As Detroit prepares to defend its plan next week to exit bankruptcy, city leaders have received an unusual offer: Why not mortgage all of the works in the Detroit Institute of Arts?, The New York Times reported yesterday. Art Capital, which makes loans backed by artwork, is willing to lend up to $3 billion, roughly 10 times the exit financing that Detroit is now contemplating, using the museum’s art as collateral. The city’s response: silence. Detroit already has plans for the art. Donors have promised hundreds of millions of dollars to put the collection under new ownership — safe from the bankruptcy creditors — and to help the city’s retirees. Detroit had a big hole in its pension fund when it declared bankruptcy last year, which made the retirees unsecured creditors, subject to painful cuts. By rolling up the art and pensions in a single deal, known as the grand bargain, Detroit hopes to keep its treasured collection intact while also getting more money to the retirees. But there is a potential problem: The grand bargain may be illegal.
