As art museums have expanded in the past few decades, Cassandras have warned that one day there would be a none-too-pretty reckoning. With easy money, stratospheric ambitions, hometown pride and trustee egos all at work, many arts institutions—like many homeowners—overreached.

In the past few months, the Asian Art Museum of San Francisco has had its moment of truth. Fortunately, in a deal reached earlier this month, it was able to refinance a debt load that last fall threatened to throw that institution into bankruptcy. But while officials there portray the AAM as a victim of the Great Recession, it’s an open question whether AAM—or other arts institutions—should have borrowed so much money and dabbled in variable-rate demand bonds and interest-rate swaps at all. In years past, most museums would manage their endowments and borrowings conservatively. But new financial instruments have tempted them, like everyone else, to take more risks.

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Judith H. Dobrzynski
Wall Street Journal

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