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Art Is Not a Good Investment

This article was written by in Investing. 10 comments.


A few months ago, art and money were connected in the news when Andreas Gursky’s “Rhein II,” a photograph depicting a still river and walkway, became the highest-valued photograph sold at auction. The buyer paid $4 million to walk away with the larger-than-life print. Art is in the news again today, with one of Edvard Munch’s renditions of “The Scream.” At a recent Sotheby’s auction, “The Scream” was sold for $119.9 million. This price set a record, making “The Scream” the most expensive work of art ever sold at auction.

For those who have the money to spare, art is a popular investment. Trading masterpieces of art among a small subsection of the population, less than 1 percent, is not without criticism, however. Many artists do not live to see their works become valuable, and do not benefit from the high prices sought for their work. I addressed both the criticisms and the benefits of giving art a significant societal value in the article about “Rhein II.”

The Scream - Edvard MunchWhile it may be good for society to value art highly, is it a good investment for any one individual who has millions of dollars to spare?

Well, first of all, there is art accessible at all levels of investment. With research, you might find works available for $50 that could certainly increase in value over time at a rate better than what financial advisers offer as typical long-term stock market returns. Art is not an investment solely for the 1 percent. And with the right buying choices, your smaller investment in living artists has a more direct effect on the artist community.

Investing in art isn’t going to be right for everyone. While some consider art to be one of the best investments outside of real estate, the economy has seen would-be real estate investors struggling when the market isn’t robust. The same is true with art. The market is subject to bubbles, the latest trends play a significant role in determining prices, and you may not be able to sell your art at the price time you need the proceeds. Artists whose work have proven to appreciate and are highly recognized as masters, like Dali and Picasso, have price appreciation almost guaranteed, but the barrier to entry for investments in proven artists is too high for investors without the desire to risk large sums of money.

Outside of artists whose works have proven worth, it’s risky to invest in art with the goal of making a killing between the purchase date and the sale date. Even the best research won’t guarantee performance. To mitigate the chance of loss, when choosing art, find something you like. As long as you enjoy looking at your art collection, you won’t mind as much holding onto it until it has the ability to fetch the price you desire — which may be never. At the auction where “The Scream” sold for $119.9 million, one fifth of the pieces on the auction block failed to sell because no investors were willing to pay the asking prices.

Another problem with investing in art is the due diligence required to avoid scammers and fraud-minded people in the industry. Even experts can be wrong about forgeries. Investments in art are not subject to the same kinds of regulation that allows investors to feel generally safe and confident when investing in stocks and mutual funds.

Unless you have the financial ability to invest in artists whose names you know from high school or your college’s Art History course, you might be better off staying away from investing in art if your purpose is finding the next Rembrandt.

Photo: br1dotcom

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Aurora Bank’s Deposits to Be Acquired By New York Community Bank

This article was written by in Banking. Add a comment.

Last year, I opened a money market account with Aurora Bank, a division of Lehman Brothers. If it seemed like an odd thing to do, it probably was. Lehman Brothers had filed for bankruptcy in 2008, yet in 2011, they were promoting their online retail bank and looking for new customers. Not wanting to associate the marketing push with their brand, the bank had the name Aurora Bank rather than Lehman Brothers Bank, as it had been known from 1999 until after the bankruptcy.

I knew at the time that Lehman Brothers had been directed to sell Aurora Bank by May 2012, and that target is approaching. If regulators approve the acquisition, New York Community Bank will be assuming all deposits (savings, money market, and checking accounts) from Aurora Bank. New York Community Bank is no stranger to acquiring “online” banks. AmTrust was a recent acquisition. AmTrust “failed” in 2009, alongside many banks that crumbled under the credit crunch and recession, and New York Community Bank became the receivor. In this case, the situation does not reflect any problem with Aurora, but a condition of Lehman Brothers’ bankrupcty.

As I pointed out in my review of Aurora Bank, with the pending sale, Aurora Bank offered higher than average rates and initiated a marketing push to build a larger customer base in advance of the banking division being sold to the highest or best bidder. The risk of acquisition is mostly meaningless to customers, particularly those who are generally blind to brands and are not concerned with being loyal to a bank with whom they’ve had a relationship for many years. The FDIC ensures that changes like these don’t affect customers, even when banks fail without being acquired by another bank.

