Word: system
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Dates: during 1980-1989
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...virtually worthless East German mark will create a powerful black market. Beyond that, East Germany will need Western help to revive its Rust Bowl of antiquated factories. West Berlin's Economic Research Institute says it will cost $250 billion just to bring the country's hopelessly outmoded communications system up to Western standards. Upgrading roads and rails could cost as much or more...
American public opinion must understand that we are not asking for a gift or for debt forgiveness. We want a system of economic relations that will give us guarantees so we can plan our economies and develop our countries...
Sotheby's says its guarantee system is "traditional": it goes back 20 years. This is true, if only in the sense that the firm tried it in the '70s but it flopped, because the market was slow and pictures failed to sell. Loans, of course, have risks too. Christie's gives neither guarantees nor loans. "The practice of offering guarantees," argues a Christie's spokesman, "means that in effect you've bought the picture yourself. And loans by the auction house tend to create an inflationary situation, a false market...
...beauty of the loan system, from the point of view of the auctioneer, is twofold. It inflates prices whether the borrower wins the painting or not: like a gambler with chips on house credit, he will bid it up. Prefinancing by the auction house artificially creates a floor, whereas a dealer who states a price sets a ceiling. And then, if the borrower defaults, the lender gets back the painting, writes off the unpaid part of the loan against tax, and can resell the work at its new inflated price...
Most top private dealers dislike the system of guarantees and loans. "It creates an immediate conflict of interest," says Julian Agnew, managing director of the London firm of Agnew's. "If the auction house has a financial involvement with both seller and buyer, its status as an agent is compromised. Lending to the buyer is like margin trading on the stock market. It creates inflation. It causes instability...