Debt Masked Art Market Turmoil – artmarketblog.com
Today’s post is a continuation of my series on the art market correction of the late eighties and early 90’s and looks specifically at the role that debt played in the correction. The highly publicised agreement between Alan Bond and Sothebys in 1987 for the purchase of Van Gogh’s “Irises” is the most pertinent example of the effects that debt based sales can have on the art market. At the time Alan Bond didn’t have the money available to pay for “Irises” so Sotheby’s, not wanting to lose Bond as a bidder for this work, lent Bond the $27 million to enable him purchase to the work which he did actually buy, for the then record price of $53.9 million.
Lending this amount of money would have been risky enough for Sotheby’s but they actually lent Bond the money against the work he was planning on buying (“Irises”). So, basically, Sotheby’s lent Bond the money using a work of art that Bond didn’t actually own at the time as collateral. The loan was originally a one year loan but when Bond started having financial difficulties the loan was renewed for another twelve months and then again on a “short term basis”. Unfortunately for Bond, the stock market crash had a major impact on his various business dealings which resulted in him having to sell “Irises” to get the money to pay back the loan. In 1989 Bond Corporation went into receivership with debts of US$8.23 billion as of June 30, 1989 and a loss of US$580 million for the second half of 1989.
Lending money to clients for the purchase of works wasn’t that uncommon in the art auction industry at the time but lending such a huge amount of money against a work that the client was bidding on was very unusual. The reason that the market was so concerned about Sotheby’s actions was because of the impact such a sale could have on art market confidence. A new auction record occurring a month after a stock market crash would indicate that the art market was strong but this impression would be false if the buyer didn’t actually have the money to purchase the work at the time. Art dealers were worried that the sale of Irises had given people a false sense of security and confidence in the art market at a time when the art market was in a rather fragile and unstable state. It would seem the sale of “Irises” as well as many other factors created a positive impression of the art market that masked the problems that the art market faced and prevented people from realising how they should have been approaching the art market.
The impact of debt on the art market doesn’t end here but you will have to wait until the next post to find out more.
**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications