Thursday, December 3, 2009
Dubai: Is it too Big too Fail?
Beyond the Tiger Woods headlines was the reports of the collapse of Dubai. The glamorous fairy tale that was being built in Dubai is marred in late bills and the collapsing world economy.
The UAE has bought $10 billion in bonds to assist the bailout as construction and expansion plans screeched to a halt. From WSJ.com: "The Dubai government said in a statement Sunday it would issue $20 billion in long-term bonds, and that the first installment of $10 billion was fully subscribed by the U.A.E.'s central bank."1
Let the borrowing begin.
From that same article, the UAE stated: The bond issuance will provide Dubai "with the necessary liquidity to substitute the liquidity that has dried up globally in the last 12 months and accordingly meet all upcoming financial obligations" -- doesn't that sound like TARP
Throw some cash at the problem, call is "liquidity" and watch the disastrous pattern repeat itself.
"Dubai's once-soaring real-estate market comes crashing down. Falling prices, some down by 50% or more, have burned speculators who never intended to hold on to properties in the first place. Sales have plummeted, crimping cash flow for developers -- which are now scrambling to shed employees, cancel or postpone billions of dollars worth of projects and extend installment plans to avoid missed payments.
Banks, meanwhile, aren't lending to buyers or to developers."
Dubai’s ruler Sheik Mohammed bin Rushad Al-Maktown told media critics to "shut up," and sought to assure international investors that all was well with Dubai’s finances.
This is the worldwide collapse with the exact same language, problems and results.
The sooner the crisis is accepted and faced head-on, the sooner recovery can actually occur.
This isn't just a financial crisis, this is the first sign of financial collapse for a sovereign state. At home we see the pending bankruptcy of several states: California, New York, New Jersey, Rhode Island...how long do they have?