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| | The International Business Network is not currently active and cannot accept new posts | | The Dubai Fiasco - seriously, did anyone think this wouldn't happen? | Views: 655 | | Nov 27, 2009 10:33 pm | | The Dubai Fiasco - seriously, did anyone think this wouldn't happen? | # | 
Rob Gordon | | Maybe building ski resorts in the desert isn't such a good idea after all. What always amazes me about these bubbles - the dot com, U.S. real estate, etc - is how much money people make AFTER everyone knows it is a bubble. This one will be interesting to watch.
Rob
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Dubai's Fantasy Island Gamble in the Persian Gulf Comes to an Ugly End
What’s the difference between the United States and Dubai? The US is a playground for the wealthy just like Dubai, but at least America hasn’t declared bankruptcy – yet.
Yesterday Dubai World, which is the investment arm of the Dubai emirate, asked its creditors to accept a six month freeze on interest due on its debt. That’s an admission Dubai is out of cash to make payments on its debt, and that it is de facto defaulting on this debt. It just isn’t using that word because it doesn’t want to trigger lots of nasty court claims from its creditors grabbing on to any collateral they can.
Dubai may not be able to avoid sovereign bankruptcy because not all of its creditors may agree on a debt payment moratorium. It only takes one aggressive lender to file a court claim and begin a mad rush to attach Dubai World’s assets, including its world-famous man-made Palm Islands. Still, that lender has a high likelihood of winding up with sand; most of the hotels and condominiums expected to be built on these islands are half-complete and already in a moratorium of their own because there is no money to finish them.
Therein lies problem number one. Dubai massively over-built office towers, hotels, apartments, condominiums, and retail complexes, all of them for the world’s nouveau riche who were expected to flock to this desert shopping paradise. Dubai offered the world exclusive shopping privileges at stores like Cartier, Bulgari, Bentley autos, and Versace because that is all it had to offer. Dubai ran out of oil a while ago, and beyond that it has sand and a dreadful desert climate that forces people to live their lives at night if they wish to leave their apartment.
Dubai gambled that it could turn itself into the Beverly Hills of the Persian Gulf now that it has no oil. It lost its gamble. The people who could afford a $10,000 purse have taken a big beating in the financial crisis and recession, and they are embracing a more moderate and discreet spending lifestyle. Dubai not only has half-finished buildings, it has many completed buildings uninhabited, like Miami and Las Vegas and other overbuilt desert mirages.
The second problem is how Dubai went about building its modern Garden of Earthly Delights. It did it with the poorest people in the world, Muslims from India, Pakistan and The Philippines desperate for work and lured by false promises of fantastic pay. The trade in workers used to build Dubai was as scandalous as the sex trade, with poor people expecting good money and a chance to prosper, only to find their employer had trapped them in a tenement one hour from Dubai out in the desert, with wage deductions so large that the worker will never have an opportunity to work back the “loan” the employer claimed to incur to bring the worker out to Dubai in the first place. At its peak two years ago, Dubai was estimated to have a population of millions, of which 18% were true Emirati citizens, the rest being unable to live in Dubai or afford any of the luxury goods in the stores they built. The city had taken on a bizarre Southeast Asian feel because of its immigrant population, to the point that tourists complained the only food you could buy in Dubai was curry.
The third problem might be called Dubai’s moral hazard. There are seven emirates that comprise the United Arab Emirates located in the former Trucial States along the southern coast of the Persian gulf. Not all of these have oil, and only the capital city – Abu Dhabi, which is an hour northwest of Dubai by car – has any significant reserves. Abu Dhabi, Sharjah and the other Emirates look like traditional Arab towns of the area, and have none of the high-rise glitz of Dubai or its money losing novelties like a ski resort. They have all looked at Dubai’s adventure in skyscraper over-abundance as at best a lesson in poor taste, and at worst a profligacy of sinful proportions.
Despite this, the emir of Abu Dhabi has always bailed out his fellow-emir in Dubai, with billions of dollars of loans and guaranties. Dubai has incurred about $80 billion in debt to build its fantasy along the desert shore, of which $59 billion was taken down by Dubai World. Around two-thirds of all this debt was bought by local interests, and the rest by foreigners. The foreigners always thought – and were told this in Dubai – that Abu Dhabi would make sure this debt was repaid, because it always had. Until today, when Abu Dhabi has said “enough is enough.”
This is a momentous decision that has shocked and disturbed the global investing community. Is Abu Dhabi teaching Dubai a lesson? Does Abu Dhabi have its own cash problems? Has Peak Oil reached the emirates faster than anyone outside appreciates? Whatever the reasons, in refusing to back Dubai for a penny more, Abu Dhabi has taken its own calculated gamble that reneging on United Arab Emirates debt by one of its members will not hurt the others in the long term. In the short term, Abu Dhabi must have known that the collapse in UAE debt ratings, plus a sharp increase in prices for credit default swaps used to protect against a UAE bankruptcy, would be inevitable.
Stock markets, bond markets, credit default swap markets, currency exchanges, and even gold and oil have all taken a beating in the past two days as investors realize the world doesn’t work the way they thought. There still are unexpected default risks out there even in unlikely places, and the deflation rippling through property markets worldwide has not abated. Those who lent to Dubai – including some of the biggest banks in the world, who are already severely stressed by bad debts – are going to lose billions of dollars even if Dubai merely postpones interest payments for six months as requested. Many investors now expect much worse than that, though.