New York Community Bank consists of several divisions, each serving a different community. Most of these communities are in the New York area, but with acquisitions, the service area has spread. With the divisions operating somewhat separately, maintaining their own branding, and keeping the word “community” in many of the division names, the bank is certainly looking to emphasize the small-town vibe of a community-focused organization despite the growing size of the company.

  • Queens County Community Bank is a division of NYCB that operates in Queens County, New York.
  • Roosevelt Savings Bank operates in Brooklyn, New York.
  • Roslyn Savings Bank operates on Long Island.
  • CFS Bank operates in Westchester County, Manhattan, and the Bronx.
  • Richmond County Savings Bank operates on Staten Island.
  • NYCB also operates several banks in New Jersey including the Garden State Community Bank.

New York Community Bank’s online features are not as strong as one might expect from a bank that competes for business among the best online savings accounts, but Aurora Bank customers should receive services similar to those they’ve had over the past few years, including high-yield money market accounts accessible online.

Even the bigger online banks are not immune to changes; Capital One has acquired the United States deposits of online juggernaut ING Direct. The retail banking industry has been in a state of upheaval since the recession, and while the rate of failing banks has slowed down, banks with power are seizing opportunities for acquisitions. With consolidation, there is always fear that the customer will lose, and there is some validity to that fear. Competition is good in the banking industry, motivating companies to offer products that meet customers’ needs while keeping fees low.

Here is the text of the letter I received as a customer of Aurora Bank:

Dear Bank Customer:

Please be advised that at 12 noon on July 6, 2012, the following Aurora Bank FSB (aurora) branches will close permanently…

Separately, we wish to inform you that New York Community Bank, in a transaction that is subject to regulatory approval, will be acquiring any deposit accounts you currently maintain at Aurora. In the event the required regulatory approvals have not been received prior to the branch closing date, your accounts will be transferred to, and will be serviced by, Aurora’s home office, currently located at 1000 West Street, Suite 200, Wilmington, Delaware 19801, until such time as the necessary approvals are received. New York Community Bank will contact you with additional information regarding the transfer of your account(s). No action by you will be necessary.

We thank you for being an Aurora customer. If you have any questions, please contact our customer service department at 888-522-9295.

The letter comes to me as a reminder that I have too many open bank accounts floating around, mostly as a result of writing reviews for Consumerism Commentary readers.

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Three Banks and One Insurer Fail Fed’s Stress Test

This article was written by in Economy. 7 comments.

After the recession, the Federal Reserve developed a stress test for banks and financial firms too big too fail. The stress test looks at the financial condition of these corporations and simulates a new recession. Under the simulation, based on a worst-case scenario, not an actual economic forecast, banks pass the test if the companies have sufficient capital to continue lending; if not, they fail.

Here’s the doomsday recession scenario or assumptions applied to the banks’ financial condition:

  • An unemployment rate of 13 percent.
  • A 50 percent drop in the stock market.
  • A 21 percent drop in the real estate market.

Citi Checking Account Piggy BankThis scenario, which isn’t a prediction for the future, is non far-fetched. The recession in 2008 produced similar or worse results in the stock market and housing prices.

Overall, the banks fared better with this year’s test than with last year’s same analysis. The improvement is due to increased capital at the corporations. The companies lowered dividends to keep more money on hand for emergencies.

While fifteen of the nineteen banks were found to have sufficient capital to withstand the recession without assistance, four bank holding companies or financial institutions in the test failed to meet the capital requirements: Ally Financial, Citigroup, SunTrust, and MetLife.

Officials from the banks quickly responded to the Federal Reserve’s results.

Citigroup said it remains among the best capitalized large banks in the world. However, it said it would not be able to raise its dividend as it hoped, and would submit a revised capital plan to the Fed. Ally said it supported the idea of stress tests, but it disagreed with a number of the assumptions the Fed made, including overstating the bank’s potential mortgage losses. SunTrust could not be reached for comment. Metlife said it was unfair to apply the same tests to insurers as it did to banks.

