Felix Salmon

The thing that struck me first about Bloomberg’s new updated-daily Billionaires Index was the fact that Bill Gates and Warren Buffett are still in second and third place, respectively. Aren’t they both supposed to have given most of their money to the Gates Foundation? How can they give it all away and yet still be among the world’s richest people?

Ben Walsh looked into this for me, and it turns out that Gates and Buffett have pledged to give most of their money to the Gates Foundation. But they haven’t actually done so, yet.

The Buffett gift is the more transparent of the two: the terms of the gift are laid out in a public letter written in admirably clear English. Buffett basically set aside 10 million B shares in June 2006, and promised to donate 5% of those shares to the Gates Foundation every year. The idea is that although the number of shares being donated each year will fall by 5%, share-price appreciation will keep the annual value of the gift roughly constant, or even rising, over time.

The B shares had a 50-for-1 stock split in January 2010, so the Buffett gift was of 500 million shares at their current valuation of $81.34 each. That’s $40.7 billion. To date, Buffett has donated 132 million shares, with a cumulative value of $9.5 billion. Buffett insists that the shares be sold and the proceeds spent, so it’s silly to look at what those 132 million shares are worth today. But it’s certainly safe to assume that if he hadn’t given those shares away, they would not have been sold — and the current value of 132 million shares is $10.8 billion.

As a result, we can say that were it not for Buffett’s gift to the Gates Foundation, his net worth would be $10.8 billion higher: $55.9 billion, rather than $45.1 billion. Amazingly, that eleven-figure increase in net worth would make no difference to his ranking on the Bloomberg index: he’d still be in third place, behind Gates’s $63.4 billion.

On the other hand, if you subtract from Buffett’s net worth the 368 million shares he has irrevocably committed, then he drops from $45.1 billion to $15.2 billion. That’s still a completely insane amount of money for any one individual to have, but it would place him just 46th on the Forbes billionaires list, between a Russian steel magnate and a Russian nickel magnate.

So while Buffett’s gift has had the effect of reducing his spendable net worth from $55.9 billion to $15.2 billion, a 73% decrease, it has so far had the effect of reducing his billionaire-league-table status by a much smaller $10.8 billion, or 19%.

And what about Gates? He has donated $28 billion to his eponymous donation to date, which to a first approximation means that his net worth would be a whopping $91.4 billion if he hadn’t given that money away. That would make him the world’s richest man by a very comfortable margin.

What’s less clear is the amount of money that Gates has pledged to give to his foundation in the future. In their Giving Pledge letter, the Gateses say that “we have committed the vast majority of our assets to the Bill & Melinda Gates Foundation”, but that’s pretty much all the specificity I’ve been able to find. What we do know is that the gifts they’ve made already have reduced Bill’s net worth by roughly 30%.

All of which is to say that the net-worth numbers on billionaire league tables are decidedly silly, since they include enormous sums which have been pledged but not formally donated. Insofar as billionaires are competitive — and, to a first approximation, all self-made billionaires are competitive in such matters — then maybe it would make more sense for the people putting these league tables together to use the sum of current net worth and the amount that has been given to charity. There are lots of people who want to be the richest man in the world, and there’s nothing embarrassing about appearing on this league table. Nothing, that is, which might encourage its members to give more of their money away.

If I were Gates or Buffett, then, and wanted to encourage my fellow billionaires to give their money away, I’d set up some structure which resulted in all my committed funds being subtracted from my net worth. We’re so used to seeing those two names on the top of every billionaires list that it would be something of a salutary shock to see them disappear from the league tables overnight, as a result of doing something incredibly praiseworthy. And it would also make the rest of us realize how silly these league tables really are.

James Saft has a very smart take on Greg Smith today:

Goldman was able to make long-term greedy work because, in the view of those working there at the time, that was the best kind of greedy they could get their hands on. Burning clients wasn’t so much wrong as stupid…

Careers in banking are wasting assets; someone will only get so many bites at the apple, and is far less likely to be at the same firm than they were in Gus Levy’s time. The industry too, it is important to understand, is also a wasting asset; it is shrinking and may well shrink substantially from here. Ironically, that may well mean it is even more rational for bankers to burn clients.

It’s notable that Smith’s lament appeared as Citigroup’s Vikram Pandit scrambled to get back onto his feet after his plan to return capital to shareholders was knocked down by shareholders.

Pandit wants to return capital to shareholders because they clearly value that capital much more highly in their own hands than they do in his. Each of my dollars is worth $1. Each of Citigroup’s dollars, by contrast, is worth just 58 cents: that’s the price-to-book ratio that Citi’s trading at right now.

As a general rule, when banks are worth much more than their book value, long-term greedy makes a fair amount of sense: each dollar you make for the company becomes worth much more than that when looked at through the lens of the present value of the franchise value that dollar represents. When banks are trading at a substantial discount to book value, on the other hand, it makes just as much sense for employees to extract as much money from them as they can, as quickly as possible. And shareholders too, for that matter. That’s why Vikram wanted to give them their money back.

This mindset is indicative of a broken system, as Anat Admati explains:

If a strong bank retains its earnings and invests prudently, shareholders are still entitled to the profits from these investments, as long as debts are paid. Many successful companies do not pay dividends for extended periods of time, and their stock prices reflect their good investments. When banks distribute profits to shareholders and continue to borrow, they create more risk. This pollutes the interconnected financial system by increasing its fragility. If banks do not want to invest the profits, they can use them to pay down some of their debts.

What this says to me is that the entire banking system, from Citi to Goldman (which itself is trading at just 0.92 times book value), is locked into a vicious cycle of short-term greed, where everybody from traders to shareholders is trying to get their money out as quickly as possible, and regulators are fighting a rear-guard action trying to prevent them from doing so. It’s fundamentally dysfunctional and adversarial, with bankers pitted against both regulators and their own clients. And yet at least at the biggest banks, like Citi and Goldman, it might ultimately help to shrink them down to less dangerous size.

What regulators should be doing, I think, is encouraging the likes of Citi to give back capital to shareholders — just so long as the bank’s capital ratios go up at the same time. In a word, deleveraging. The lesson of the 2008 bailouts is very much that no matter how much capital you inject into banks, they won’t lend it out in the real economy. So let’s allow that capital to leave the banks, return to shareholders, and get invested in the economy some other way. Just so long as when that happens, the big banks shrink commensurately.

Like many people, I’m fascinated by lottery tickets. In many ways they’re the purest speculative investment in the world: a piece of paper which is all but worthless today might be worth $200 million tomorrow. Literally. Lottery tickets are a bit like SWAG assets (silver, wine, art gold) in that you can only make money on them by giving them up and exchanging them for cash. They pay no dividends, and they have an asymmetrical payout: the most you can lose on any one ticket is a modest dollar, but the most you can gain is enormous.

On top of that, lotteries can be gamed, as Jonah Lehrer spelled out in a fantastic Wired story last year. And casinos can be gamed too, as Mark Bowden explains in the the latest issue of the Atlantic. Beating the odds is a staple of great narrative journalism for good reason, and of movies, too. Which is why it’s so incredibly depressing to see this being hosted at CNN Money, under the headline “Boost your odds of winning the lottery”.

Richard Lustig is a get-rich-quick hack with no idea at all of how to beat any lottery. Yes, he’s won an impressive number of jackpots. But he also advises that one third of all your winnings should be “reinvested” into lottery tickets — which means that he’s betting an enormous amount of money every week. He never gives any indication of what his ROI is; indeed, he never actually comes out and says that he’s a net winner. Neither can I see any indication that all the money he’s gambling is his own. Certainly Lustig’s bare-bones website, which seems like it was designed in 1997 and which features an ad for 995SunGlasses.com, gives the impression of someone who’s on a very tight budget. And the less said about his all-caps twitter feed, the better.

Lustig’s advice is simply bizarre: he reckons that you should buy lottery numbers in sequence, and that you should never buy “quick-pick” (randomly-generated) tickets. In fact, if you’re going to play the lottery, the rational way to play the lottery is to do the exact opposite of Lustig’s advice. Never pick your own numbers; always accept random numbers. The reason is that when lotteries have big prizes, those prizes are parcelled out between everybody who had the winning numbers. For instance, in August 2010, Lustig had a winning ticket in a draw where the jackpot was $197,985.84. But so did someone else — so he ended up winning only half that amount. And if you want to minimize your chances of overlapping with someone else, you’re much better off accepting a set of random numbers than you are using some kind of human-generated method. Remember when 110 people all had the winning numbers 22, 28, 32, 33, and 39, just because those numbers were printed in fortune cookies?

I have no problem with people spending small amounts of money on the lottery — in fact, sometimes it’s a positively good idea. But I do have a problem with anybody who’s shilling the idea that you can make money this way. And I have a huge problem with respected websites like CNN Money giving that person extremely positive publicity, without any hint of skepticism about the claims involved.

Let’s be clear about this: if you buy a lottery ticket, you should expect to lose all of your money. If you still want to buy a ticket knowing that you’re not going to get your money back, then go right ahead. But spending $40 on Richard Lustig’s book is a very, very, very bad idea, not least because you’ll probably end up spending many times that much money on tickets. And it’s downright unethical for CNN Money to implicitly encourage people to do so, by running dreck like this.

Update: CNN has taken the video down. “The CNNMoney newsroom takes great pride in its journalism, with consistently high standards for reporting,” says a CNN Money spokesperson. “This video fell short of that mark and we’ve chosen to remove it from our site.”

It’s that time of year — think February to March — when bonus checks have cleared and voluntary departures from investment banks spike. So it’s obvious why Greg Smith quit now. The question is, why decide to quit in as public and destructive a manner as possible?

When Smith joined, Goldman was transitioning from a partnership model to being publicly-traded. And I suppose it’s possible that Smith has such deep nostalgia for the partnership he never really knew that he’s willing to hurt his entire current team — everybody who helped him make his millions — in an attempt to goad Goldman into returning to those halcyon days.

But it certainly doesn’t seem that way. Smith says that Goldman is currently “toxic and destructive”. He goes on to say that “It makes me ill how callously people talk about ripping their clients off,” and that “the morally bankrupt people” need to be weeded out — how, he doesn’t say — by the board of directors. It’s much easier to see the disgruntled ex-employee here, quitting in a huff, than it is to see someone genuinely trying to do his part to reconstitute the Goldman Sachs of Gus Levy and John Whitehead.

To a certain extent, time will tell. If Smith ends up founding or joining a rival company, his decision to harm Goldman as deeply as possible will end up looking rather self-serving. On the other hand, if he goes to, say, join his former colleague Gary Gensler at the CFTC, working to regulate all investment banks from the outside and to try to level the playing field between the buy-side and the sell-side as much as possible, then we might start taking him a bit more seriously. Smith has declared a serious moral purpose today; that’s not something you can wear for just one news cycle before moving on to the next thing, and so I hope and trust that he’s going to spend the proceeds of his ill-gotten final bonus check in the service of that moral purpose. After all, it was the work of those morally bankrupt traders in the ripping-eyeballs-out business which got him all that money in the first place.

Which is not to say that Smith doesn’t make important points. He’s in the equity-derivatives business, which is also where Andrew Clavell came from. Clavell’s blog is down, now, but these words are immortal:

If you claim you do know where the fees are, banks want you as a customer. You don’t know. Really, you don’t. Hang on, I hear you shouting that you’re actually smarter than that, so you do know. Read carefully: Listen. Buster. You. Don’t. Know.

Smith’s clients thought they knew where Goldman was making its money when it sold them equity derivatives. Nine times out of ten, they were wrong. I can guarantee you that every single one of the clients referred to as “muppets” within Goldman considers themselves to be a sophisticated investor. Mainly because they have Goldman employees phoning them up on a regular basis and flattering them with tales of how sophisticated they are.

Clients know in principle that every time they do a trade with Goldman, Goldman makes money. But they don’t know how much money Goldman makes on those trades. And Goldman is extremely good at structuring deals which can’t easily be replicated by combining various liquid derivatives. In turn, that gives Goldman pricing power — so much power, indeed, that in some instances the bank will go so far as to insist that if the client attempts to get independent pricing for the contract in question, then the whole deal is off.

Smith has been in this business for 12 years, and he’s done extremely well by it. And to a certain extent, if the people who work for him are constantly asking how good a deal is for Goldman, rather than how good the deal is for Goldman’s clients, then that’s because of the example he set. What’s missing in his op-ed is any sense of mea culpa, any sense that he was at all part of the problem.

There’s a strong smell of faux-naive coming from Smith’s op-ed. “Leadership used to be about ideas, setting an example and doing the right thing,” he writes. “Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.” Here’s a question for him: back when he made videos for Goldman urging candidates to join the company, were the people who got promoted those who had ideas and did the right thing? Or were they the ones who made lots of money for the firm? To ask the question is to answer it.

