How the Other Half Lives

If you want to read a real tear-jerker account of how a person with a multi-million dollar annual income falls into debt and is "desperate" to get out of their financial snare, read New York Magazine's story on Annie Liebowitz. In it you will find choice bits like:

In 2004, still in need of money to help pay for the $1.87 million purchase of the damaged Greenwich Village house, Leibovitz took out a bridge loan, a short-term, typically high-interest financial instrument. The loan was intended to tide her over until she could sell her other properties. Later that year, she sold the 26th Street studio for almost $11.4 million; in 2005, she sold the London Terrace penthouse. Those sales must have generated millions in profit, but they still didn’t get her out of the red.

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By the end of 2006, Leibovitz needed money desperately and was probably unable to tap additional funds from traditional lenders. Her only alternative was to find someone willing to lend her more. Late that year, she secured two mortgages totaling almost $7.25 million from an entity called Rhinebeck Properties LLC...

The Art Capital loan effectively consolidated all of Leibovitz’s major outstanding obligations, including her mortgages. The interest rate is unknown, but the term is just one year. That means Leibovitz has to come up with $24 million, plus interest, by this September. Under the terms of the agreement, says a person familiar with the loan, Art Capital could be entitled to up to 22.5 percent of all the proceeds from the sale of any of Leibovitz’s work—even for two years after she’s paid off the loan. And that percentage could increase to close to 50 percent if she were to default. Potentially, Art Capital may be entitled to her homes and even her catalogue of past and future copyrights. “They got everything,” veteran New York real-estate attorney Howard Brickner says, shaking his head as he wades through the public records associated with the loan.

Wow! Somebody coming from a middle class background, hits it big, falls in love with spending money, and ends up with big debts. Shades of Michael Jackson!

You wonder why this story is told over and over. Apparantly some people are completely unrealistic about their finances. Sadly, if they are Annie Liebovitz, they end up selling their soul to the devil. Here's an article by Felix Salmon on the ugly side of money lending and their hooks they get into a victim like Annie Liebovitz:

Allow me to make the subtext explicit. Art Capital talked Annie Leibovitz into signing a draconian agreement — one which she was all but certain to be forced to default on. The terms were onerous enough to begin with, since they gave Art Capital sole right to sell any of Leibovitz’s work while any of the loan was still outstanding and for two years thereafter. But the terms become really predatory if and when Leibovitz defaults, to the point at which Art Capital expects to make an annualized return on its investment in the 40% to 50% range.

Art Capital did not, however, simply have $24 million lying around when it extended the loan to Leibovitz. As a result, it sold part of the loan to other investors, including Goldman Sachs. And Goldman Sachs, while it’s happy to make lots of money, does not want to be painted as a predatory lender. So Goldman is now Leibovitz’s best hope: if Goldman can buy out Art Capital, it might be able to come to a more Annie-friendly agreement.

The problem is that Art Capital is internally valuing its loan to Leibovitz at much more than $24 million. Goldman could offer to pay Art Capital back in full, with interest, but Art Capital has every reason to reject any such approach, since they would make much more money by allowing the loan to default and then exercising all their contractual rights.

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The contours of the standoff are now becoming clear. Leibovitz can, in theory, make a lot of money from her archive — Goldman (that’s Andrew Goldman, not Goldman Sachs) sketches a plan whereby she would sell 40×60 prints of 200 of her most iconic prints at $25,000 apiece. If each print came in an edition of 7, that’s $35 million right there. But that kind of monetization needs Leibovitz’s full cooperation — if she doesn’t sign the prints, they’re not going to be worth anything like $25,000. It’s pretty clear that Leibovitz has no intention of cooperating with Art Capital, and there’s a very good chance that she’ll make it quite clear to anybody thinking about buying her archive from Art Capital that she won’t cooperate with them, either.

If that’s the case, then it’s going to be very hard for Art Capital to get anything remotely approaching the $50 million valuation it place on the archive, or for that matter the expected ROI it foresaw in the event of Leibovitz defaulting. Which means that it might after all be willing to sell the loan to Goldman Sachs to refinance with Leibovitz’s full cooperation.

Wow! Greed, arrogance, unrealistic expectations, intransigence... they are all there. This stuff is so far from an ordinary person's life it reads like fiction. It is so nutty. Here is a talented person who has made and can still make astronomical sums, but her life is in a mess and the vultures are busy tearing her corpus apart. Nutty!

I found this comment on the New York Magazine article telling:

Friends say Leibovitz has begun to think of herself less as a celebrity artist leading a charmed life and more as a single mother of three fighting to keep a roof over her head and food on her family’s table." Are these multi-millionaires for real????? How about cutting back on the THREE multi-million dollar homes, expensive private schools for the three kids (despite living in one of the best public school districts in the country), the Range Rover, the trips to Paris, the chef and housekeeper, the handyman, the personal yoga instructor, the terrace gardener, and the live-in nanny. These multi-millionaire tears are getting ridiculous. How about stop partying like it's 1999!!!