These companies’ failures isn’t too concerning for customers. Customers shouldn’t be worried that their savings accounts aren’t safe or their insurance policies are in danger. No one has ever lost money in an FDIC-insured bank account. If these corporations don’t improve their financial situation by raising more capital or paying less to shareholders, a recession might result in more government intervention in the companies’ continued operation. The lack of sufficient capital in these financial institutions might lead to another bail-out scenario.

While not concerning from a personal perspective, there is reason to be somewhat concerned with the Federal Reserve’s findings. Financial institutions haven’t adequately planned for systemic risk. When banks fail or need a government bail-out, capital infusion, or partial nationalization, all taxpayers are affected. Shareholders need to be concerned. Will the recent bail-outs still fresh in people’s minds, the public and policymakers have likely lost its appetite for using taxpayer money for assisting banks that are “too big to fail,” and might rather see a firm like Citi go bankrupt rather than submit to a government takeover.

ᔥ Federal Reserve
↬ Fortune

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The Worst Celebrity Tax Problems

This article was written by in Taxes. 10 comments.

It’s with a tinge of schadenfreude that people are fascinated with the failures and foibles of famous celebrities. Every year, the IRS chases people who evade or underpay federal income tax, and actors and popular figures in the media, who often don’t manage their own finances, make the news.

The latest is Lindsay Lohan. You may remember her from such films as Mean Girls, Freaky Friday, and Herbie Fully Loaded. TMZ has discovered that the IRS has obtained against Lindsay for almost $100,000, representing tax she didn’t pay for her income in 2009. Like many busy people, Lindsay employs an accountant to handle her finances, and she says the oversight will be handled immediately.

Lindsay LohanThe sum Lindsay owes is small compared to the problems other celebrities have had with the IRS.

Wesley Snipes failed to pay up to $17 million to the IRS for his income taxes, not including penalties and interest. After his trial and a failed appeal, he was sentenced to prison for three years.

Nicolas Cage also blamed his accountant for his failure to pay a $14 million tax bill in 2010; even more recently, Nic failed to pay over $600,000 for a gift tax.

Pamela Anderson owed $2 million to the IRS and to the state of California.

Annie Leibovitz isn’t a movie star, but she is at the top of the list of famous modern photographers. She owed $2.1 million in back taxes, and pledged to sell her ownership of her photography to pay the bills.

Martha Stewart owed $220,000 to New York for taxes, but she believed she didn’t need to pay this tax because she didn’t spend time in that state.

Celebrities often have tax situations that differ from people who aren’t performers or professional athletes. They need to handle state tax returns for every state in which they’ve earned income each year, just like all taxpayers, but in any given year, performers may have earned income in a large number of states. Celebrities will almost always be too busy to handle their own tax returns, so they trust accountants to handle the paperwork and the payments.

On the other hand, it’s safe to say that some famous individual who owe the government money for failure to pay their tax bills are aware of the situation and are trying to skirt the law as much as possible, until they are forced to pay.

Photo: Rafael Amado Deras
TMZ via Don’t Mess With Taxes, New York Times, UPI, Back Taxes Help

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Reflecting on My 2011 Goals

by Flexo

A little less than a year ago, I mentioned that 2011 would be the year that everything changes. It’s a phrasing that I borrowed from Torchwood, but it was relevant for me as well as to the television program’s concept. I’ll have more to say about this year’s changes later. At the time I created ... Continue reading this article…

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Binding Arbitration: Wells Fargo Taking Away Customers’ Rights

by Flexo
Wells Fargo

February 14, 2012 update: The change in terms described here goes into effect tomorrow. It’s not too late to switch banks. If you enter into an agreement with a company, and that company does something to wrong you, most of the time you can avail yourself of the American judicial system to correct the problem. ... Continue reading this article…

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Your Relationship With Money

by Flexo

Have you ever had a boyfriend, girlfriend, husband, or wife you want to see again the moment he or she is out of your sight? Has love ever felt like a drug, something you need every minute, and you need more each time? Have you ever failed to understand why you constantly desire a lover ... Continue reading this article…

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My New Gym Membership: Good Idea or Foolish Move?

by Flexo

After years of failed self-improvement in a number of aspects of life that most people tend to consider important, like organization, time management, and self-motivation, I’ve come to accept some of my flaws while taking advantage of my strengths. I haven’t completely given up on the strive to improve facets about myself that could lead ... Continue reading this article…

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