So let’s not pretend to be shocked that the most successful bankers are the ones who make the most money off their clients. And let’s not try to imply that the solution to this problem lies at the Goldman Sachs board level. It doesn’t. The real muppets, in this story, are Goldman’s board members, who have never had any real control over how the company is run. And, frankly, never will. The most remunerative skill, at Goldman, is the ability to flatter someone into believing that they’re incredibly important and clever and sophisticated, even as you’re getting that person to do exactly what’s in your own best interest. No one rises to lead Goldman Sachs who doesn’t have that skill. And you can be sure that Lloyd Blankfein uses it on the board every time he meets with them.

I have a review in Architect magazine of the Foreclosed show at MoMA — the exhibition which seeks architectural solutions to the suburban foreclosure crisis; I also talked to a couple of the architects involved in the exhibition at the press preview in February.

My main beef with the show is that it’s far too utopian and impractical. That’s par for the course when it comes to museum architecture shows, but I was hoping for more realistic proposals in this particular case, just because the foreclosure crisis is so real and urgent.

Anybody who visits the exhibit can see that nothing remotely along the lines of the buildings being proposed is ever going to be realized — Orange, New Jersey, for instance, is not going to replace its roads with long strips of narrow housing. But what’s less obvious is the way in which all of these projects are also a huge financial stretch. They were charged with coming up with innovative forms of home finance, but all those innovative solutions tend to boil down to the same basic idea: get the local municipal government to borrow hundreds of millions of dollars and then spend that money on a massive housing development which will, somehow, generate the income needed to service the debt.

Such ideas have a tendency to work much better in theory than they do in practice; they’re fragile things, at risk from dozens of different directions at the same time, and if I were a local bank, I’d stay well away from funding them. And I certainly would never advise small and unsophisticated suburbs like these ones to get into bed with the sharks peddling municipal bonds and associated interest-rate derivatives.

Michael Bell, in the video above, makes the very good point that architecture and architects are largely absent from the suburbs. But I guess that I was really looking for something much lower-cost than the mega projects that the teams in the MoMA show came up with. Certainly lower in up-front cost, anyway. The foreclosure crisis was caused by people borrowing enormous sums of money and then finding themselves unable to pay it back. The last thing we want to do is risk repeating that all over again.

Greg Allen has a fascinating report on a monochrome painting which went unsold at Christie’s last week. It had originally appeared in Christie’s auction catalogue under the authorship of “Henry Codax”, with this explanation:

Henry Codax, a pseudonym created by New York-based artist Jacob Kassay and the Swiss conceptual artist Olivier Mosset, is referenced from a fictional character in the contemporary novel Reena Spaulings published in 2005… In the present example, Kassay’s iconic silvery paintings have been replaced by a sleek, anonymous grey surface. Stripping away any obvious authorship, Kassay and Mosset’s Henry Codax joins the company of fictional and pseudonymous artists including Marcel Duchamp’s Rrose Selavy and Richard Prince’s John Dogg.

That’s an unambiguous statement of fact: “Henry Codax” is a pseudonym created by Kassay and Mosset. But Christie’s provides no sourcing for that fact, and Kassay’s gallery is on the record as saying that they know nothing of Henry Codax.

Kassay has, as Allen puts it, a “hyper-speculative Kassay auction market”: that is, if a Kassay comes up for auction, many people will be bidding on it just because they think that Kassay is a star whose works are going to rise sharply in value. So if Codax is Kassay, the Codax painting, estimated at a modest $10,000 to $15,000, could be a highly lucrative investment. (Kassay is shooting up the hot-young-artists league table, with $1.8 million of auction sales to date, at the age of 28.)

So I was a little surprised to see that the Codax had been bought in at auction: that no one was willing to spend even $10,000 for a huge, 7-foot-square piece described by Allen as “the awesomest” painting that Codax ever made. (Admittedly, there aren’t all that many of these things.) What happened? Allen got on the case:

Someone who attended the sale told me that Christie’s had read a statement, known as a saleroom note, before the sale, in which Kassay said he’d “had nothing to do with” the painting, and that his “name should not be associated with it.” [In trying to confirm the text of the actual statement, I contacted Christie's, first as press, and then finally as client. The specialist who worked on the lot was helpful, if circumspect. But she also referred me to the sale results page, which, I was told, would have the saleroom notice appended. Except, of course, it didn't, because Christie's deletes online references to unsold lots completely, in order to not taint their saleability in the future.]

An auction-house saleroom is an interesting quasi-public space: what goes on there is generally considered public knowledge, but at the same time information about auction-house results can be quite expensive to retrieve. And even the best results databases don’t make an attempt to document the statements read out at the beginning of the sale.

What’s interesting here is that Christie’s seems to be doing everything it can to bury Kassay’s statement. In the sale, Kassay said that his name should not be associated with the painting, but on Christie’s website, the only mention of the painting still says that it’s a Kassay. And Kassay’s statement itself is nowhere to be found; it’s certainly not being released by Christie’s to Allen, either as a member of the press or as a buyer.

This is just another example of the way in which the entire art market is built on information asymmetries. Christie’s knows something; that information has value, and it rises in value the fewer the number of other people who know that thing. So while Christie’s claims to be in the business of providing public and transparent pricing for art, in fact it’s in the opacity business as much as it’s in the transparency business.

What’s more, the Christie’s press release for this sale trumpeted its online aspect:

Upon the heels of the incredibly successful Elizabeth Taylor online only auction, the First Open sale featured the most LIVE registrants ever for a Christie’s contemporary sale signifying a new era in bidding and buying for this department.

If you look at the LIVE website, it explains that bidders “may enter the online saleroom up to 15 minutes before the start of the sale, or at any point during the sale.” If someone wanted to bid on the Codax using the LIVE system, it’s entirely possible that they could have missed the reading of the Kassay statement. But Christie’s, a bit like Goldman Sachs, is an intermediary always out for itself. Just like everything else in the art world, the rule at auction is always caveat emptor.

Why is the food at food trucks better than the food in restaurants, at least when it comes to tacos? It doesn’t make a huge amount of sense, on its face. Food trucks are much more limited in what they can cook, and Izzoz Tacos in Austin has to transport its slow-braised carnitas from an oven far away to its truck location every day: it can’t cook them on site.

I’m genuinely interested in your answers, but I have a few possible theories, none of which are particularly convincing.

One is that the limited space is a welcome constraint, a bit like the 140 characters on Twitter. You don’t ever see massive menus on a food truck (or a trailer eatery, as they’re known in Austin), and so they’re forced to do one thing and do it really well. But of course there are restaurants like that, too. There’s no shortage of taco restaurants in Austin, but they’re just not as good as the trucks.

