Goldman Sachs and Morgan Stanley, the last 2 investment banks standing from the financial collapse of 2008 were summarily reorganized into regulated commercial banks by the government, in order for them to survive. In the art and antiques industry, the Sotheby’s/Christie’s duopoly still operate in an unregulated, dangerous, and reckless manner. Just like investment banks wrote their own rules on credit, the duopoly has redesigned the auction process.
Investment banks have regaled in their image as aggressive and creative market makers for new products and services. As we have discovered, most of it was financial fluff, with a lot of smoke and mirrors on real valuations, with the investment bankers taking home the big profits. While art and antiques are quite tangible (I can’t touch a credit default swap), the duopoly has succeeded in pumping up profits by gouging their clients with a non-negotiable, ever rising buyer’s premium along with entrenched conflicts of interest and the public and government’s acceptance of sham bidding to reach a secret reserve price.
The unregulated nature of business is a sword that cuts both ways. It does allow for innovation and the free movement of ideas and productivity. When carried to excess, you end up with sub-prime mortgages to lure unsuspecting or ignorant consumers to inappropriate products and decisions. Trust is the key element in the charade, and nobody can pull that con better than the Sotheby’s/Christie’s duopoly. Just ask Halsey Minor, who is being sued by Sotheby’s and is now counter-suing Sotheby’s with a class action for essentially deception and conflict of interest over a painting he was advised to bid on by a Sotheby’s representative.
The issues of how the duopoly operates are openly accepted, but that doesn’t make it right. There is no SEC in the art world to blame for not protecting your IRA or retirement account. Nobody is losing their investment in their purchase, but just being manipulated for the profit of the auctioneer. The seller is now not just the consigner, but also the auctioneer, whose financial stake allows total control of how and who buys and profits. The auctioneer’s undisclosed interests would never be an accepted business practice, even with those investment bankers.
As I look back to the Sotheby’s/Christie’s price fixing convictions and financial penalties back in 2001, I like to think they lost that battle, but won the war. It came at a monetary cost, but allowed them to operate with impunity. It laid the ground work for greater conflicts of interest, manipulation of the buyer and the buyer’s premium, and acceptance of the secret reserve deception. Government, dealers, and the public (except for Mr. Minor) are willing to accept the present practices. Will it take a collapse of contemporary art prices to bring the auctioneers to their knees; and who is going to bail them out?