There’s an interesting side note in two recent stories about art loans: diamonds are increasingly being used as substantial collateral against short-term liquidity loans. Here’s the Wall Street Journal on pawn shops doing brisk business in loans to the wealthy against their high value assets:

“There is a certain type of affluent customer that will not go into a pawn shop,” owner Todd Hills told Newsweek in 2010. “And they don’t have a $50 or $100 problem. Maybe they have a $100,000 problem.” The granddaddy of all the plutocrat pawnshops is Beverly Loan Co., in Beverly Hills, which bills itself as “the Pawnshop to the Stars” has been helping the cash-strapped and famous for nearly 75 years.

Owner Jordan Tabach-Bank told CNN in 2009 that he was “giving more loans and they’re bigger than ever.”

“I recently had a hedge-fund manager in here getting a large loan on his collection of diamonds,” he said.

Now listen to Reuters on the rise of loans against luxury assets:

Martin Rapaport, chairman of diamond services company Rapaport Group, says owners of top-quality precious stones have also started to use these as collateral in financial transactions, repeating a trend he saw in the first days of the crisis in 2008.

“We know it happened in 2008 and I expect to see more of (it) this year. The stock market fell so much recently so these people are looking at tangible assets like high end diamonds,” he told Reuters.

At the root of this trend is the fact that such assets are proving better stores of value than investments such as equities. Their value is still appreciating, driven by huge demand from the fast-growing rich of Asia and Russia. David Prager, director of communications at diamond miner De Beers, said the firm’s prices rose by an “unprecedented” 35 percent in the first half of 2011. “That was driven by big increases in consumer demand, particularly in China and India.”

Pawn Shops for the (Formerly) Rich (Wealth Report/Wall Street Journal)

How to Borrow $10 Million (Reuters)