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Mon Jan 30, 2012, 10:21 PM

Is Modern Finance Ruining Modern Art?

http://www.bloomberg.com/news/2012-01-31/is-modern-finance-ruining-modern-art-part-2-commentary-by-mark-taylor.html



In ways that are not immediately obvious, today’s overheated art market can help us understand the recent collapse of the overleveraged global economy. Though few have made the connection, developments in the art market have been following the changing investment strategies in financial markets. The global growth in the art market parallels the worldwide spread of finance capitalism. In recent years, the value of art assets has often risen faster than the value of real estate or financial assets.

This growth has, of course, been driven by the exponential increase in wealth among those who benefit most from the new financial system. Each week brings another account of a newly rich hedge-fund manager buying art at a ridiculously inflated price. This preoccupation with “celebrity” collectors, however, obscures a more interesting and important development: The titans of finance capitalism are also transforming the art market through the financialization of art. They manage their art collections in much the same way they manage their portfolios.

<snip>

This investment strategy treats art like any other commodity purchased for speculative purposes. The investment game changes significantly when art is regarded as a financial asset, rather than as a consumer good. Speculators in the art market have recently established hedge funds and private equity funds for the purchase and sale of art. These funds extend the principles of finance capitalism to art. Take the example of mortgages. As we have seen, since the early 1980s, mortgages have been securitized as collateralized mortgage obligations (CMOs) so that they could be bought and resold in secondary and tertiary markets. While the value of these derivatives is supposed to be determined by the value of the underlying asset (the price of the real estate), in a rising market the value of the derivative increases relative to the collateral on which it is based.

<snip>

This strategy securitizes works of art in the same way that CMOs securitize mortgages. Just as mortgages are bundled and sold as bonds, so works of art are bundled and sold as shares of a hedge fund. In other words, rather than owning an individual work of art, or several works of art, an investor owns an undivided interest in a group of art works. In these schemes, what is important is not the real value of the company, commodity or artwork; what matters is the statistical probability of its price performance within a specified time frame relative to other portfolio holdings. Furthermore, insofar as investors hedge bets by using portfolio theory, the value of any particular work of art is determined by its risk quotient relative to other works of art held by the fund.



Looks like the art bubble is coming, followed by the art bubble crash. Later in the piece there is an interesting part about artists who are attempting to ironically co-opt this trend by becoming their own hedge managers as "concept"--and how that really doesn't lead to a critique of the capitalist system. I went to art school and we used to have conversations about how far you could go until you were part of the system you were critiquing. I wish we'd studied more Marxism and less Post-Modernism.

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Reply Is Modern Finance Ruining Modern Art? (Original post)
Starry Messenger Jan 2012 OP
Confusious Jan 2012 #1
TlalocW Jan 2012 #2
DonCoquixote Jan 2012 #3
Starry Messenger Jan 2012 #4
TBF Jan 2012 #7
pamela Jan 2012 #5
ellisonz Jan 2012 #6
DonCoquixote Jan 2012 #8

Response to Starry Messenger (Original post)

Mon Jan 30, 2012, 11:00 PM

1. Never really thought


There was anything in "modern" art to ruin. Thought it was all about money and being able to turn your nose up at people.

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Response to Starry Messenger (Original post)

Mon Jan 30, 2012, 11:18 PM

2. Naw, the artists already did that

BA-ZING!

Sorry, but one of the more humorous times I've ever had was at the Chicago Museum of Modern Art looking at the, "art." Best work of art was a seascape with two people with fish heads sitting on a log. Took actual talent to paint. Favorite work was a stack of 16" by 24" sheets of paper with a one inch black border on each. The placard next to it suggested you take a few sheets of it to turn it into an ever-changing work of art. I asked one of the employees how much it cost because they could just replace the experience with Post-It Notes.

TlalocW

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Response to Starry Messenger (Original post)

Mon Jan 30, 2012, 11:21 PM

3. There is real art

But sadly, the Alice Waltons and other billionaires have turned it into a business, where they get HUGE tax credits, or worse, make huge profits. The sad part is that few of the actual artists ever see a dime.

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Response to DonCoquixote (Reply #3)

Mon Jan 30, 2012, 11:39 PM

4. Exactly.

Most of my friends are DIY artists involved in trying to get local grassroots stuff happening. It's a tough life.

I thought this article was interesting for the analysis of art investing with the late great mortgage derivatives investment crash. Blue chip art works are being purchased and bundled together for investment opportunities. Usually people who do high end investing in art patronize an artist or gallery. This hedge fund approach to "art investing" is kind of new to the art world. The effects on the culture of high art are noted in the article--my own reaction as an artist is rather hostile to the whole concept. But with new markets seeming rather limited, perhaps this was inevitable.

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Response to DonCoquixote (Reply #3)

Tue Jan 31, 2012, 07:50 AM

7. Agree, and the fact they turn it into investment is disgusting.

I'm a big fan of museums (even Modern Art!) - and I especially enjoyed the free museums in Washington DC when I lived there. Like everything else, once capitalists become interested then it becomes all about making a profit off it.

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Response to Starry Messenger (Original post)

Mon Jan 30, 2012, 11:56 PM

5. That reminded me of a book by Steve Martin

An Object of Beauty

http://www.amazon.com/dp/0446573655/ref=asc_df_04465736551881115?smid=ATVPDKIKX0DER&tag=hyprod-20&linkCode=asn&creative=395093&creativeASIN=0446573655

Not as good as Shopgirl but definitely worth the read, especially if you're interested in art and the NYC art world.

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Response to Starry Messenger (Original post)

Tue Jan 31, 2012, 03:26 AM

6. Anyone want to invest in my art hedge-fund?



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Response to Starry Messenger (Original post)

Tue Jan 31, 2012, 08:23 AM

8. Oil, gold, art

Anytime speculators are allowed to control the price, the true value of that item will become just one more prop to lure suckers in with.

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