The Contemporary Art Bubble and Art Omerta

Last night I watched The Great Contemporary Art Bubble on BBC Four - written, directed and presented by Ben Lewis.

I rushed off to my computer afterwards to find the back story - and this is what I've pieced together! What follows is a combination of my notes, articles I've found on the internet and some comments and thoughts that they triggered.

Who's Ben Lewis?

Ben Lewis is a docmentary film maker and an art critic. He writes a monthly column on art for Prospect Magazine (here's a list of his articles for Prospect) and contributes art criticism to the Evening Standard and Sunday Telegraph in the UK and Monopol magazine in Germany. He also presented BBC4's Art Safari.

He's also the man who was unable to attend the Damien Hirst auction - see Why I was banned from Damien Hirst’s £120m gamble

This is a link to Ben Lewis talking about filming The Great Contemporary Art Bubble - which is very informative in terms of how the market works and the nature of art omerta.

What's a bubble?

Before talking about the programme, I thought it might be relevant to say something about bubbles in an economic or financial context.

An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative mania) is “trade in high volumes at prices that are considerably at variance with intrinsic values”.
wikipedia - economic bubble

A bubble has been described as the product of the economics of mania. They happen when valuations of assets start to disconnect from the fundamentals of their underlying economic worth. I associate them with the "me too" generation and "want it now" attitudes. People compete to have something where they think ownership offers some objective indication of their wealth and standing and that leads to prices rising. So whether it's designer labels in the twenty first century or tulips in the seventeenth century, prices paid have nothing whatsoever to do with value.

To get prices to rise you have to have new buyers with money entering the market all the time - hence the rationale about taking art and art fairs to the people with money............

What's The Great Contemporary Art Bubble?

The majority of the programme focused on what happened before and after the peak of the Contemporary Art Market in May 2008 through to its collapse at the end of 2008. It also helped to highlight the popularity of contemporary art and provided a lot of really quite astounding statistics.

According to Ben Lewis, what we saw last year was the bursting of a bubble in the contemporary art market. A bubble which had grown because

• the contemporary art market had started to treat art as a commodity and
  
• a small band of people effectively stimulated and managed the market and controlled the prices paid.
  

In essence the top end of the contemporary art market began to behave like any other part of the economy which generates bubbles - and experienced rampant and some would say manipulated speculation - while at the same time thinking that somehow it was immune from disaster striking.

Has not the incredible rise in contemporary art prices mirrored the financial hay-making all around that has brought us to the brink of a depression? In the world of the irrationally exuberant, was there anywhere less rational and more exuberant than the contemporary art world?
Financial Times - Can art save the world?

Lewis unpicked how the bubble came about and why it burst. The quotes here are ones I've used before on this blog or articles by Lewis rather than ones from the programme

The modern-art boom is about more than the fact that there are lots of billionaires and there's been a shift in taste towards contemporary art. Its big attraction is that the lack of rules makes it ideal for speculation and manipulation. As a consequence, art has become nothing more than a hotly traded commodity. The boom seems the ultimate symbol of the greed of the rich in the globalised economic good times of the last decade.
Ben Lewis

Here are some of the statistics which were quoted.

• contemporary art art prices rose 55% in 2006/7
• contemporary art art prices rose 800% between 2003 and 2008
• between 2005 and 2007, Sotheby's lending to buyers doubled (bubble always happen when buyers are awash with credit - and in this instance the auction houses were fuelling the credit lines)
• at the same time, there was a 68% increase in guarantees offered to sellers by auction houses
• by the end of 208 Sotheby's declared £60 million in losses and sales which were down in value by 75%
  

Lewis highlighted how one of the abiding characteristics of a bubble is when players stop being agents and start becoming principals. For example, when auction houses stop being a neutral party acting as an intermediary between seller and buyer and start owning stock, defining prices and offering credit - just like any gallery - or high street store.

Prices for contemporary art are apparently now falling faster than for any other commodity.

What's the code of Art Omerta?

As always when you're on to a good thing, some people seek to protect their reputations and financial wealth by not being honest, avoiding transparency and preventing anybody lifting the curtain or shining a light on to what can sometimes be described as "dubious practices" (We have an excellent example going on right now in the Houses of Parliament - can you tell I'm one of the people who are still fuming about the abuse of legislation designed to uncover such outrages?)

Lewis described what it was like trying to film the documentary in

I was constantly impeded by what I can only describe as Art World Omerta. The code of Art World Omerta has three rules. First, many people in the art world simply refused to talk to me. Second, the ones that did tried to deny that the buying and selling of art had anything to do with business. Third, these people maintained the unspoken rule of never criticizing an artist or the market.

One might take the Clegg view that unspoken rules are the reason why pickles like this arise in the first place.

What did I learn that was new?

Tax haven banking sponsors of art fairs: I NOW understand why the banks sponsored all those art fairs. Silly me! It's obvious really. It looks like it's creating brand awareness among the target market - those people with a lot of money. However there's a bit more to it than that. Particularly in relation to the management of finances and "tax haven banking". The suggestion last night was of a fair bit of smoke and mirrors.

This article TAX HAVEN: UBS Move Shakes Swiss Bank Secrecy highlights what happened when the IRS cottoned on to what was going on in UBS - the sponsor of the Art Basek Art Fair at Miami Beach.

