James Stewart has a column this weekend on the success of New York’s recent round of art auctions that tries to provide a rational rule for the prices achieved. Whatever the merits of that line of reasoning, Stewart does offer an unsourced rumor—with no specifics to back up the suggestion—that some banks have begun to create CDOs with art underlying the loans. There’s nothing inherently wrong with CDOs created out of art loans. But it would be comforting to have the issuer claim credit publicly:
More banks are lending against art as collateral. Some are even starting to create collateralized debt obligations with art as the underlying asset — much as bankers packaged subprime mortgages before the financial crisis.
John Arena, senior credit executive for fine art at U.S. Trust, said the bank had a long track record in art lending and had billions outstanding in loans guaranteed by art. […] He said U.S. Trust […] wasn’t packaging the loans into C.D.O.s. “I’ve heard people are doing that,” he said. “But it scares me. That’s not our game.”
With Art, Investing in Genius (NYTimes.com)
