The Sotheby's trial revealed the art market's unsavoury practices
economist.com
economist.com
Yeah I know some of you reading this will have much more, but I personally, can't fathom doing it just once, imagine, just for a days work.
Invest that, at safe withdrawal of 4%, that’s only 40k/year. I live in SF, and making less than $105k/year is considered low income (according to California’s Department of Housing and Community Development). So yeah it’s a nice boost to savings, but you can’t stop working.
For most people, yes even in 1st world countries, outside of FAANG its not about deciding whether or not one would have to continue wageslaving to mantain an SF lifestyle, property and trips to Cancun,
It is in the U.S. too, we just struggle to acknowledge it because then we would also have to start asking hard questions about how Europeans have that average salary but also universal health care, public transportation, and a social safety net.
In the US as a whole, 27% of the population already lives on less than $40k a year—they probably wouldn't stop working but they could! The median income for a black person in the US is $48k/yr [0]. Where I live, $40k a year would be enough to take someone from median income to 80th percentile in a single event.
If you don't think $40k/year is very much money, maybe take a pause to consider how lucky you are.
[0] https://www.census.gov/content/dam/Census/library/publicatio...
I really don't want to be mean, really, but for most people that wouldn't be just a 'boost' for saving, that would lift tremendous financial stress about the future.
At one point in my life I had a financial windfall that was many, many time less than a million, and yet it resulted in me not living month-to-month, and be able to for example buy a new computer if needed, within worring about rent and eating pasta for months.
My family lost a bunch of money on a Canova bust that’s now at the Ashmolean in Oxford.
>A senior lawyer who works for a private bank in Zurich says that, although egregious, the situation was hardly novel: it is widespread practice in Switzerland that independent wealth managers are given full power of attorney by clients.
>“We have clients where, basically, the authorised representatives, their financial advisers, do things like go and buy an expensive watch or whatever, and if we say, ‘No, don’t do that’, we will hear something back asking us why on earth we are making a fuss . . . They say they have given these people these powers, and it’s not up to us to decide what is reasonable or not.”
I mean, who believes $10 million is going to fall out of the sky and hit them except someone who has already been hit with $10 million falling from the sky?
Plus there is a limit for how much money you can scam out of a normal person.
1) Disparate industries seemingly conspiring to extract every marginal dollar out of wealthy people (good for them). That is, there seems to be no amount of money you can have that isn't easily disposed of in NYC, leaving you wishing you had 10x more.
2) Wealthy people by inheritance who seem to be genuinely room temperature IQ out competing high income earners for the best apartments, with all cash offers
In Brooklyn there are plenty of kids who inherited money and working jobs that do not match their wealth/housing/lifestyle. So they are spending down whatever wealth they inherited for sure.
The typical picture I've seen is that the parents/trust buy them a condo all-cash, and then the underemployed then live a lifestyle that implies easily a $1M/year income except in a job that would imply a $0-$100k income. So unless they inherit like $25M+, they are spending it down quickly.
I've also seen the early stages of this from the other end with my colleagues, where parents in NYC who come from more modest backgrounds, end up making FAANG level salaries but then having kids that want to get a philosophy degree and work at an NGO (while enjoying having a place in Manhattan to live and traveling internationally 3x/year).
I guess theres a fine line between giving your kids space to grow & pushing too hard / trying to choose their path for them.. But being raised in comfort does seem to remove the striving mindset and understanding that this lifestyle doesn't come for free or from a fun job.
Indeed, it seems very very likely that all correlations alleged of IQ, on independent performance measures, are just in this region (ie., that positive correlation above 100 comes merely from a trendline fit in the negatives).
I'm not sure it is as much "less bright" as maybe "more impulsive" or something like that. I think someone can be very smart and still want to "live for today".
the people involved are total jokes
they are extremely poor judges of character and endlessly shop deals around WhatsApp groups for dumb reasons
people are praised for having been associated with something outside of the domain they are currently in, which is an obvious red herring and red flag, and then get scammed or have a bad deal where the other party cant deliver amicably, as there was nothing to suggest they would? I see the same in the US but it seems like a generational thing only boomers and mormons fall for. Elder abuse, pun intended for the latter
but there are real “established” people in these European networks, sometimes, its just such a shitshow. because established means a dynasty of some sort, older than the US itself
a lot of the participation is just pride and grasping for autonomy, like the first born son thrust into managing some feudal era family office has no clue what he’s doing, and wants a good trade for once, but it was in some dilapidated mansion on the french riviera that now he needs to get out of before his family finds out, and France starts taxing Monaco citizens that hold property in France. and then the middle men are sourcing these dumb deals because they got screwed once and genuinely want to pay their old partners, at first, chasing gold and markups for the rest of their lives. its wild, I had to go back to tech these people are just dumb and the US markets are just so much more mature in comparison.
but yes, you might meet the Saudi prince’s Hand in Monaco and sell him a painting for $450m
by far the most interesting part of this story is that Mr Bouvier purchased and took delivery of some art pieces before reselling them, instead of just trying to dropship or connect people. way to go.
