In addition to my first commentary on Charlie Finch’s article Liquid Skies, another point I found interesting was his reference to the use of an art inventory’s value as collateral for a gallery. This practice is in fact new and is due to a new generation of lenders who don’t understand how to evaluate levels of risk and can be directly related to the shaky subprime market I spoke in an earlier post. As for the galleries who engage in this borrowing activity, it’s foolish unless they are sure they can repay the loan.
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More thoughts on Liquid Skies
August 10, 2007Blame it on the Hedge Funders
August 7, 2007Those of you who read the article, Liquid Skies, written by Charlie Finch published this week on Artnet News may feel a little anxious about your recent and future purchases.
Readers – Stay calm. The world isn’t going to end, not even the contemporary art world, but Charlie Finch is right – the art market has been over-inflated by players who aren’t realizing the distortions they are creating by their high volume manipulations, I mean transactions… but, those dealing in the alpha market (think Warhol and Hirst) are the most vulnerable.
In the beginning of the piece, Finch compares the characteristics of hedge funds to the art market and investing in fine art – high fees, information opacity, low regulation, long hold periods, and difficult/slow turnover – basically high risk, and possible high reward.
In response to Finch’s comments regarding German and British banks – Yes, the subprime market (the subprime market serves borrowers who have poor or no credit histories or limited incomes and can’t meet the credit standards to get loans in the prime market) has destabilized their banks – but according to a British statistician friend of mine who I sent a panicked email to – they’ll survive.
Everyone knows that an increase in leveraging, in any sector, equals a less stable marketplace. So one could argue that, looking back, this is a good example of what happens when risk advisors don’t estimate all the variables involved – a small increase in interest rates was enough to seriously refute their assumptions.
Although I agree with Finch, Collectors – don’t panic Please don’t look with disdain at the contemporary art on your walls, just start learning to appreciate the psychic benefits and enjoyment of owning it… instead of fantasizing about its resale value.
