Collecting the Crumbs

"If you pass around enough slices of cake, then pretty soon you have enough crumbs to make a gigantic cake."

---Tom Wolfe, Bonfire of the Vanities

I imagine them, this "aggressive set of [art] boutique lenders and financiers," chuckling as their cigar smoke swirls up and around the brandy snifter their white-gloved butler is handing them. They're confident in the legality of their actions. And why shouldn't they be? Only they can afford the kinds of lawyers that such confidence costs.

It's an awful caricature, I know. No one's butler still wears white gloves, do they?

I'm sorry for my uncharitable depiction, but I'm deflated. Here I was so excited about the upcoming exhibition at the gallery (#class, organized by Jennifer Dalton and William Powhida), which is designed, in part, to pick apart the inadequacies of the art market system and hopefully lead to some alternatives that make the system more appealing, and then I realize we're all just children playing Monopoly in a sandbox, pretending we're talking about real money here.

What led me to that conclusion? This article by Kelly Crow in the Wall Street Journal:

When a seller consigns a work to auction, [Asher] Edelman's firm, Art Assure, will pledge to buy the piece if it doesn't sell for an agreed-upon minimum price. In exchange, the seller will pay the firm a fee of about 5% to 10% of the work's guaranteed price.

Unlike the auction houses, Mr. Edelman says he is also willing to stake a vast array of lower-priced objects—a $55,000 Modernist work on paper, say. Auction houses have traditionally focused on guaranteeing their sales' big-ticket lots, which are most likely to be bid up. Mr. Edelman says that smaller-ticket items represent an untapped market—opening up many more potential clients to him—and he expects to profit from the greater volume of works.

Some in the art world say the plan has the potential to lubricate the entire market by convincing more collectors to funnel art into auctions without fear that their pieces will go unsold and lose value. "Businesses like Asher's could be tapping into a new leverage business based on a potential collateral pool worth tens of billions," says Marc Porter, Christie's chairman.

The plan is also creating some controversy in the art world. Auction houses disclose in their catalogs when they've provided a guarantee for a particular work, because they have a stake in its sale—in a sense, they are partial owners. One of the cardinal rules of the auction process is that sellers aren't allowed to bid on their own work, because they could bid up the sale price.

But there is no disclosure process for a work that has been privately guaranteed, and Mr. Edelman says he wouldn't rule out bidding on a work he had guaranteed if a client other than the seller asked him to buy it. Collectors could wind up bidding against him, not realizing that he stands to profit from the piece selling well. Mr. Edelman says that he wouldn't bid up a work simply to inflate the sale price.

Rival lenders say Mr. Edelman should disclose which works he may be staking and also bidding on. Disclosure would help to "keep the playing field even," says Andrew Rose, president of Art Finance Partners, so that collectors know when a rival bidder is also a seller with a vested interest.

Mr. Edelman says his idea is legal, doesn't require any public disclosure and could benefit the entire market by convincing more collectors to trade works.

Hmmm....where to begin?

How about the idea that more of the art-ambivalent market meddling and speculation that got us into this mess is a fool's answer to getting us out of it? How about the notion that encouraging collectors to "trade works" for its own sake is of dubious value to "the entire market" in that it systematically, artificially inflates perceived value, inevitably leading to a bubble, which will eventually see prices succumb to gravity, see collectors take a huge hit on their investments, and see the entire system freeze, again?

It reminds me of this:

Wall Street may have discovered a way out from under the bad debt and risky mortgages that have clogged the financial markets. The would-be solution probably sounds familiar: It's a lot like what got banks in trouble in the first place.

In recent months investment banks have been repackaging old mortgage securities and offering to sell them as new products, a plan that's nearly identical to the complicated investment packages at the heart of the market's collapse.

I'm not the only one who thinks Edelman is playing with fire here:

Marc-André Renold, the director of the Art-Law Centre at the University of Geneva, says that offering to guarantee works across a range of lower prices and qualities is "a risky venture." To succeed, Mr. Edelman will need a steady supply of cash to cover his bets. And if he has to step in and buy art that he's guaranteed, he'll have to find a way to offload those same pieces in the private marketplace—offering goods that have already been widely shopped.

But don't let the charm of his venture fool you; Edelman is taking no prisoners:

"I used to do options conversions tables as a kid," he says. "So anyone who competes with me on this has to know I'll take it to the razor's edge."

Actually, I lie. He has taken prisoners:

New York–based dealer Asher B. Edelman visited the opening of Art Basel Miami Beach yesterday with 12 U.S. Marshals and police officers, helping the officials pick out paintings to seize at Galerie Gmurzynska's booth as a result of a default judgment stemming from a law suit he filed this summer. Among the paintings acquired in the seizure are works by Yves Klein, Joan Miro, Edgar Degas, and Fernand Leger.

Earlier this year, Edelman and insurance company XL Specialty Insurance Corp filed suit against Zurich-based Gmurzynska, alleging that the gallery damaged a Robert Ryman painting, Courier I (1985), that Edelman had consigned to the gallery for sale at Art Basel Miami Beach in 2007. The court ruled that the plaintiffs were owed $765,000, which Gmurzynska had not yet paid. The seized works will be auctioned to pay the default.

The value of the seized works amount to around $7 million, roughly 10 times the value of the judgment about Gmurzynska, the customary multiple when seizing property. As of press time, it was unclear whether Gmurzynska actually held title to confiscated works.

Not having someone pay for damage they're responsible for is very frustrating, I'll admit, ("Peter R. Stern, a lawyer for Gmurzynska, says that the gallery's insurer had been in the process of disputing the claim for the damage and the gallery didn't know that a court order had been issued for the work in the meantime"), but introducing this level of corporate hardball into the art market will unquestionably change the tone of things, make the entire endeavor feel more like "work" to the financiers and other captains of industry who collect to relax, and possibly have repercussions all the way back into artists' studios. In fact, like the crumb collectors in Wolfe's novel, the only one who seems poised to purely profit in this is Edelman. For everyone else, this repackaging would seem to come with potentially unpleasant strings attached, none the least of which would appear to be the potential for invoking Mr. Edelman's wrath.

Mr. Edelman's idea may be legal, but that doesn't automatically make it a good idea.