Dubai World Strategically Defaults
November 27, 2009
The Chairman of the “Supreme Fiscal Committee” has indicated that the default of Dubai World was carefully planned. This really is not surprising. As somebody who was in Dubai last year, and saw the hundreds of hollow buildings and the construction up close, it really is not surprising that the party has come to an end.
Meanwhile, just like the US housing market, Las Vegas, and countless other examples from around the world, the bursting of the asset bubble is showing why the debtors in Dubai can probably sleep better than the creditors from around the world now that the default has taken place. As the old saying goes:
If you owe the bank $1,000, that’s your problem. If you owe the bank $1 Billion, that’s the bank’s problem.
Dubai was heavily backed by European banks such as RBS and Standard Chartered. The issue now is how far reaching will Dubai’s impact be. If the Dubai World default spreads to become a sovereign default (since Dubai doesn’t have much oil wealth – the oil sits in the emirate of Abu Dhabi), then there is a good chance that the US Dollar’s precipitous fall in value might come to an end as capital flows to other emerging markets also fall.
What will also be important is how creditors deal with this, because as we continue to see in the US housing market, rewarding those who default will lead to additional defaults. Bottom line is Dubai won’t be the last.
Watch this closely.
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Tags: Distressed Assets, Dubai, Dubai World, Las Vegas, UAE, UK
this isnt actually a "default" yet. they are asking for a deference/extension for 6 months. if they dont receive it, then theyll likely default. whats amazing is that it took a couple days for this to make shockwaves (since they said it monday) and that the markets last night were imploding – dow down 250, gold off over 50, dollar up 2 points, it looked like the market was going to retrace hard today. but then the the american markets brought us back from the brink as we invest on the "best black friday in years"!!
dubais housing market is off close to 70% (worst in the world) and it shouldnt surprise anyone with they way they just built shit to build it. theyre crazy over there. what i find all the more amazing (not surprising in the least, though) is that while a common man or expat will end up in debtors prison for years over a small credit card balance, the royal faily can default on 50, 60, 80 billion in loans with no recourse. so much for strict islamic law, eh?
No wonder Dubai's Palm Island is vacant.