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The Dubai bubble will only go POP
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zeem



Joined: 29 Apr 2003
Posts: 3885
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The Dubai bubble will only go POP  Reply with quote  

http://www.slate.com/id/2236959/?from=rss

This was obvious from all angles. It's a city built by slaves.


Quote:

The Lehman Bros. of the Persian Gulf
Dubai assumes it's too big to fail. We'll see about that.
By Daniel Gross
Posted Monday, Nov. 30, 2009, at 3:10 PM ET
Dubai was supposed to be a new model for economic development in the Persian Gulf, and in the world. And like so many recent "new models," Dubai is proving to be a lemon.

The theory was that Dubai would be a competitive, free oasis in a region generally hostile to the open market. Lacking oil resources of its own, it set itself up as a sponge to sop up resources-generated cash. Dubai would be the playground, shopping mall, financial center, cultural zone, beach resort, and second-home mecca of the global oil patch—New York, Las Vegas, and Miami wrapped up in one. In a part of the world where politics were generally poisonous, Dubai was a comparatively free space, open to all investors. The world's financial elite embraced Dubai's new image as a blue-chip. In this year's World Economic Forum's ranking of the most competitive economies, Dubai came in 23rd, up from 31st the year before. It was the highest-ranking country not in Europe, developed Asia, or North America. Conservatives embraced Dubai as a small-government, capitalist heaven. "Think Dubai. Free and rich," as Donna Wiesner Keene wrote in a letter to the New York Times.

Of course, Dubai was never particularly free. Now it's not quite so rich. And, shorn of access to easy money and weighed down by enormous amounts of debt, it's becoming less competitive. Like so many other blue-chips that garnered headlines during the boom years, it was held aloft by loans and a global bubble heavily concentrated in commercial real estate. Now that it has stopped paying debts owned by government-controlled companies, Dubai looks less like Singapore and more like an institution whose epic fail in 2008 helped paralyze the global financial system: Lehman Bros.

Like Lehman, Dubai made the mistake of borrowing short-term to buy long-term illiquid assets. The holding companies Dubai World and Nakheel borrowed tens of billions of dollars from global capital markets and used the funds to buy stakes in Cirque du Soleil and Barney's, yacht businesses, financial-services companies, and, above all, real estate. In much the same way, Lehman plowed its hundreds of billions of borrowings into illiquid investments such as commercial office buildings and apartment complexes. (When it went bust, Lehman had more than $40 billion in commercial real estate on its books.)

Lehman exploited all the new tools of financial engineering—the commercial paper market, CDOs, etc. Dubai did the same with all the new tools of civil engineering: a palm-tree-shaped complex of islands, an indoor ski resort, the tallest building in the world.

In theory, Lehman was a model of modern corporate governance. Public shareholders were represented by an august board, which was supposed to supervise an experienced leader. In practice, it was an autocratic regime run largely for the benefit of insiders and disdainful of outside stakeholders. The same holds for Dubai, where the key companies are essentially arms of the state and are controlled by the royal family and its associates. When challenged about emerging financial problems, Lehman Bros. leader Dick Fuld adopted a tough-guy approach. "I will hurt the shorts, and that is my goal," he said in the summer of 2008. When questions arose about Dubai's financial management, its leader, Sheik Mohammed bin Rashid Al Maktoum lashed out: "So to the people of you who nag over Dubai and Abu Dhabi, shut up!" Ultimately, neither leader was worthy of the praise and presumption of competence that the markets had given them.

Lehman Bros. never believed the government and other members of the investment-banking fraternity would let it go under. Just so, there's been a presumption in the market—and perhaps in Dubai's palaces—that the United Arab Emirates, the oil-rich political federation of which it is a part, would stand behind Dubai's many debts. So far, however, there's no sign of a full-on bailout for Dubai.

And that may be the final comparison between Lehman and Dubai. Both may have shared the illusion that they were too big to fail.
Post Mon Nov 30, 2009 3:28 pm
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mancabbage



Joined: 29 Jun 2005
Posts: 9263
Location: london
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Naaa they ain't broke yet, someone tell em I'll give em a tenner for that big fucker with the tennis court on top
Post Mon Nov 30, 2009 3:43 pm
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note1



Joined: 10 Jul 2002
Posts: 1260
Location: providence
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You beat me to the Dubai schadenfraude thread....I can't help feel like the world makes a bit more sense when ideas like this turn out to be bad bets.



