NO KIDDING ! ! !
This from:
Of the many economies that gorged on debt in the boom years, Dubai stood out.
Now that the boom has gone bust, both in Dubai and in the United States, Dubai is stuck with a glut of real estate that no one wants to buy or rent.
The anxiety reached Wall Street on Friday, sending the Dow Jones industrial average down more than 150 points, as investors worried about hidden debt bombs in other countries and institutions — heavily indebted nations like Greece and even Britain, high-flying emerging markets and even European and American banks that had lent Dubai money.
In a worst-case contagion, Bank of America analysts wrote Friday, “One cannot rule out — as a tail-risk — a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s.”
And not just emerging markets. “Dubai shows us that what we are now facing is a solvency issue, not a liquidity issue.
Now, just as Bear Stearns was a harbinger of a string of failures of overly leveraged investment banks, the concern is that Dubai could be the canary in the coal mine for heavily indebted countries.
“You can print as much money as you want, but at the end of the day you have to pay the interest on your debt,”
But while a Dubai default may not provoke a banking crisis, it could well spur a broader crisis of investor confidence in overly leveraged economies.
World markets did not take long to reflect this insecurity.
On Dec. 14, $3.52 billion in Nakheel bonds come due. One of the largest Islamic group of bonds issued, the deal was snapped up by Western and regional investors. In a reflection of how sure investors were that Dubai would meet these payments, the bonds were trading at a 10 percent premium to face value earlier this week. They are now trading at around half of face value.
Oops!
When I hear a writer trying to calm the panic, well, I don't necessarily panic but I do listen, The old adage of looking both ways and then looking again before you cross the street could be well applied here. People are being jailed in Dubai for defaulting on personal debt. Many are living in airport or motel parking lots or sleeping behind a desert sand dune. This was serious a long time ago.
If Dubai goes; and I believe it will unless it's Arab neighbors step up, there will be a domino affect. By that, I don't mean the end of the world's economies just yet, no. I mean it will resonate throughout the world's economies triggering other defaults and this will build. Sooner rather than later, this snowball will gain momentum and. . . well, LOOK OUT BELOW! ! !
