So what do defaulted mortgages, foreclosures and art have in common?
Well, in the Wall Street Journal Americas it was recently reported that in order to reverse the problems created by the mortgage credit crisis that was created by the Federal Reserve, the Department of Treasury of the USA is looking to create a rescue fund to try and ensure an orderly way out of the mess that has been created.
They plan to do this by forming SIVs (Structured Investment Vehicles) which will be emitted as short term commercial papers ultimately backed by the banks. Anyway, the big question is how liquid will these commercial papers be in the market. i.e. will they be easy to sell as well as to buy?
And here of course many of you will understand how such a problem also relates to the art market – right?
Exactly – liquidity.
How To Bring Liquidity To An Art Market
One of the biggest problems that I encounter when deciding where to invest in art is being able to define if my purchase is likely to have liquidity. Often, if I am selling a piece of art that is also one of the questions that I get asked too. What do I mean by that? I mean are there or will there be sufficient people interested in buying the piece of art that I decide to sell at some time in the future such that it will be easily sold?
Well apparent from being clairvoyant you will need to be able to look at reliable independent data to see what is going on in the art market. Most galleries (and the artists they represent) will probably not tell you if their art is not selling too well. (Hey, sound like when the real estate companies couldn´t move their off-plans a while ago in Miami!) So where do you go to find out? Personally I use ArtPrice.
ArtPrice is a company based in France and brings in independent data from all the important art auctions around the world and makes it available to the public for a small monthly fee or one-time annual payment. It has a lot of free info too.
Well, just as those SIVs may turn out be pretty illiquid for awhile – what can be done to help bring liquidity to the art markets?One of the biggest problems that the mortgage credit crisis had (and in part one of the reasons that it has become a crisis) is that the mortgages when they were packaged and sold as securities were not properly marked to market – and the companies that bought these “securities” should have known this. The reason they didn´t was because there was little transparency and perhaps a little (!) gullibility and greed on their part.
Transparency of realistic prices in the market is important and today there was a recent report that at major international auctions many contemorary “western” artworks were not sold or were sold at low prices – whereas oriental and in particular chinese contemporary art is starting to fetch record prices . . . so it is important to understand how the art market periodically changes too.
The best way to bring liquidity to the art market is to have more public auctions and/or more transparency in the sale prices of artworks in galleries.
Of course the main problem with either of these methods is that the market (especially a small one) can always be manipulated and of course the quality of different works even by the same artist can vary – which is a factor that buying bit of paper or SIVs tends to even out.
So, ideally we need transparent pricing and factors such as evening out the works of an artist over the sale of different art pieces and creating some kind of index, right!
Well, you can find that too at ArtPrice. So if you are interested in art markets and the prices therein I suggest you check them out!