Rich person buys a painting, by an artist, for $50 million and puts it in their collection.
Another person buys another painting by the same artist for $75 million.
The rich person gets their painting reappraised by an art expert. It is now “estimated” to be worth $75 million.
The rich person donates the work to a museum, a non-profit. The donation gives them a $75 million tax write off.
The rich person just saved $25 million that would have otherwise been taxed.
In this example, wouldn't it have cost this person $50 million dollars though?
In this case the rich person is spending $50 million dollars to save the tax on $75 million? Makes zero sense.
Jerry: How is it a write-off?
Cosmo Kramer: They just write it off.
Jerry: Write it off what?
Cosmo Kramer: Jerry, all these big companies, they write off everything.
Jerry: You don't even know what a write-off is.
Cosmo Kramer: Do you?
Jerry: No, I don't.
Cosmo Kramer: But they do. And they're the ones writing it off.
So you're asserting that rich people and appraisers and insurance companies and museums are all conspiring to commit tax fraud?
It isn't in the insurance company's best interest to ensure they have an accurate assessment of the value of the item they're insuring?
What is being described above is fraud.
Kay: You know how naïve you sound? Senators and presidents don’t have men killed.
Michael: Oh. Who’s being naïve, Kay?
Usually it’ll be capital gains income where they would be writing off which is a much lower rate. Example 20% in which case they saved 15 mil in taxes for 50 mil investment.
first 20% goes to gift aid in the UK so some countries you wouldnt even get full tax band.
Now tax free storage of art usually in ports is interesting but not some 100% write off scheme.
But being rich is not about having cash, it's about using cash to achieve your ends. Giving 75 million is really buying 75 million worth of philanthropy - 75 million worth of social status, or invites to exclusive parties, or favours from patrons, or support for projects valuable to them. And they bought it for only 7.5 million!
If that was the case they would be losing millions each transaction.
Here’s a more realistic way it might work.
Bob buys paintings A, B, C, and D as a lot for $10MM.
“Things happen” in the art market and a few years later lo and behold “everyone” agrees those paintings are worth $200MM of course.
Painting A (the most marginal of the four, of course) gets donated to museum X with a value of $50MM.
Given standard tax rates on passive income Bob saves at least $10MM on his next tax bill and now has three completely free paintings thanks to your tax dollars.
>later lo and behold “everyone” agrees those paintings are worth $200MM of course.
Didn't Bob just get $190MM increase that is going to be capital gains?
Then at your death there’s a thing called stepped up basis so your heirs inherit it at the market value not the original value.
So your family net worth can go up by hundreds of millions without any of that being taxed at all.
Yes it’s really as fucked up as it sounds. The very rich simply don’t pay taxes like you and me.
1 - get out of paying taxes by "showing a loss" somewhere
2 - don't ever lose money trying to get out paying taxes
Show tax deferrable losses only when you make gains elsewhere sufficient to cover at least the basis as well as the capital gains that you would have earned had you sold the item.
It works best if you do this across completely unrelated asset classes: offset real estate taxes with collector cars, offset art sales taxes by taking a loss in some shell company. It takes a lot of money to get in this kind of scheme, because you have to vacuum up property that's likely to grow in value. For example, don't buy cars (which depreciate), buy one of kind sports cars for which there's a collectors market. It also takes a lot of time to tap into various collector markets and find ones that are likely to yield or will soon yield growth for your asset classes. Not all collector markets go up forever, they're as fad driven as anything, but some markets have reliably shown growth -- like fine art.
My favorite scheme is one you see on the "Real Housewives" show. Start a nonprofit charity, get all your friends to donate to it (they're all trying to skip out on taxes also), pay yourself an exorbitant salary out of this "charity" and hold elaborate fundraisers that are essentially parties as the operating costs for the charity. Give the remainder to another charity downstream. Attend your friend's charity fundraisers/parties, donate to them in turn.
Looking at the circle of "philanthropists" they get to attend socialite functions, party, get paid, and do it all by helping each other offset taxes on gains they're making in other investments within their own households. They also get to inexpertly run "charities" where the hotel ballroom they rent for the function costs more than the remainder of the donated money they actually send to their claimed cause -- but also if the tax man comes they can just say they had no idea what they were doing.
Tie it to some personal event (e.g. "my second cousin fell from a bike and broke her wrist and now I'm running a charity for bone density research") and people outside the main circle might get sucked in and also augment the entire thing with additional heartfelt donations, which only increases the size of the parties and the salaries. Advertise you "raised $x" at an event, but don't mention how much went to actually supporting the cause.