Another possibility is that the restaurants just have too many balls in the air — they have to manage much more in the way of vendors and staff and rent and paperwork and so forth, and all of that ultimately distracts from the job of making great food.

It also seems to be the case that food trucks are much more likely to be run by first-generation immigrants, for a variety of reasons. Quite aside from any hard-working immigrant stereotype, that’s good news just because the food they sell is going to be that much more authentic. (Not that food trucks need to be particularly authentic to be delicious: just ask the Korean taco people.)

My favorite theory is that it basically comes down to the amount of time that elapses between the taco being made and the taco being eaten. Fillings can stay warm and delicious for a while, but the tortilla really is at its very best within seconds of coming off the stove, rather than getting soggy at the bottom of a tortilla warmer brought to you by your server. I suspect that if you could walk into the kitchen of a decent taco restaurant and get the chef to make you one then and there, it too would taste better than the same taco ordered off the menu.

But if you have a better idea, let me know! Especially now that Izzoz is looking to open a restaurant.

I had a fascinating conversation last night with a chap from Kickstarter, a site designed to help creative professionals realize projects. And it’s still doing that, pretty well. But there’s clearly a degree of mission creep at Kickstarter, too — especially with regard to some of the most successful and highest-profile projects on the site.

“A project is not open-ended,” says Kickstarter: “Starting a business, for example, does not qualify as a project.” Yet that’s exactly what Matter is doing with Kickstarter.

What’s more, Kickstarter can only be used to fund projects “from the creative fields of Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater”. Which one of those fields is a bar of soap supposed to fall into? Design, I guess. But if the fields of Design and Technology can be so broadly construed as to mean anything, they ultimately mean nothing. And the bar of soap — just like Matter or the famous $1.5 million iPhone dock — is at heart an attempt to start a business, much more than it is an attempt to fund a creative project.

The bar of soap and the iPhone dock are glossy and sophisticated sales pitches: one of the questions yesterday was whether they were closer to SkyMall or to QVC. But there’s a huge difference: SkyMall and QVC sell products which exist. On Kickstarter, you’re buying a hypothetical future product. And I worry that this is going to end in high-profile tears and recriminations at some point, the first time a big funded project fails to produce what it promised.

Getting a product to market is hard. Even companies with business plans and executives and millions of dollars in funding — and a fully-functioning product — can fall down on that front. Look for instance at the Switch lightbulb: in July 2011, Farhad Manjoo of Slate said it would go on sale in October 2011 for $20. In August 2011, Dan Koeppel of Wired magazine ran an article saying that the bulb would go on sale in October for $30. But here we are in March 2012, there’s still no sign of the thing, and the company’s Facebook page is filling up with comments saying things like “I’m going to start my own company making a product that no one can buy. Hmm….what should I not sell? So hard to decide.”

There are two big hidden risks which I think that Kickstarter should emphasize much more than it’s presently doing. The first is on the side of the person with the project. It’s easy, when you’re trying to raise funds, to promise lots of things to lots of people, in that glorious utopian future where you’ve raised the cash that you need and you can actually finish your project. So then you finish the project, and you’re still incredibly busy and stressed, but now you have hundreds or even thousands of things to send out. Which can be a decidedly unpleasant chore. Kickstarter buries its page warning about how shipping “may end up being a bigger part of your budget than you thought”, and doesn’t really talk at all about the massive time commitment involved. For rewards which are individually hand-made, the result can be something much sloppier than the project owner originally intended. Which isn’t really good for anybody.

The bigger risk, however, is on the side of the funder — and that’s the risk that the project will get funded, you will spend your money, and you will end up getting nothing in return. For original-concept Kickstarter projects, that’s probably OK: you supported the arts by funding an artist, and you hoped to get a memento of that funding, but the reward was just a reward, and not necessarily the main reason you funded the project. For things like bars of soap and iPhone docks, however, the great majority of the funders are thinking of themselves as buying a thing. And they’re not properly discounting the very real risk that they will end up with nothing at all.

Even the most well-intentioned projects can run into unanticipated obstacles, some of which could be fatal to the project. And of course there’s the risk too of outright merchant fraud. You put together a glossy Kickstarter video, raise a few hundred thousand dollars, and then just pocket the money while telling everybody that the project is taking longer than expected.

In either situation, your funders have very little recourse. They may or may not, at some point, be able to get a refund from their credit-card company, if they paid with a credit card. But it’s extremely unlikely that they’ll be able to get a refund from the project owner.

Kickstarter doesn’t keep statistics on the number of projects which get funded but not completed, or the number of projects where funders fail to receive what they were promised. It’s hard to know how such statistics could possibly be generated, since projects don’t come with deadlines by which the rewards are deliverable. I, for one, have a number of Kickstarter receivables coming to me; I don’t have them listed anywhere, however, and if they don’t arrive, I’m not going to be particularly upset. There are 12,521 people expecting an iPhone dock, however, and 21 of them have paid upwards of $5,000 to receive 100 docks or more. If I was expecting a shipment of 100 iPhone docks, I’d consider that a real business contract, rather than a much fuzzier form of support for some creative project.

The JOBS act which recently passed in the House would allow Kickstarter to allow project backers to receive equity, rather than specific rewards, in return for their money. The regulatory and compliance costs for Kickstarter would surely be enormous, but might well be worth it, given that SecondMarket is now valued at $200 million. But before Kickstarter moves into the realm of equity stakes, it should probably start thinking much harder about the way in which it’s becoming a shopping site. Because if it doesn’t have a good way of regulating the people on its platform who are fundamentally just selling things, then it’s going to have a really hard time becoming a platform for people selling ownership stakes in companies.

It’s official:

The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its EMEA Credit Derivatives Determinations Committee resolved unanimously that a Restructuring Credit Event has occurred with respect to The Hellenic Republic (Greece).

The word that jumps out at me here is Restructuring. In Europe, restructuring counts as a credit event; in north America, by contrast, it doesn’t. Which means that the derivatives market was pretty lucky here. If the standard Greek CDS documentation had looked like the standard US CDS documentation, there wouldn’t have been a credit event, as ISDA spokesman Steve Kennedy confirmed to me via email:

If you own CDS, and if you do not have restructuring as a credit event in your contract, it would not trigger if a CAC were invoked. You would know this going in. It is not a surprise.

The issue of restructuring as a credit event has been discussed for a decade. In other words, where restructuring is not a standard credit event (such as for US corporates), protection buyers buy the CDS protection knowing that there is no restructuring clause, that the credit event triggers are failure to pay and bankruptcy (for corporates) and repudiation/moratorium (for sovereigns), and the CDS is priced accordingly.

Now this isn’t quite as scary as it looks at first glance, because while US bonds do include CACs, if you want to amend the payment terms, you typically need 100% of the bondholders to agree to change the terms. A CDS holder could therefore buy a single bond and thereby ensure payment default and CDS payout.

But still, the whole CDS saga in Greece and elsewhere does rather feel as though ISDA is making it up as it goes along. Check this out, from the official FAQ:

How can an auction be held if there are no “old bonds” because they have been exchanged for new bonds?

The EMEA Determinations Committee will ultimately decide which of the obligations are deliverable under the Credit Derivatives Definitions for purposes of the Greek CDS settlement auction. It is important to note that Greece has outstanding a wide variety of obligations. Not all existing bonds are covered by the use of CACs. In addition, new bonds are being issued that might satisfy the requirements for deliverable obligations.

In other words, yes, the CDS market looks a little bit broken, but we’ll muddle through somehow, and hey, you never know, maybe the new bonds will work as deliverables after all.

There was a good hour’s worth of confusion about the credit event earlier today, when ISDA first declared that it had happened, and then pulled the release from its website — it seems because the original release couldn’t get the timing right for the associated ISDA press briefing and webcast.

Greece is now the second high-profile CDS case which could have gone horribly wrong for investors who thought they were actually protecting themselves when they bought protection. First came AIG, which ended up paying out on its CDS obligations at 100 cents on the dollar, although that decision was highly controversial. AIG’s Joe Cassano reckons that AIG shouldn’t have paid out anything at all, since the underlying obligations hadn’t actually defaulted. The problem was that AIG itself was downgraded, and couldn’t come up with the requisite margin; as a result, it had to unwind the CDS it had written at the bottom of the market and at enormous cost. And of course most of the rest of us reckon that because AIG was insolvent, its creditors/counterparties shouldn’t have got everything they were owed, and should instead have taken some kind of haircut.

Now comes Greece, which seems as though it will pay out at roughly the right level, if only because the EMEA paperwork had a restructuring clause, and because it had some obscure foreign-law bonds which can be used as deliverables.

Going forwards, then, I can’t imagine that investors will have much if any confidence that CDS will really perform the hedging function they’re designed for. My feeling is that if you look at the numbers for total single-name CDS outstanding, they’ll decline steadily from here on in. Because you ultimately can’t trust them when you really need them.

I can’t remember the last time there was this much excitement and anticipation surrounding a payrolls number — and it’s another solid report. There were 227,000 new jobs created in March, and the already-excellent numbers from the previous two months being revised upwards: the figure for last month is now officially 284,000, a truly excellent number.

The really good news here is that this isn’t even really good news, at least from a market perspective. For a while there, the recent spate of upbeat jobs reports only served to raise worries that the other shoe would soon drop and we’d run into big downward revisions or monthly mean-reversion. Increasingly, however, this is looking like a real trend: the recovery in the American jobs market is going as well as anybody could reasonably expect. It’s still not enough to get the unemployment rate down to an acceptable level in the near term, of course: there’s still a jobs crisis in this country. But we’re moving in the right direction.

At this point, if we have a weak month between now and the election, it’s going to be the bad figure which looks like an aberration: only a sequence of two or three consecutive weak payrolls reports will really convince economists and the market that the recovery is going off the rails. It’s taken far too long to get here, but we’re finally moving in exactly the right direction, at an eminently healthy clip. Or, to put it another way: you can start breathing easier again, come the first Friday of the month. All those good job numbers were real, after all. And maybe next month the pundits won’t be on quite as many tenterhooks as they were this time around.

When I met with Peter Eavis to talk Greece, we finished our conversation with a predictions game: what percentage of Greece’s bondholders would accept its exchange offer? He said 84%, I said 89%. He wins: Greece won the participation of 85.8% of Greek-law bondholders, by value, and 69% of foreign-law bonds. As a result, the vast majority of Greek bonds will end up being exchanged, since the collective action clauses on most foreign bonds and all Greek bonds will now be triggered.

Ideally, Greece would like to bail in all of its bondholders, and so to that end it’s extending its exchange offer for the bonds issued under foreign law, until March 23. (The March 20 deadline no longer matters, because that represented the maturity of a Greek-law bond, which is now being swapped into much longer-dated debt.) There’s a new restructuring offer, too, for “holders of Greek law governed bonds issued by state enterprises and guaranteed by the Republic”, which should deal with the Greek railways loophole.

The Greek press release hammers home why holdouts should tender into the exchange, with a statement from finance minister Evangelos Venizelos:

Our invitations to offer to exchange, and submit consents with respect to, foreign law governed and guaranteed bonds will remain open until 23 March 2012, after which there will be no further opportunity for creditors holding those instruments to benefit from the package of EFSF notes, co-financing and GDP linked securities which form an important and integral part of our invitations.

Remember that the Greece exchange is a package deal with three parts. For every old bond tendered, you get (a) a new Greek bond; (b) new EFSF bonds; and (c) new GDP warrants. Venizelos, here, is saying this is a use-it-or-lose-it opportunity to get all three in one. Greece may or may not continue to swap its old bonds for its new bonds even after March 23. But there’s no way that holdouts will get the EFSF bonds. And the EFSF bonds are actually worth more than the new Greek bonds.

Because Greece is activating its CACs, there will be a credit event for the purposes of its credit default swaps — as there should be. If you sold protection on Greek bonds, then you’ll end up having to pay out roughly 75 cents on the dollar. But given where the CDS have been trading of late, you’ve almost certainly put up that much money in margin already. So there’s nothing unexpected here, and there won’t be any nasty surprises on the CDS front.

The exit yield on Greece’s new bonds is roughly 20%, which means that even after this enormous haircut, markets are still pricing in a very high probability of default on the new bonds. (Which, remember, are all being issued under foreign law, and will therefore be much harder to exchange, next time round.) I suspect that the new bonds could be a buy at these levels. Not because Greece is suddenly fiscally healthy again: it isn’t. But because if and when Greece is forced to do another debt restructuring, maybe when it leaves the euro, the debt servicing costs on its new foreign-law bonds will be relatively small. And it will therefore be easier for Greece to simply keep on paying the interest on those bonds than it would be to try to restructure its bonded debt a second time round.

That’s the silver lining to the step-up coupon on the new bonds: because it starts so low, at just 2% through 2015 and 3% through 2020, Greece doesn’t actually help itself out very much, from a cashflow situation, if it defaults or restructures these things a second time. The pain of the next Greek default, then, is going to fall overwhelmingly on the official sector rather than the private sector.

Of course, if Greece defaults on say the bonds being held by the ECB, then it’s very unlikely that the new Greek bonds would be trading at healthy levels. But what that means is that when you’re looking at the depressed price of Greece’s new bonds, you’re looking mainly at market risk, rather than credit risk: the risk that they will go down in price is much more salient than the risk that they will simply stop paying out altogether. If you have a strong stomach, and can hold on through what will certainly be periods of very high volatility, then there’s a reasonably good chance they will actually pay out in full, over the medium term.

The first maturity date on the new bonds is 2023, and realistically Greece has no particular reason to default on the bonds until then. Even in 2023, the amount coming due is modest enough that Greece would be better off paying it than suffering the consequences of a redefault. Basically, in the wake of this exchange, the new bonds aren’t a big issue any more, from a fiscal perspective.

The really big problem, for Greece — the one which isn’t going away — is the fact that the country still has a massive budget deficit, and that the only people willing to lend Greece the money to cover that deficit, at least for the foreseeable future, are its fellow European sovereigns. And their patience is wearing extremely thin. That particular tension has not been resolved today, and it’s going to come to a head much sooner than any problems with Greece’s new bonds. The next Greek crisis is going to be a crisis with official-sector financing, and it could come as early as this year.

Kevin Drum has an interesting take on the Matter debate: if Matter does great journalism, it will succeed, and if it doesn’t, it will fail, and the business model doesn’t, well, matter.

I don’t have much of an opinion about Matter because I suspect their delivery mechanism is beside the point. It does have the benefit of keeping overhead costs low, but that’s probably a wash since they also have no advertising revenue. Basically, if they’re able to consistently produce spectacular pieces of journalism that generate a lot of online buzz, they’ll succeed. If they can’t, they won’t. But that would probably be true regardless of what kind of delivery model they choose.

I differ with Kevin here — I think the business model matters a lot, precisely because niche publications can’t support themselves online through advertising.

There are two ways of looking at this: the quantitative, and the practical. The quantitative goes something like this: let’s say that there are 2 million science nerds in America — that Matter’s potential audience is 2 million people. And let’s say that if Matter publishes a great piece online for free, it reaches 200,000 of them. If it manages a respectable RPM (that’s ad revenue per 1,000 pages) of $5, then that story will bring in 200 x $5 = $1,000. Even if it reaches a million science nerds it still only has revenues of $5,000 for that story. And then you have to back out the ad network’s take, the ad sales guy’s salary and commission, the time spent trying to do biz-dev deals, and in general the enormous publishing-side infrastructure that all successful ad-supported websites require. By the time you’ve done that, there’s literally nothing left for editorial.

The practical level is even simpler: a niche long-form science-journalism website is never going to get the kind of scale which advertisers want. Big-name brand advertisers want to reach lots of people lots of times. They’ll advertise on blogs, which can get audiences in the millions, but they’re not going to advertise on a site which only updates once a month or even once a week. In general, the amount of inventory online is growing fast, and websites need to be able to keep up with that growth or start seeing their advertisers fall away, one by one.

With subscriptions, though, the math is much more compelling: if you get 20,000 people paying a buck apiece for that story, that’s $20,000, with no sales overhead; most of that money can end up going to editorial.

What’s more, if you’re writing for a small audience rather than a mass audience, you massively increase the opportunity space with regard to the kind of journalism that’s possible. Drum is right that the best writers and reporters in the business are expensive. But they will also nearly always work for less money if they get to chase down really juicy stories, or write exactly what they want to write, in a medium which will give them all the space they need. I’m sure that Christopher Hitchens didn’t charge the New York Review of Books or even the Atlantic anything like the kind of money he was being paid by Vanity Fair.

Matter has a compelling pitch as far as writers are concerned. You don’t need to dumb down your story, or make it accessible to a mass audience: instead, you can be obsessive and geeky and so long as you end up with a fantastic investigative narrative at the end, that’s fine. What’s more, we won’t cut out half your story unless doing so really makes it better: we don’t have any space constraints.

Professional-quality nanopublishing has never really worked online, because the ad-supported business model can’t make it work. In a world of micropayments, however, everything changes. Matter’s early to this game; one of the reasons I’m excited about it and hope it succeeds — and one of the reasons that 1,881 people have pledged $108,470 to make it work — is that if it works, then it will blaze the way for many other publications, in other fields.

There are lots of things which are yet to be worked out, not least how content behind a paywall can be effectively shared on the increasingly social internet. (Which is one reason I hope the Matter paywall is at least a little bit porous.) And I’m sure that Matter will make mistakes: all startups do. But at some point, a publisher somewhere is going to crack the nanopublishing/micropayments nut. And when that happens, it will be revolutionary for the world of online journalism.

It’s becoming something of a tradition for presidential candidates to (a) ritually attack high gasoline prices as being all manner of evil; and (b) suggest that there’s something the President can do to bring them down. Four years ago, both John McCain and Hillary Clinton supported the idiotic gas tax holiday; now, it’s Rick Santorum’s turn.

Calling for the United States to aggressively tap domestic energy sources, Rick Santorum said Monday that the nation’s economic crisis four years ago was caused by high gas prices.

“We went into a recession in 2008 because of gasoline prices. The bubble burst in housing because people couldn’t pay their mortgages because we’re looking at $4 a gallon gasoline,” he said. “And look at what happened: economic decline.”

This conjures up visions of the Santorum Strategy for economic growth: first, start blowing bubbles. Second, prevent anything which might possibly burst those bubbles from ever happening. Result: permanently bubblicious growth! What could possibly go wrong.

Any self-respecting economist, upon seeing this kind of logic, should and would run very far in the opposite direction. Unless, of course, that economist’s name is Steve Sexton. Santorum’s remarks “may sound far-fetched”, he writes, “but it is precisely the theory that I and a pair of coauthors presented in a working paper released five days before Santorum’s remarks.”

Oh dear.

Both the paper and Sexton’s blog post are titled “How High Gas Prices Triggered the Housing Crisis”, and both are very silly. Sexton actually articulates the Santorum Strategy in his blog post:

While the prevalence of risky loans made the housing market susceptible to collapse, had home prices kept rising in 2007, instead of turning down, rising home equity could have been used to renegotiate risky loans, thereby concealing and even resolving the market weaknesses.

Translation: if home prices had kept on going up in 2007 rather than going down, then we wouldn’t have had a housing-market crash. Thank you, Professor Sexton. That’s a bit like saying that if the price of technology stocks had kept on going up in 2000 rather than going down, we wouldn’t have had a stock-market crash. Sexton’s only venture away from banal tautology here is when he suggests that rising house prices could have “resolved” the weakness in the market — despite the fact that America in general, and California in particular, was full of subprime borrowers with no way of ever paying back the amounts they had borrowed. Extending the housing bubble for a year or two longer would only have perpetuated the Ponzi and made things even worse.

So even if it’s true that rising gas prices pricked the housing bubble and caused it to burst, we should be thankful that gas prices went up when they did: they saved us from an even more painful market crash a few months or years down the road.

But of course it’s profoundly silly to even try to identify the proximate cause of a bursting bubble. That’s what bubbles do, is burst. They all do it, sooner or later, for any reason or no reason. “Even the eminent bubble expert, the economist Robert Shiller, concedes we don’t know why the housing bubble burst when it did,” writes Sexton, as though this is evidence that Shiller just isn’t clever enough to have Sexton’s piercing insight about gas prices. In fact, what Shiller is saying isn’t really a concession at all: it’s an integral part of his thesis. You might be able to identify bubbles — Shiller certainly has a good track record on that front — but you can’t identify when or why they’re going to burst. Or, as John Maynard Keynes famously put it, “the market can remain irrational far longer than you or I can remain solvent”.

On some level, then, it doesn’t even make sense to say that bubble-bursts have a cause. For one thing, there’s absolutely no way to demonstrate causation, as opposed to simple chronological sequencing. And more generally, if a cause could be anything from rising gas prices to worries over Chinese drywall to a butterfly flapping its wings in Tokyo, trying to pin down a single cause is the ultimate fool’s errand.

But Sexton is a determined chap, and so he pulls out all manner of extremely odd arguments to buttress his thesis. For instance:

There is no doubt that subprime lending and speculation fueled demand for housing assets. But these are uniquely American phenomena. The housing boom and bust is not. A similarly volatile cycle was observed in Britain, Spain, France, and Ireland, among other countries that while not exposed to the aggressive lending in the U.S. would have been affected by global energy market dynamics.

In other words, you can’t blame subprime for the housing bust, since subprime happened only in America, but the housing bust was global. Since energy prices are global, on the other hand, they can explain the housing bust everywhere.

One big problem here, of course, is that if energy prices are global, then there’s really not anything the government can do about them, and the whole Santorum line of argument more or less falls apart. The second problem is that Sexton isn’t really talking about energy prices, he’s talking about gasoline prices. Which are something else entirely. Let’s look at gasoline prices in the UK, shall we?

As you can see, they’ve had a big run-up of late, but they hit a low point around the beginning of 2009.

Now, let’s have a look at the annual change in residential property prices in the UK:

The first thing to note here is that the big picture is pretty much the same in London as it is in England and Wales more generally. But London is pretty much immune from Sexton’s theory of property prices, which is that they fall when gasoline price hikes increase commuting costs. Londoners commute, but they don’t generally commute by car.

The second thing to note is that prices were rising until mid-2008, at which point they started falling, with the fastest rate of decrease coming in early 2009. Which happens to coincide with the low point of gasoline prices. The fall in UK house prices coincided with the big fall in UK petrol prices, not a rise.

Meanwhile, if Sexton’s blog post seems to have a weak grasp on the global, his paper errs far too much in the opposite direction, obsessing about house prices in California to the exclusion of just about everything else. Yes, prices in California suburbs fell a lot during the housing crash — and I daresay that an increase in the cost of commuting was part of the reason why. But that doesn’t mean that movement gasoline prices caused the national housing bubble to burst: it hardly, for instance, helps explain the price action of condos in Miami Beach.

All of which leaves just one big question: why on earth would a Berkeley economics professor publicly aligning himself with the primary-campaign rhetoric of Rick Santorum? I haven’t a clue on that one.

“Greece’s private creditors are the lucky ones,” says Nouriel Roubini — which I think is putting it a bit strongly. Nouriel — who at one point was one of the world’s foremost econobloggers — is falling back on bad habits here: he says that “a myth is developing” about the official sector getting off scot free in Greece, and goes on to tell us how “the argument runs”. But he doesn’t link to any such argument — and I’d dearly love to know who he has in mind, and what exactly they’re saying.

Nouriel then gives a good overview of the degree to which the official sector really is bailing out Greece. This is important to remember: just because bondholders are taking a haircut, doesn’t mean this isn’t a bailout. It is. Greece is running a massive budget deficit, even before interest payments on its debt. It can’t borrow the money to cover that deficit in the markets, either foreign or domestic. Which means that the only thing standing between Greece and bankruptcy is the Troika, throwing billions of dollars at the Greek government to avert insolvency. As Nouriel says, this should give the Troika seniority, on the grounds that they’re providing the equivalent of “debtor-in-possession” financing.

Nouriel’s attempts to paint the private sector’s 75% haircut as a good deal which is “too little”, however, are less convincing. He’s right that once Greece’s new bonds are issued under English law, the Greek government can’t unilaterally convert them to drachmas — or to worthless scrip, for that matter. But as Nouriel well knows, that’s a fact of life for countries of dubious creditworthiness: the markets are always suspicious when they try to issue under their own laws. If Greece wants to give anything of real value to its bondholders, then it has to offer bonds issued under English law, because no one will believe its promises to pay, otherwise.

Put it this way: someone in the Greek government genuinely intends that the country is actually going to make all of its payments on the new bonds. Insofar as the Greek government is believed with regard to that promise, the new bonds are going to have real market value. But in order for bondholders to be able to realize that value, the bonds have to be issued under English law. If Greece came out with exactly the same offer but kept the new bonds under Greek law, then the haircut would be substantially larger than 75%, because the new bonds would trade at a significantly lower price when issued. So the governing-law aspect to all this is already incorporated in the haircut, and by choosing English law, Greece is simply maximizing the value of its bonds without increasing its total indebtedness by a penny.

And this argument of Nouriel’s makes very little sense to me:

Greece’s private creditors should stop complaining and accept the deal offered to them. They will take some losses, but they are limited and, on a mark-to-market basis, the debt exchange offers them a potential capital gain. Indeed, the fact that the new bonds are expected to be worth more than the old suggests that this PSI exercise has further transferred losses to Greece’s official creditors.

The job of the market — which it normally does quite well — is to anticipate how big a Greek haircut is going to be, and then arbitrage Greece’s bonds appropriately, pricing them at a level such that bondholders tendering into the exchange wouldn’t be better off simply selling their bonds instead. (If they would be better off selling their bonds instead, then the buyer of those bonds is pretty stupid, and is going to end up making a loss.) So by definition, an exchange offer always offers “a potential capital gain” to bondholders, just because the market price before the exchange has to be a little bit lower than the expected value of the new securities after the exchange.

What’s more, Greece has to offer something, or else there won’t be an exchange at all, and instead there would just be a chaotic default which would be extremely damaging to all concerned. Already, the majority of the value in the package being offered bondholders is not coming from the new Greek bonds, but rather from European EFSF securities. The value of the new Greek bonds is only about 10 cents on the dollar — a 90% NPV haircut. It doesn’t get much bigger than that.

There are very good reasons why Greece would love to remain a member in good standing of the international community — not least that it wants to remain a member in good standing of the European Union, with Greek banks retaining most if not all of their current deposit base. As such, it has to take its bonded obligations reasonably seriously. The last thing it wants is protracted litigation with bondholders a la Argentina, where bondholders have recently been winning small but important victories in the US courts. Argentina is going to have to spend the foreseeable future being extremely careful with its sovereign holdings, for fear that they will otherwise be attached by its creditors. Greece doesn’t want to be an international pariah like that.

So while I’m shedding no tears for Greece’s bondholders, who took a risk which didn’t pan out, neither am I going to go as far as Nouriel and say that they’re getting a good deal. They’re not. They’re getting 25 cents on the dollar. Just imagine what would happen if Greece tried to make that kind of offer to other holders of sovereign obligations, like its pensioners.

One of the odder reactions to my post about the commodification of Gerhard Richter came from Marion Maneker, who accused me of “serious lapses in logic and intellectual judgment”, not to mention “sloppy thinking and a poor grasp of the art market”, without ever really coming out and saying what I was meant to have got wrong. Instead, he confined himself to dropping this cryptic comment:

Valuable art is valuable because it has become a currency, not a commodity. No one suggests that gold is a “better” metal because it is accepted as currency. It simply fills that role.

This, of course, makes no sense at all. Currencies are things that you use to pay for other things; commodities are things that you buy. If art is going to be one or the other, it’s going to be a commodity, not a currency. But on Twitter, Maneker doubled down.

Being unfamiliar with the use of art “as a medium of exchange”, I asked for an example. And Maneker responded with an extremely bizarre blog post entitled “Art as a Currency“.

In his new post, Maneker makes the rather banal point that if you buy a painting (for old-fashioned cash), then you don’t just get an object to put above the fireplace, you also get cultural cachet. Or, as he puts it, “access to an emerging social class of global capital”. So far, so good. But then we get this:

Richter has emerged as an artist whose work can be used as social currency to join that class. Because it is a widely used currency, Citibank is providing a legitimate service to its clients when it advises them on the value of that currency. In that sense, commenting on Richter’s Abstrakt paintings is no different to giving guidance on the Swiss Franc. I may buy Swiss Francs as an investment or I might be moving to Switzerland for a few years or just a few months. Each of those scenarios will require different decisions on my part but I am still informed by an report on the Swiss Franc.

But here’s the thing: as Maneker himself says, a currency is a medium of exchange. And in trade, or exchange, you have to give something up in order to get something else. If I want a ham sandwich, I have to pay $4. If I want a mid-market Richter, I have to pay $4 million. The Richter, or the sandwich, goes one way; the currency goes the other.

When Maneker is talking about “social currency”, however, there’s no exchange at all. If I use my Richter to join a class of Richter collectors, that costs me nothing. I pay for my Richter with dollars, and my new-found social fabulousness comes for free. Or, if you’d rather, I pay a couple of million dollars for the prestige associated with owning a Richter, and the painting on the wall comes free. Either way, the painting itself is not the currency — it’s not something I need to give up in order to buy something else. Quit the opposite.

Maneker does concede that commodities (like cigarettes) can be “used as currencies” (in, say, prison). But even then, you have to give up your holding of your commodity — your cigarettes — if you want to get something else in exchange. If I just want to impress my friends with the size of my Richter, however, I don’t need to give it to anybody.

The Swiss franc has intrinsic value: it is used, in Switzerland, to buy stuff. More to the point, there is a vibrant foreign-exchange market where billions of Swiss francs are traded for dollars, and vice versa, every day. The value of a Swiss franc can be pinpointed with extreme accuracy: right now, for instance, it’s $1.0911. And every Swiss franc in the world is worth exactly that much. The jargon term is that the Swiss franc is fungible. So when Maneker says that “Richter’s paintings are not fungible”, he’s actually giving a reason why they’re not a currency.

Commodities, by contrast, are different. They’re fungible — but only up to a point. Different weights of oil, different types of wheat, different grades of beef, sell for different amounts of money. And in the art world, you’ll notice that nearly all the most successful artists (financially speaking) now make art in series. Richter’s a prime example: his website even goes so far as to list them all in alphabetical order. (The “Photo Paintings” are subdivided into “Apples, Astronomy, Baader-Meinhof, Buildings, Candles, Cars, Children”, and so on, while the “Abstracts” are broken down by date, with a separate category for the Colour Charts. The Mirror paintings come under “Other”.)

Looking at art through an economic lens, where people rationally respond to incentives, this makes perfect sense: if you have works in series, they become increasingly fungible and interchangeable. That’s one reason why editioned works can be worth so much: there’s more of a market to mark them to. And it’s worth noting that Richter’s biggest series, the Abstrakt paintings, has also provided the majority of his most expensive works.

Maneker asks “whether the Abstrakt paintings are a commodity” — to answer it in the negative — shortly after starting a sentence with the phrase “If I buy an Abstrakt”. But the phrase answers the question: a world where you can talk about “buying an Abstrakt” is a world where “an Abstrakt” is something which has become commoditized. (Incidentally, I think the Abstrakt paintings are gorgeous; Maneker’s entirely wrong when he says I don’t like them. I love comfy armchairs as much as the next guy, and there’s nothing wrong with them at all.)

When I say that Richter has become a commodity, I’m not expressing “bigotry toward the very rich”, or “passing judgment” on them, as Maneker thinks — I’m just describing the way that the upper echelons of the art market work. It’s a place where artist-brands are instantly recognizable, and where the cognoscenti are largely incapable of looking at a work without mentally attaching a price tag to it. There are so many Warhols and Richters floating around the market that any Warhol or Richter can be valued pretty accurately at this point.

If a certain class of person walks into an apartment and sees a huge Richter, they’re going to know pretty much immediately how much that Richter is worth. If they see a medium-sized Old Master, by contrast, the financial value of the piece — not to mention its authorship — is much less obvious. As such, Old Masters are much less good at displaying the wealth of their owner than Warhols and Richters are. Which has to explain at least some of the reason why Warhols and Richters are so incredibly expensive.