MIAMI - The largest bank in Switzerland admitted to defrauding the IRS and agreed to pay the U.S. government $780 million it made by setting up offshore income tax havens for thousands of wealthy Americans - a substantial number in South Florida.............UBS bankers cultivated these customers at venues known for rich and famous patrons, such as Art Basel Miami Beach and the Sony Ericsson tennis tournament in Key Biscayne.
TAX HAVEN: UBS Move Shakes Swiss Bank Secrecy

Failure of offers to the market: I had also previous missed an important point about stockholdings. Lewis reminded us that in relation to stocks which are traded, it's actually illegal to conceal the failure of an offer to the market - however the same rule does not seem to apply to the art world.

However he then highlighted the art inventory of unsold works by Damien Hirst held by the White Cube. This is the art gallery run by Jay Jopling which has represented Damien Hirst in the past - until Hirst decided to cut out the middle man and go straight to market with an auction house. Which left Jay Jopling bidding on pieces in order to protect his own investment. However, on the eve of Sotheby’s auction of over 200 new works by the British artist, Cristina Ruiz and the Art Newspaper disclosed the extent of unsold stock held by his London gallery White Cube in Revealed: the art Damien Hirst failed to sell

It took some time for it to surface that the Hirst's diamond encrusted skull which sold to a consortium (sounds a buit like racehorses doesn't it?) actually included both Hirst and Jopling. It's a curious definition of a sale from where I sit!

Mutual back-scratching with publicly funded museums: A cogent argument was put forward about something I sort of knew - but hadn't really thought through - in terms of the cost to us as taxpayers

• collectors donate their work to museums to get tax breaks (which have to be funded by somebody else - that'll be you and me)
• the value of art by artists whose work is in museums is enhanced as a direct result
  
• when that artists's works are traded in art auctions they now attract a premium because of the assocation of the artist with the museum
• the very high prices paid for art make people want to see it - to see what all the fuss is about - hence museums want to show it
  
• the cost of such art becomes beyond museums' purchase budgets - hence they become dependent on collectors to donate art (and so it goes on............)
  

It's all a bit incestuous. It might be legal but is it right? Can it be defended when we have a recession? If they stopped granting the tax breaks what would that do to the value of the art?

More people go to art galleries than football matches in Britain today

I was scribbling all the way through but omitted to note down the source data for that quote.

This 2007 article Masters of the Universe: Who is being served? by Vanessa Smyth describes typical activities relating to relationships between business sponsors and museums

Who gets hurt by this sort of art bubble?

There was a classic quote in last night's programme

"it's just rich people scamming each other. It's not a big deal"

I think the real victims are all those who kept their integrity intact at the same time as others were "losing their marbles". They're now being tainted with the aspects of the bubble which were less than honest and straightforward.

Plus the people who have lost a lot of money when the bubble burst are those who were very greedy and those new to the market and/or very naieve. As I quoted back in February

“There are a lot of embarrassed people who bought art that is now not worth what they paid for it. For the past three or four years it’s been a very, very thin market, with just two or three buyers pushing up prices by bidding against each other. Unfortunately, a lot of people knew the game. So those people who did not know are realising it now. It’s almost a fraud. I would never advise my clients to buy contemporary art.”
David Nahmad in Contemporary art is a fraud, says top dealer

For those who missed it, The Great Contemporary Art Bubble is being repeated on Sunday night/ early Monday morning at 01:10am on BBC Four and is available to watch now on the BBC iplayer.

Below you will find links to Ben Lewis articles about the contemporary art crunch.

....this is a crack that runs through the world's most popular museum of modern art. Just as Hirst's diamond-studded skull symbolises the pinnacle of vanity of the contemporary art bubble, the crack symbolises its imminent collapse.

In the past 10 years, prices paid for art have rocketed, often by a factor of 10, and an army of mediocre artists have been hyped beyond all reason. Last week, Sotheby's share price dropped 37 per cent after an unsuccessful modern art auction.

But the quake has only just started - it'll measure 12 on the Gerhard Richter scale - and the earth is set to swallow up some of the most famous names and sacred tenets of contemporary art.
Seismic cracks in the art world by Ben Lewis (reviewing Doris Salcedo's crack - and the art world in general) 15th November 2007

Links:

Articles by Ben Lewis. They are also available as pdf files

• Looking for life after Hirst (May 2009)
  
• A second tulip mania
• Doubting Damien (2007)
  

For those who'd like to read what I've had to say on this topic previously my earlier posts about the impact on art and artists of the changes in the economy. You can also see the record of what happened to the art economy - week by week - in my regular references to articles about the art economy in my regular weekly post 'who's made a mark this week?

• What should artists do about marketing their art in a recession? (23 January 2008)
  
• What should artists do about marketing their art in a recession? - Part Two (3 April 2008)
• Fine artists in decline in the USA? (3 July 2008)
  
• The art of economising - on art materials (22 July 2008)
• Taking action after the bubble has burst (30 September 2008)
• Government seizes control of Singer & Friedlander (10 October 2008)
• What happens to artists in a recession? (16 October 2008)
• Bright spots in the gloom and doom (October 2008)
• Selling art online - 10 benefits of a recession
• How does a recession impact on artwork and art jobs? (Februry 2009)