Mortgage Crisis, MFA And ICA

The Los Angeles Times ran an alarming story a few days ago detailing how many of the museums and cultural institutions in Southern California were "bleeding because of the sub-prime mortgage crisis, with combined losses of more than $3 million -- and mounting -- since February, when their seemingly safe and innocuous construction bonds turned into fiscal leeches."

The institutions named included the Los Angeles County Museum of Art, the Orange County Performing Artscenter, the Natural History Museum of Los Angeles County and the Colburn School. And the J. Paul Getty Trust "reported oozing more than $650,000 on auction rate bonds since January before it put a tourniquet in place Wednesday. Using its clout as the nation's richest arts foundation, with a triple-A credit rating, the Getty reconfigured $270 million in suddenly dicey bonds it had issued last year, mainly to finance art purchases."

I asked officials at the Museum of Fine Arts and Institute of Contemporary Art, one working toward a large expansion project, the other with one recently finished, if they were facing similar issues.

ICA Spokesperson Donna Desrochers: "We're not experiencing any of the issues cited in the LA Times article. The bonds we have are fixed rate interest bonds."

MFA Boston Deputy Director John Stanley: "To date we have not been caught up in this. Our bonds have regularly traded in the 3.5% to 4.0% range. What tripped up many of these institutions was the purchase of bond insurance. In most times this has been a prudent decision, as it has actually helped to lower interest rates. However, with the bond insurance companies having their own troubles, manifested in the lowering of their own bond ratings, healthy institutions with strong balance sheets have been dragged down. We chose not to buy bond insurance at the time of our issuance."