When I began dealing art, all of my attention was focused on meeting new clients and helping them improve their collections. Time and money were spent taking collectors to dinner, touring museums with them and treating them to expensive art books. The idea was to ingratiate yourself and develop long-term relationships. You wanted clients to feel special. I'll never forget reading a story in author Sophy Burnham's The Art Crowd about Leo Castelli telling a collector who wanted to buy a Cy Twombly, "I know your collection and will let you have nothing but an important Twombly. Be patient. . . I shall think of you. . . as soon as I get one good enough." That's how business was done.

These days, however, if you find the "important" Twombly, the last thing you want to do is offer it to a client -- you put it up to auction! The whole collector-dealer model has irrevocably broken down -- which oddly enough is why the boom market can go on for quite some time.

In the earlier days of the post-war contemporary art market, a dealer who wanted to be a long-term player sought to sell works to bona fide collectors rather than to other dealers. With such a policy, you assured yourself of a future. You were building an inventory, even if you didn't actually own the works. As Irving Blum used to say, it was all about "knowing where the bodies are buried." When your collectors decided to sell a work, either to upgrade or because they needed money, they would allow you to broker the deal. If you sold your clients high-quality works to begin with, you were in a position to make money a second time off the same piece.

But those days seem to be over. Now, a collector who wants to sell might still hire you -- but as a consultant to help them negotiate the best terms with an auction house. Without a need for privacy or other extenuating circumstances, the collector is not going to give you their property to resell. They can get more at auction. And the sad thing is I don't blame them. I would do the same thing.

The current art boom is now entering its fifth year. Generally, I trace the beginning of the surge to 2003. If you remember, 2001 was a good but tricky year because of all the uncertainty surrounding 9/11. By 2002, the art market had stabilized and began to strengthen. In 2003, prices started to rise sharply. Now, as 2007 gets under way in earnest, just when you thought prices couldn't go any higher, guess again.

What's driving the art boom? One simple explanation is that people would rather have art than money. But I have another theory -- call it "blind faith." People now believe that works of art are liquid. The only thing that held art back from joining stocks and real estate as "investment vehicles" was its liquidity (or rather, the absence of same). Today, with the apparent ease of buying and selling at auction, and the fact that almost everything seems to sell -- even property that passes is purchased after the sale -- people now believe their money is safely invested. They view their art collection as a legitimate asset on equal footing with their other assets.

If you want to sell a painting, your worst-case scenario is you might have to wait six months until the next major sale. But even that is changing. Now, the weaker February and October auctions, which used to be filled with second-rate merchandise, are attracting good property and great prices.

Another factor driving the art market is the idea that blue-chip art is still undervalued compared to other assets, such as prime real estate. Look at this way: $17 million may sound like a lot of money for the giant Warhol Mao (82 x 61 in.) painting that sold last November at Christie's. But it's reasonable compared to the price of a medium-size office building in Manhattan. And the Mao is infinitely rarer than office buildings in New York.

You could even extend this argument to the baby Maos (12 x 10 in.) that now bring $2 million at auction. As someone who lives in the San Francisco area -- where residential real estate prices are unreal -- buying a house you wouldn't be ashamed to live in is a minimum of $2 million. This is for an iconic Victorian in Pacific Heights -- arguably the city's most desirable neighborhood. Yet, these are merely starter homes, just like the small Maos have become "starter" Warhols -- arguably the art market's most desirable artist. Little Maos are also harder to find than Victorians in San Francisco. The point is that the art market boom will continue as long as buyers and sellers believe art is an undervalued asset.

Hot markets tend to attract a lot of press. Witness last November when both W and Vanity Fair did cover features on the art scene. The key is these are not art magazines. They are large circulation publications, illustrating how art collecting has entered the upscale mainstream. High profile stories are like magnets, which help attract more people to the art market. This, in turn, creates greater demand for a diminishing supply of blue-chip paintings, driving prices even higher.