So here we have a country that used to have oil which has now run out of the same. It has turned to massive amounts of debt to sustain not only its existing lifestyle, but to build a fantasy land of McMansions, luxury malls, trophy office buildings and theme parks for the wealthy. It has nothing anyone wants to buy and consequently stocks the shelves of its stores with goods from other countries it buys on debt. It has done all this using impoverished labor that works under a modern form of indentured servitude, in which the typical worker incurs excessive debts of their own that can never truly be paid off by their earnings. It creates an enormous income disparity between its privileged few and the huddled masses kept out of sight.
Sound familiar? When do you think global investors will start connecting these dots and ask: exactly what is backing the debt of the United States that has flooded the markets in the past nine years under Bush and Obama? At least Dubai had a presumed rich uncle in Abu Dhabi that would come to the rescue, even though now everyone realizes that was a very costly mistaken assumption. In the case of the US, the United States was the rich uncle everybody else looked to in order to solve global problems. Now that rich uncle has gone crazy in its own orgy of gambling, whoring, and over-indebtedness.
Except there is no one – absolutely no one – who can come to the United States’ rescue. And if you want to believe that the US would never, ever ask for a little extra time to pay back its debt, or ask for it to be restructured in some way, or debase its currency with inflation in order to throw its debt burden on to those who have financed it, that is your affair. Just remember there are millions of individuals, funds, corporations, and governments around the world who have bought US Treasuries. It only takes a few to wonder long and hard enough about just how safe and secure these Treasuries are to cause a stampede out of them, at which point the US is exposed like Dubai as a naked supplicant in the global market, begging for alms and a little forgiveness for past sins.
from "The Agonist:Private Reply to Rob Gordon | | Nov 28, 2009 6:07 am | | re: The Dubai Fiasco - seriously, did anyone think this wouldn't happen? | # |
Alok Varshney | | Dear Rob
Nice write up on the Dubai financial turmoil , which is very informative too.
Thanks
Alok Varshney
ACEEPLPrivate Reply to Alok Varshney | | Nov 28, 2009 11:56 am | | re: re: The Dubai Fiasco - seriously, did anyone think this wouldn't happen? | # | 
Dr Dinesh Kumar.K. Jani PH.D | | read twice the analysis given in Dubai Fiasco aticle
i do not doubt the honesty of the person who wrote this analysis but there are few very hidden factors still not and certainly can not be ignored by any one
creating a jannat in desert is very similar to the slogans give by our politicians who ruled this COUNTRY-and still has the GRIP & HOLDS- several times repeatedly said that-
GARIBI HATAO.....AND NOW DAY BY DAY MORE GARIBs ARE SEEN IN THIS COUNTRY.
rich became very rich and the number of poor population again is divided in BPL-below poverty line and above poverty line...and funny...who draws these lines...??
govt officials and leaders
where is the voice of people?
daal became expensive then any stuff
roti / milk /butter-ghee all are diminishing from the lunch and dinner of our people YET no mahatma is coming out for
DANDI KUCH SATYAGRAH
salt which was fuve to ten paise per killo is now above ten tto twelve ruppees a killos
and NONE shouts for it
Do CTOR are now Do-(TWO) CUTTERS....and none care for their behaviours and approaches
in fact few new doctors-openly speak that 40 to 50lacs donation is given and we must collect it
sooner the better
now to buy an appartment-in Delhi or in remote village adhacent to delhi-shall be a dream even for a son of poor politician who is in politics with ethics
i have came across such a noble politician who could not get admission for his grand son in a good school as he could not give so caaled donation affairs
Dubai is DU BAI -
all that glitters can not be the gold
after the gold smuggling brought under controls by the steps taken by Hon prime minister late shree Morarajee desai-
Dubai glittering shining-luster started diminishing or volatge became dim
well-they created jannat but for this jannat-they were reuires to bring in the tourists
BUT
how many tourists from neighbouring contries can go for tourism in Dubai or for so called desert festivals/summer festivals and shopping festvals...
all targeted mainly on and upon our country INDIA
because our economy was steadily rising and if not rising then at least surviving
but how many of us have that adequate money to spend in air travel and to pay for the package offers-
again for three nights and four days-
minimum package also got up wards pricing
from 7000 ts to now at least nothing below 20,000
plus shopping/eating etc etc...!!!
How a normal indian citizen can spend these much for three nights or four nights
yet-many were and are going BUT let me write here that there are NO repeat visitors for Dubai as you can see in cases of travelling to Thailand / sri lanka and for singapore
Dubai was sure to die a death BUT some how survived till 2009 is also a miracle-in other words Gods wish and willing or in their words insha allah...
now...??
think of our poor workers and their fate
as such that exodous is already started
kerala-once the cheapest for living became expensive even in micro interior village-will now face maximum head aches and pains-so the other states too in india
well more tourists flow is seen but no repeat tourists can be seen for dubai
let us still wait for some more time-as Dubai is on oxygen and THEY ALL will be BUSY TO keep DUBAI- alive eve on machine by their own fellow men plus the dying super powers.
best wishes to all Dubai nationals and praying for their survivals
Dinesh k jani
Private Reply to Dr Dinesh Kumar.K. Jani PH.D | | |
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