There's loads more pics of Dubai excess out there...lets see em.
Post Mon Nov 30, 2009 3:48 pm
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futuristxen



Joined: 01 Jul 2002
Posts: 19376
Location: Tighten Your Bible Belt
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It'll be a dope ghost city in ten years. Imagine what the ruins will look like.
Post Mon Nov 30, 2009 3:54 pm
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Szechwan



Joined: 19 Mar 2007
Posts: 587
Location: Vancouver Island
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futuristxen wrote:
It'll be a dope ghost city in ten years. Imagine what the ruins will look like.

I came here to post this exact same thing. You should read The World Without Us, if you haven't already.

As for Dubai.. Hell yeah!
1990


Right meow (well 2007)



Post Mon Nov 30, 2009 4:12 pm
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b. dolan
FBI agent


Joined: 17 Nov 2004
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one of my favorite lines from 'fallen house, sunken city' is about dubai. but i'm not allowed to talk about it yet.

dubai being all over the news makes it hard.
Post Mon Nov 30, 2009 4:25 pm
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Sage Francis
Self Fighteous


Joined: 30 Jun 2002
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Let it inspire the remix. If you want to write my verse I promise not to tell anyone.
Post Mon Nov 30, 2009 4:41 pm
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icarus502
kung-pwn master


Joined: 01 Jul 2002
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This woman I know went from internet-famous street activist to Dubai bigwig in a year. I wonder if she'll be back on the street soon.
Post Mon Nov 30, 2009 5:15 pm
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Joshua Kane



Joined: 14 Jul 2008
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Location: Carlsbad, CA
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IMO this is likely the first visible storm-head of another massive financial cyclone, still some miles out from the shore but approaching rather quickly.
Post Mon Nov 30, 2009 5:41 pm
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note1



Joined: 10 Jul 2002
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Quote:

Under Dubai's strict legal code defaulting on debt or bouncing a cheque is punishable with jail. Any expatriate in financial difficulty knows the safest bet is to take the next outbound flight.

At the airport, hundreds of cars have apparently been abandoned in recent weeks. Keys are left in the ignition and maxed out credit cards and apology letters in the glove box.
Post Mon Nov 30, 2009 6:03 pm
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Szechwan



Joined: 19 Mar 2007
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Location: Vancouver Island
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And you know those guys were probably partying in the Burj al Arab penthouse the night before.
Post Mon Nov 30, 2009 6:58 pm
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mancabbage



Joined: 29 Jun 2005
Posts: 9263
Location: london
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sounds like a fucking brilliant time to go over to be honest, that bmw looks like fun... i would if they didn't nail your cock to a flagpole for doing anything naughty.
Post Mon Nov 30, 2009 7:17 pm
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note1



Joined: 10 Jul 2002
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Quote:

MO this is likely the first visible storm-head of another massive financial cyclone


You talking about commercial real estate in general? Or something more specific?


Post Mon Nov 30, 2009 7:21 pm
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bakemosphere



Joined: 05 Apr 2005
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Yeah all the pictures of lightning striking the burj are awesome.

Since they aren't big fans of human rights anyway, I say we try and resurrect Frankenstein over there.
Post Mon Nov 30, 2009 8:05 pm
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Joshua Kane



Joined: 14 Jul 2008
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Location: Carlsbad, CA
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note1 wrote:

Quote:

MO this is likely the first visible storm-head of another massive financial cyclone


You talking about commercial real estate in general? Or something more specific?





Well, that's the trillion dollar question, and my point is that given the opaqueness of Dubai World's books, the secrecy of their 'managers', their complex interconnections throughout global business worlds, their use of advanced derivatives and CDS, along with the fact that the news was initially 'hidden' on the Wed before t-giving, thereby trying to fool the market into ignoring this (which has worked for the moment), there just is no telling how this will all play out. However, the way this is breaking does seems quite similar to the initial subprime problem (leadership saying it was small and containable when it wasn't), but this time the problem debtors are no longer citizens of nations, they are the governments who have sought to bail their citizens out; the nations themselves.

Uncertainty still abounds regarding Dubai Worlds' total debts and ultimate global institutional exposure to this, along with the uncertainty regarding how to deal with billions of dollars worth of sukuk (Islamic bonds) that have never gone into default with these sort of notional values before. Its only a matter of time before such uncertainties begin effecting global investment in a large way. In fact, the only thing we can be certain about is that leadership throughout the globe will not be honest about their exposure to this, whatever contagion falls out from it, and the possibility of similar future defaults. Uncertainty is anathema to markets, that much is certain. Uncertainty causes panic, I can certainly guarantee you that. And thus, I believe a new panic storm has begun to brew.

Also, I loved and hated reading this, this morning. Paul B. Farrel - Obama Is Leading Us to the Great Depression 2:
http://www.marketwatch.com/story/obama-leading-us-right-to-great-depression-2-2009-12-01
Post Tue Dec 01, 2009 11:56 am
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