If you talk to anyone involved in the American financial markets -- real estate speculators, hedge fund managers and venture capitalists -- they all say the same thing: "There is so much money out there." Once you realize that much of the rest of the world has caught contemporary art fever and is also now buying art, countries like Russia, China and India, it becomes clear how much money really is out there. At least that's the current perception. Since perception is always reality, the art market boom might go on for quite some time.

But not forever.

Art collecting is supposed to be about connoisseurship. It's about what will survive the test of time. I don't have a problem with artists like Willem de Kooning, Francis Bacon and Roy Lichtenstein bringing big money. They're brilliant innovators. But when a workd by Peter Doig sold for over $10 million at auction, my first thought was, "Give me a break." Ditto for artists like Marlene Dumas selling for $3 million and Lisa Yuskavage breaking $1 million. It's not that they aren't good, but let's see how we feel about them 20 years from now.

A good illustration of what's happening to the art market can be found in an article that appeared in the New York Times on Mar. 3, 2007. The story was titled For Newcomer, Cash Alone Is No Key to Art World. What's more, the story appeared on the front page of the New York Times -- a presentation that more typically is reserved for obituaries of famous artists. The feature told the tale of art market rookie Susan Hancock, who was accompanied by a reporter during the "five frenzied days" of "Armory Show week" as Hancock spent a reported $230,000 on artworks. The novice collector won four works for that impressive sum, paying $70,000, $60,000, $40,000 and $60,000. The scary part, according to the article, is that Hancock "often can't remember the names of the artists she's buying (though she can recognize their work across 10th Avenue)." 

It gets weirder. Hancock bragged the artist she had just bought for $70,000 (Aya Takano) had also been acquired by Cameron Diaz (as if the movie star were an established art maven). I mention this not to poke fun at Hancock -- there are plenty of others just like her. As someone who built a company and sold it for a lot of money, she's certainly earned the right to enjoy her life and spend her money however she wishes. But her approach is exactly why this whole party is bound to come to an end.

It was also fine to read that Hancock enjoys traveling to art fairs, socializing with other collectors, and joining museum acquisition boards. But if I owned a gallery trying to develop the long-term career of an artist, I wouldn't sell to someone who couldn't recall whom she was buying (unless I needed the money). If I were a museum director, I wouldn't let someone this ridiculous help determine the direction of my institution's collection (unless we needed the money). However, if I were an auction house executive, I would welcome her with wide open arms -- which has apparently happened, as evidenced by the article's mention of her attendance at a presale dinner at Christie's.

The auctions are replete with this kind of indiscriminate buying, which promotes competition and pumps up prices. If such buyers stayed home, the art market would not fall apart. But values would decline. The auction houses know this, but apparently are content to ride the trend for as long as they can. Though auctions give credibility to the market, the auction firms certainly could act more responsibly. For instance, they could decline to auction works that are not at least five years old. By allowing paintings that were created only a few years ago to come on the block, the auction houses are working against the artists' -- and their own -- long-term best interests, by encouraging the practice of "flipping" artworks for a quick profit.

Adding to the boom is a factor that can always be found in overheated markets -- greed. Recently, on behalf of a collector, I made a generous offer -- $1 million -- for a Warhol Skull painting in a private collection. Warhol's Skulls are nice paintings, but they're hardly iconic in his oeuvre. The owner had originally paid approximately $35,000 for his picture. Yet he turned me down, saying, "Nah, maybe if I wait a year, I'll get $2 million." I wish him luck.

How will the boom market come to an end? One likely scenario would be a contemporary art auction at which all the lots sell "only" within their presale estimates. Even though these prices would still be outrageous, speculators will say to themselves, "Prices are no longer going up -- time to get out." If that happens, more work will come onto the market, competition will decrease and prices will go down. It's just a matter of time.

RICHARD POLSKY is a private dealer in Sausalito, California. Comments can be directed to: Polskyart@msn.com.