Everything Is Bullshit: The Greatest Scams on Earth Revealed (4 page)

Sanjayan
cites
ants as a prime example of how activists are biased toward cuteness over
ecological function. The tiny creatures are essential environmental helpers
— they disseminate seeds, aerate soils, and eliminate human pests —
but are not represented by animal rights groups. "If we're going to save
pandas, for instance, rather than ants,” adds Marc
Bekoff
,
an
ethologist
at the University of Colorado Boulder,
“we need a good reason, and being cute is not a good reason."

In Western society, cows are on the opposite spectrum of the
cute bias. Every year in the United States, 40 million cattle are slaughtered;
their skin, manufactured into leather, accounts for 50% of their total
byproduct value. We’re the world’s largest producer of hides, with an annual
supply of 1.1 million tons. Most commercial cattle endure horrendous living
conditions: they’re crowded into factory farms with inadequate food and water,
pumped full of antibiotics, and spend their entire lives milling around on
concrete floors without the “luxury” of living in their natural habitats.

Cows are killed by a swift blow to the skull with a stun gun and
a slit to the throat; they are then hooked to a chain by their hind leg, and
bled out over a tub — often still alive, but not coherent. Under the
U.S.’s 1958 Humane Slaughter Act, this is not only legal, but considered a
“compassionate” way to die. Chickens endure even worse: they are hung upside
down, shocked into paralysis,
then
drowned in hot
water. The act of seal clubbing, when gauged with these methods, seems somewhat
tamer, but has been sensationalized as unapologetically violent due to the fact
that seals are more aesthetically pleasing than cows and chickens.

Whales present a case that isn’t entirely dissimilar. Beneath
hotly-contested
Canadian ice, the giant, unattractive
creatures go unloved. Recently, the Canadian government moved to take humpback
whales off the threatened species list; instead, the animals will be labeled a
“species of special concern” — a title that comes with limited protective
privileges. According to
Reuters
, the change of classification means
“the humpback's habitat would no longer be protected under Canada's Species at
Risk Act, thereby removing some of the risk of legal battles with environmental
groups.”

Yet above ice, seals continue to be a success story. They’ve
been haloed by legislation, defended by celebrities, and largely protected from
the force of whooshing clubs. It seems that, at least in this case, cuteness
ensures conservation.

3.

WHY IS ART EXPENSIVE?

I
n 1996, an
art dealer named
Glafira
Rosales approached Ann
Freedman, the president of New York’s
Knoedler
Gallery, which sold artwork to wealthy collectors for over 150 years. Rosales
offered to sell
Knoedler
paintings by masters like
Mark Rothko, Jackson Pollock and Willem de
Kooning
at
bargain prices —
under
one million dollars each.

She told Freedman that an anonymous collector — a family
friend — inherited the paintings and recently rediscovered them. For over
a decade, the gallery resold the pieces for millions and stored its files on
the acquired works under the label “Secret Santa.” Pushed for more details
about the mysterious collector, Rosales replied, “Don’t kill the goose that’s
laying the golden egg.”

Fifteen years after
Roales
first
approached
Knoedler
, a Belgian hedge fund manager
named Pierre Lagrange received bad news. A consultant that he hired to
investigate the authenticity of a $17 million Jackson Pollock painting he
bought from the gallery discovered a pigment of paint that was not sold
commercially during Pollock’s lifetime. When Lagrange emailed
Knoedler
, the gallery closed. Within a year, several other
customers joined him in claiming that their
multimillion
dollar
purchases were “worthless fakes.” In 2013, Rosales pled guilty in
a
$80 million forgery case.

The case of these forged masterworks highlights just how
difficult it is to pin down the source of art’s financial value. Until Lagrange
complained, the paintings were worth millions, praised as masterpieces, and
exhibited to appreciative audiences. The revelation of the real artist as Pei-
Shen
Qian
, a 73 year-old Chinese
immigrant who painted the forgeries from his garage in Queens for a few
thousand dollars each, rendered them instantly worthless. Yet the paintings’
appearance did not change. An artwork’s aesthetics, the feelings it conveys,
and anything else that derives from its physical appearance may influence its
price, but as
Qian’s
paintings demonstrate, they
cannot explain its extraordinary value.

This points to an important if unromantic truth: brands are king
in fine art; names like Rothko and Pollock distinguish them from unknown
artists as Coke and Pepsi do from other sugar water.
Qian
painted attractive works in the style of famous artists, yet attaching the
names Rothko and Pollock increased the paintings’ value by millions of dollars.

