a suggestion here that this loop hole be closed? Is there a suggestion here that we applaud the actions of the billionaires “gaming the system”? Is there a suggestion here that da Joos are benefitting mightily from this tax break?

    Oh, the humanity, the humanity!

    Close it! 1031 exchanges are great for productive property like real estate but not collectibles.

    Also severely limit the charitable contribution deduction for non humanitarian contributions. Animals (humane society) environment (Sierra Club) conservation easements, arts and humanities.
    Allow for medical, religious, humanitarian (food bank), educational, except college athletics.

    Then lower the top tax rate on business income with the savings.

  55. Kurt Vonnegut: “Modern art is a conspiracy between shysters and the rich to make poor people feel stupid.”

  56. @Chrisnonymous
    This doesn't model reality well, then. In reality, she would marry the Wall Street broker and then start cheating on him with the waiter.

    She didn’t marry the waiter.

  57. Nico says:

    These pedigreed paintings cause a LOT of problems. In France, right after World War II, considerable families ravaged by the war began selling their historic art collections to moneyed American connoisseurs. To prevent the pillaging of French national cultural patrimony, the government forbade the transfer of such certified works outside the French border; presumably as a counterpart, paintings were exempted from the net worth calculation on France’s wealth tax (at the present writing, France is the only European country not to have abolished this inane, unjust and immeasurably harmful tax). The resulting bubble isn’t quite comparable to the modern art bubble, not the least because historically important works of art (by dead artists) actually ARE scarce, but the scramble has certainly attracted the wiles of foragers and thieves.

    If you understand French, try to get ahold of the episode of « Faites entrer l’accusé » which talks about l’affaire Susanne de Canson, an elderly lesbian heiress who was starved to death in a windowless hole as her lawyer’s secretary plundered her half of father’s art collection.

Comments are closed.

Subscribe to All Steve Sailer Comments via RSS
PastClassics
The unspoken statistical reality of urban crime over the last quarter century.
Which superpower is more threatened by its “extractive elites”?
How a Young Syndicate Lawyer from Chicago Earned a Fortune Looting the Property of the Japanese-Americans, then Lived...
Becker update V1.3.2