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The Digital Skeptic: What If the Art Market Was the Model for All Markets?

Stocks in this article: BID

NEW YORK ( TheStreet) -- Ariane Lelong-Mainaud knows an artful way to teach our dysfunctional financial markets the difference between a bogus tweet and a real ticking bomb: Buy and sell stock the way we buy and sell art.

"The way art is bought and sold has not changed for centuries, maybe thousands of years," Lelong-Mainaud told me over a luxuriously slow Japanese meal. "There is nothing electronic. The auction house is in the middle. There is a buyer. There is a seller. There is a price. It's done."

Lelong-Mainaud has art in her blood. She's not only the president of the Paris-based Association Pour la Defense de L'Oeuvre of Joan Miro, she grew up in a family of gallery owners in a world of modern masters such as David Hockney, Francis Bacon and Louise Bourgeois as well as Miro himself.

In fact, she knew the artist well as a child; so well that -- without much exaggeration -- she can spot a fake Miro a mile away.

"People who own Miro bring me in to confirm they are real before they are bought or sold," Lelong-Mainaud said. "Twentieth-century art is much harder than older art to make a forgery. So it's very simple to tell if it is not real."

I asked what happens when she spots a fake: "I tear it up," she said flatly. "People cry. The picture may have been paid for with millions. But if it is a forgery, I destroy it."

This stone-cold sense of the real from the fake makes Lelong-Mainaud the go-to woman for authenticating Miro at the world's heavy-hitting art auction houses, including New York's Sotheby's (BID) and London's Christie's.

She will not comment on specific pricing, buyers and sellers. But my talks with her over the past several months revealed a rare, inner glimpse of the dark world of how prices are set, buyers are found and information is distributed in the roughly $50-billion-a-year worldwide art market -- which, by the by is as absurd as absurd gets by contemporary, digital information-based financial market standards.

Think about it: There is no underlying cash flow or enterprise value to price with art. No product revenues to factor in. In fact, there are really no products at all.

"Art's value does not come from an underlying asset or income stream. It's all about what the next person will pay for it," Marion Maneker, publisher at New York-based trend-tracker Art Market Monitor, explained to me over the phone. "That makes a large portion of the market private and unknowable. Yet it's interesting how many people are drawn into it."

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