One reason wealthy individuals spend millions collecting fine
art is that brands like Picasso and Monet have staying power. Buying a million
dollar painting at Sotheby’s is not like buying a Lamborghini. A car’s value
falls as soon as it is driven off the lot; a Picasso painting retains its value
and even appreciates over time. But amidst the uncertainty of subjective taste,
how does an artist establish herself as a million dollar brand? How can a
Manhattan socialite buy a $100,000 abstract painting by an emerging artist
without fearing that it will be a tacky, $250 wall decoration in a few years?
In other words, how does some paint splashed on a canvas become expensive, and
how does it stay expensive over time?

The answer is that the market for fine art is heavily “curated.”
It is controlled by galleries
and dealers who commit
with astonishing discipline to keeping artwork prices predictable and pegged to
signals of quality like the
prestigiousness
of the
gallery selling the artist’s work. You could say the market for art is
“rigged”; a more charitable explanation is that galleries and dealers act as
tastemakers, deciding which art is good and therefore expensive. The end result
is to turn artists into brands, which introduces enough certainty for the
market to function.

The Artist
as an Asset Class

During
record breaking
art auctions at Christie’s and
Sotheby’s, the amount of money spent often exceeds the gross domestic product
of small island nations. As an outsider, it’s hard to see results like
Christie’s $745 million contemporary art auction in May of 2013 as anything
other than a pissing contest of conspicuous consumption. Yet insiders in the
art market describe these purchases as investments.

If anyone has reason to be skeptical of the enormous sums paid
for fine art,
Filippo
Guerrini-Maraldi
ranks among them. As the Executive Director and Head of the Fine Art Team at
R.K. Harrison Insurance Services,
Guerrini-Maraldi
insures art collections worth millions of dollars, a sum for which R.K.
Harrison’s insurance brokers are liable. Yet the team never declines to insure,
say, a pleasant painting of four rectangles at a
six figure
price tag. “If I am asked to insure a work of art that someone bought from a
dealer or auction house,”
Guerrini-Maraldi
tells us,
“who am I to say, ‘You paid too much mate?’”

R.K. Harrison can usually insure works for the value the client
cites because fine art has held its value over time. While conceding that there
are “heavily inflated prices for works of art” as certain artists or periods
come in vogue,
Guerrini-Maraldi
notes
that
“there are corrections, just like with stock market bubbles.” This
stability has been endorsed by the financial sector, which accepts art
collections as collateral.

“The idea that art is an asset class and that certain objects by
certain artists retain their value,” says Jonathan
Binstock
,
who has a doctorate in art history and helps clients assemble art collections
as part of Citi Private Bank’s Art Advisory service, “is something people
around the world have come to agree upon.” As William Fleischer, owner of
Bernard Fleischer & Sons, an art insurance broker, points out, it’s really
no different than the high prices people pay for collectibles ranging from
comic books to antique toothpick holders.

The consensus on fine art’s value is also a data-driven
conclusion.
Binstock
notes that between art databases
of auction sale results that date back to the eighties, and published volumes
that go back even further, there is “a lot of history to justify the price one
might have to pay” for a highly-priced artwork. Any
number of
favorable analyses chart
the prices of pieces by renowned artists like
Andy Warhol. Despite a rapid rise and fall in price during exuberant periods
like the 2008 fine art bubble, they outperform the stock market over several
decades.

So how do you evaluate an artwork’s worth? According to Sara
Friedlander, who organizes art auctions at Christie’s, the world’s largest
auction house, “There is not one art market. Every artist has his or her own
market.” Christie’s predicts auction prices by looking at “
comparables
in the market,” which except in the case of real outliers or a rare
masterpiece,
means the selling price of a similar work by
the same artist.

In one sense, this demonstrates how artwork maintains its
diversity despite its commodification; there is a near infinite supply of art
out there, but a limited supply of Van
Goghs
. In
another sense, this gets at how the overwhelming factor underlying the price of
an artwork is the artists’ brand. The art world refers to buying “a Pollock” or
“a Warhol” because those artists are brands, and the contemporary art market is
more like the music scene of 50 years ago, which celebrated the full albums of
a select few bands, than the music scene today, which more often celebrates a
few singles by a wider array of bands.

Critics are less sanguine about investing in
Warhols
,
Rothkos
, and
Richters
. In
The Supermodel and the
Brillo
Box, economist Don
Thompson writes that positive headlines about the sums fetched at auction by
fine art ignore when those works sold at a higher price years earlier. As the
Financial Times notes, Thompson’s book fits into a string of recent commentary
that “points out the huge pitfalls of buying art for investment: sky-high
levels of risk, illiquidity, and a fashion-driven nature that can see last
year’s ‘in’ artists fail even to be accepted for resale by the big auction
houses.”

That doesn’t necessarily mean the perception of fine
art
as an investment is a mirage. The possibility that the
work of a young artist will shoot up in price from $10,000 to $100,000 appeals
to speculators and entails risk. A Gerhard Richter piece is like a blue chip
stock; a work by a fashionable young artist is more like funding a startup.
Many startups fail; some blue chip stocks turn out to be Enron. Picking
individual stocks has always been a risky, high variance strategy rather than
prudent investing. Yet that has not kept wealthy investors away.

William Fleischer says that some collectors he insures “store
art in warehouses, purely for the investment.” Flipping art happens; the
fastest growing product at
Artnet
, which publishes
market research on fine art, is its online auctions that “offer quick
transactions at low costs.” But especially at the top of the market, financial
returns are a secondary concern.

Jonathan
Binstock
advises some of the
world’s top collectors from his post at Citi Private Bank, yet neither he nor
any of his colleagues are bankers. He describes their role as helping clients
assemble collections that are “culturally significant and more valuable than
the sum total of prices paid.” Personal preferences matter as much or more than
return on investment. Their clients don’t “buy a painting for $5 million
because we think it will be worth 2% more in 3 years,” he says. “And they
rarely sell.”

Art is not the
most sound
investment,
but it pays incredible dividends in the form of social cachet. As Don Thompson
notes, every newspaper covered Leon Black’s purchase of
Edvard
Munch’s “The Scream” for $120 million; buying a “moderately impressive yacht”
for the same amount garners almost no publicity at all. Top collectors enjoy
preferential access to famous artwork, and seating charts at art fairs and
auctions carefully reflect a collector’s status. Collectors buy an experience
and standing as much as an expensive product; Jackson Pollock paintings
essentially serve as the admission ticket to one of the world’s wealthiest and
most exclusive clubs. Christie’s estimates the market for artwork priced over
$20 million at roughly 150 collectors.

According to Sara Friedlander of Christie’s, “since the earliest
days of the Renaissance, art has been a way to enter into certain social
circles. That’s a good thing.” Whether spending $10,000 or $50 million, she
says, collectors can interact with artists and support the arts like
Renaissance Italy’s Medici family. More cynically, lending Picassos to exhibits
and donating millions to museums allows heirs, hedge fund traders, and Fortune
500 executives to enjoy coverage as cultured patrons of the arts.

A final reason people buy heinously expensive art? “After you
have a fourth home and a G5 jet,” one wealthy collector told Sarah Thornton,
author of Seven Days In The Art World, “what else is there?”

Are
Masterpieces Special?

If
you ask anyone in the world to name a famous painting, by far the most common
response will be the Mona Lisa. Art historians have offered many explanations
for its signature status; the Louvre website cites, among others, the subject’s
enigmatic smile and novel features like its three-quarters pose. But in an
article for Intelligent Life, journalist Ian Leslie suggests an alternative
explanation: that the Mona Lisa’s ascension to the top of the art world, like
that of any artwork, was a historical accident.

Despite its fame, the Mona Lisa has a surprisingly sleepy
history. “In the 1850s, Leonardo da Vinci was considered no match for giants of
Renaissance art like Titian and Raphael,” Leslie writes, “whose works were
worth almost ten times as much as the ‘Mona Lisa.’” The Mona Lisa hung in the
Louvre, but it did not attract crowds. That changed in 1911, when a museum
employee hid in a closet overnight and walked out the next day with the Mona
Lisa hidden under an artist’s frock. Suddenly the Mona Lisa was
front page
news around the world. When the thief was
arrested, it fed a media spectacle around his trial, as the Italian native
defended his theft as a patriotic act.

Within psychology departments, it is established that
familiarity breeds likeability. Psychologist James Cutting sees this
“mere-exposure effect” as explaining why we celebrate some paintings over
others. In an experiment, he showed undergraduates a slideshow of Impressionist
paintings. A control group liked the paintings that filled art history
textbooks; students shown comparable yet unheralded works four times as often
as the famous paintings preferred the
lesser known
paintings. Following this logic, we can see how coverage of the Mona Lisa theft
made its reputation and how each masterpiece may owe its status to historical
accidents. Leslie writes: