Yesterday we argued that famous (broke) photographer Annie Leibovitz really shouldn’t be characterised as a victim of predatory lending, seeing as she’s both wealthy and smart — a far cry from some of the barely-literate, minimum-wage earners who were pushed to take out $400K mortgages to buy a condo in Florida through 2007.
Felix Salmon thinks we’re just being lazy and buying into what he calls the Wealth Corollary of the Efficient Market Hypothesis or EMH(WC).
In a nutshell, it says that if you’ve made lots of money, you must be pretty smart.
…the only evidence that Joe had of Leibovitz being a smart person with access to good advisers was that she had lots of money. The problem is that it’s far too easy for people to simply assume, on the grounds of wealth alone, that therefore there must also be some degree of financial sophistication.
But that’s wrong. We don’t presume she’s smart just because she’s wealthy.
For example, here’s a segment she did from an interview with Powell’s books regarding a book consisting of photos of women:
Dave: You come from a background of journalism. It seems like that would be incredibly helpful on a project like this.
Leibovitz: The truth is, I thought I was doing journalism, but I really wasn’t. At the San Francisco Art Institute, what I really studied was reportage, personalised reportage, a la Robert Frank and Cartier Bresson. I didn’t know this, but it had a more personal slant. When I started working for Rolling Stone, I became very interested in journalism and thought maybe that’s what I was doing, but it wasn’t true. What became important was to have a point of view.
That’s why I ended up using the title, “Portrait Photographer.” In a portrait, you have room to have a point of view and to be conceptual with a picture. The image may not be literally what’s going on, but it’s representative.
There was definitely an attempt in this book to be as straightforward as possible, but there are instances where to get the picture I want, I’m helping it.
For instance, Osceola: when I got there, she was sitting, waiting, all ready. And she was wearing her red suit and her wig, which she’d acquired since all of her notoriety. I walked around her house. It was very small. In her bedroom, her day dress was hanging on the back of a door.
I said, “Do you wear this?” She said, “I wear it every day.” I asked, “Would you mind putting it back on?” Then I asked her if she would take the wig off. A true journalist doesn’t have the right to ask that, but if you’re illustrating, you can.
Sorry, but we’ve heard smart people talk in our life and we’ve heard non-smart people talk too. And this kind of straightforward eloquence has “smart” written all over it. That’s why it’s not appropriate to lump Leibovitz in with folks like Michael jackson and Lenny Dykstra (as Felix Salmon does) who were rich, but never did much to demonstrate intelligence.
Now it’s true, we wouldn’t expect Leibovitz to have much financial intelligence, but it’s not financial intelligence that you need in order to know that taking a $24 million loan with your life’s work as collateral is a huge, huge financial decision.That’s just normal intelligence.
For example, you may not know anything about medicine, but if someone tells you that you’re going to need chemotherapy and years of treatment at a huge cost, you should get a second opinion. You know you’re making a gigantic decision — or at least you really should know.
Part of the problem with Felix’s argument is that it’s tautological. Everyone that makes financially boneheaded moves — borrows too much, spends beyond their means, etc. — is demonstrably dumb financially. The question is whether someone like her should have known that she was dumb financially, and thus in need of serious assistance when making such a big decision. We think the answer is yes, pretty clearly.
And again, her wealth matters because there’s little doubt she could have afforded the advice — the bartender with the $350K mortgage wasn’t able to get that kind of advice. It would have cost prohibitive.
Felix Salmon makes another point that is worth addressing:
I think there’s a pretty good case to be made that the EMH(WC) is responsible for a lot of the rules surrounding the limitations on who is and who is not allowed to invest in hedge funds…
Maybe. But here’s the thing: We taxpayers shouldn’t have to pay to prevent Annie Leibovitz from making dumb money decisions. It basically fits into our framework of fairness, and soft-touch egalitarianism that we tax the many to protect the middle class and the poor from being swindled and, frankly, from their own errors in judgment. It may not always make sense, but it’s what we do. To set up rules and regulations that try to suss out the dupable among the wealthy would be regressive.
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