It works because:
- it both obfuscates and mixes up everybody's money to the extent that it becomes very hard to pull apart
- the individual charities don't become large enough for the IRS to spend time on if you file all the appropriate paperwork
- it's not really an asset class in the same way investments are, so it's nearly impossible to show tax avoidance by simple substitution
- the government wants to encourage charity
You have to get really large and egregious before anybody in the IRS cares. Like NRA large.
Second, the IRS is hip to this. They require a qualified appraisal, they have rules about who the appraiser can be and what information is required. Then, they have a network of experts who would do their own research on an art deduction of this size and give their own estimate of value (without knowing how much the taxpayer was claiming it was worth). And finally, if the charity that received the artwork sells the artwork for less than $75 million before the IRS does its research, they're going can use that information to determine the real value.
-- https://www.reuters.com/legal/legalindustry/unlocking-myster...
In short, for people planning on avoiding taxes, please consult a licensed tax avoidance specialist for advice in addition to doing research on internet chat boards.
TL;DR. Put $50M capital to work to get a $30M tax write off in the future ASSUMING significant gains. During that time you get to own an expensive piece of art. So you get the artwork for a net COST of $20M ($50M purchase - $30M tax benefit).
It doesnt make sense purely on economics of the example - unless significantly more capital appreciation in the asset, other reasoning for pursuing it or other tax benefits in the country.
The donation is made to a non-profit controlled by the donor. The non-profit provides token public access, at best, while the donor still has near exclusive use and control over the "donated" property.
Sometimes I ponder about business opportunities catering to the upper end market, making things ridiculously expensive just to capture the super rich segment, and using the profits for good in society (somehow).
Most people/businesses don't operate like this I suppose - they just want a yacht of their own, or to infinitely grow their business.
The idea is to create a ton of good paying jobs that range from artisans and artists to mindless make-work, while creating a lot of cachet for finely crafted items with just absurd price tags.
A lot of these businesses do end up being absorbed by the big players like LVMH which grew into the most valuable company in Europe through decades of acquisitions. (The company's official name, LVMH Moët Hennessy Louis Vuitton, is itself suggestive of a merger between luxury players in unrelated markets.)
I can't think of a Swiss watch company that's operating it's own mines and metalworks, for example, or a British Saville Row tailor that also owns the herds and the looms to make the cloth it then turns into clothing. Both Hermes and Loro Piana on the other hand do this (LP is owned by LVMH).
Some small luxury brands have local, very long-term supply chain relationships that effectively offer the same benefits. As in, maybe the hypothetical Finnish maker of bespoke sailboats buys all their wood from the same sawmill (ever since 1935 when the founders of the two companies went hunting in the forest where the wood still comes from).
But of course only some materials can be sourced like this. A watchmaker and a mine are not in the same industrial league.
The goal is basically to do things that sound impressive to justify absurd prices while employing as many people possible in as good of conditions as possible.
I wouldn't be quite so cynical about it, ultimately it's about having full control over the quality of the finished product. The material used in a Loro Piana cashmere sweater is on a different level to a fast fashion cashmere sweater, despite them both being "cashmere".
For example, it makes sense for Loro Piana to own Cashmere goat herds so that they can have the best possible supply of cashmere for their knitwear.
Hermes own cattle farms for the same reason, they can remove things like barbed wire from their fields which can cause damage to the finished product.
Goat and cattle herding aren't yet an industrial process like making certain grades of steel or making glass bottles (for the champagne producer) though, so while it makes sense for vertical integration in some areas, it might not in others.
I'm not sure this is the sort of thing that lends itself well to vertical integration due to the radically different set of skills required and maybe most critically, low volume of the final product. For example, making high-end ink has entirely different skill and material requirements from making high-end illuminated pages. But someone who makes high-end ink can produce in much higher volume than a single illuminator requires (not to mention it takes more than just ink). Likewise for watchmaking, the manufacturing of most of the parts can be generalized and scaled up while any individual watchmaker only needs so many gears and springs and such.
But the goal isn't really to scale up -- you want to consume as much labor as you can and charge the rich through the nose for it. If you need to employ dozens of spinners who can only spin for four hours a day to avoid repetitive stress injuries to supply a single weaver to make your upholstery fabric for your high end couches, great, charge hundreds (thousands?) of dollars a yard for the material. They'll pay for the privilege of sniffing at the less rich whose furniture is upholstered with fabric spun by a machine.
all markets have the same human behaviors in them, all markets have degrees of opaqueness that get taken advantage of the same way, all markets that have transparency have it in response to the same behaviors, all market participants are subject to a liquidity problem and sustaining a balance that grows faster than the issuance of the currency they use, which brings me to the next point:
billionaires saving is worse for your life than billionaires spending. help people spend and your economy grows. this isn’t a trickle down praise, in fact its the opposite, assume it wont magically trickle down to you as motivation to personally help them spend with a 54% markup