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Goodbye, Dubai?
Maybe you've heard this Wall Street joke: "Dubai, Mumbai, Shanghai or goodbye." Once upon a time, troubled American investment banks that needed cash fast could get it from one of those places, easy peasy. Now, the applicable word seems to be... queasy.
At least in the Middle East. For the 2nd straight day, the financial markets in Dubai and Abu Dhabi have tanked. Dubai stocks are down 12%, an aftershock of the news that state-run supercompany Dubai World needs to delay some debt payments. Today's market drop prompted Dubai's ruler to make his first public statement about the debt problem:
"Our economy is strong and solid and consistent," he told Al-Arabiya satellite television, adding markets were overreacting because of "a lack of understanding about what is happening in Dubai." He did not elaborate.
Okay, we'll elaborate then. What's happening in Dubai is the same thing that's happening in this country -- a reckoning. Dubai's fantasyland was built on easy credit, the same way Wall Street, American homeowners, American homebuilders, shopping center owners and banks built their houses of cards. The bill has come due.
Investors were shocked by the news out of Dubai. Why? People have been warning about this for some time now. Take a look at Marketplace's coverage from Dubai, The Middle East at Work, in March 2008. As host Kai Ryssdal said on Marketplace yesterday: "Everyone knew what was happening there was crazy; but nobody seemed to care."
The New York Times' Andrew Ross Sorkin was there a couple years ago as well:
With hours to kill before a late-night flight, I ventured over to the Ski Dubai indoor ski run. It's a pretty good bet that a city with an average temperature of 90 degrees and an indoor ski slope is probably living a little too large. On one ride up the chairlift, I sat next to a 7-year-old from London who had just moved to town. With a big grin, he proudly told me that his father was in "the real estate business."
We've told you what's happened to some of those people.
Predictably, Dubai might need a bailout from its neighbor, Abu Dhabi. Moral hazard knows no boundaries, even geographical ones. More from Sorkin, emphasis mine:
Just as the United States stood behind its banks, in part, to avoid losing the confidence of foreign investors, Abu Dhabi might have to do the same.
That had to be what Citigroup, with its firsthand expertise with bailouts, must have been thinking when it lent $8 billion to Dubai last year. Oh, and here's an interesting fact: Citigroup made the loan to Dubai on Dec. 14, 2008. Take a look at the calendar -- that's after it received tens of billions in TARP funds. Citigroup's chairman, Win Bischoff, said at the time, "This is in line with our commitment to the U.A.E. market in general, and reflects our positive outlook on Dubai in particular." Good call.
But lest the world "overreacts," in the Financial Times,
Sultan Sooud Al Qassemia, a fellow at the Dubai School of Government, says this:
It is already clear that Dubai's future is not what it used to be. But that does not necessarily mean it is facing a bad future. Last Wednesday's convulsion marked a significant milestone in the financial history of the emirate, and a very different Dubai will now take shape. To overcome the present situation, hard decisions must be made...
The truth is, Dubai took advantage of easy credit and poured it into developing the best infrastructure south of the Mediterranean Sea in any emerging economy. Had it not been for the less strategic investments in luxury department stores and other similar assets in the west, then Dubai would have been in a much better shape today.
But like everyone else, it wanted to eat its cake and have it too. It may be fitting that a certain Western city hopes one of those Dubai projects will be a savior for it now -- a mega-casino/resort that opens this week in Las Vegas.
My children, 2 boys, age 24 and 30, just spent Thanksgiving day in Dubi with their stepmom. She bought and paid for their tickets and they went.
I was furious that she set them up to fly 16 hrs there and 16 hrs back so she could show off the town of Dubi, where she worked. Yea, she worked them over. Oh yea, as to how the place is in NO financial problem, "The shieks with money will cover all debt, everything is just honkey dory".(of course this is someone who voted for Bush, twice,(Shit for brains!)
The flight for my boys was horrific both ways, not just small and cramped for an average male height 6'1 6'2. Why would anyone choose to abuse someone or themselves to fly there? I am just furious still.
I would think that she could have spent less money by her flying here to the states.Put money into our country than to fly them out to Dubi and spend money there. They could of stayed in a hotel in New York City. She could of flown the boys to New York City,or even upstate New York,(3 hrs not 16 in flight). They could of enjoyed New York City and all it has to offer.
They remarked as to how half-built skyscrapers sat silent in Dubi, cranes silhouetting the sky, silent. No money to pay workers to finish the construction, is what they said. Of all the times to be in Dubi, when this financial fiasco was exposed. I heard about the financial problems the day after they arrived. Yea they said it was a “cool place†an yea they went skiing in a mall, being there an opportunity never to have had again. Well I say Bullshit!! Spend money in our country! Not some fantasyland created for the elite who can't pay for workers to complete present projects but can go skiing in malls! I am furious!!!! And after hearing about the Dec 08 transactions of CitiGroup loaning money to Dubi, I am even MORE FURIOUS!!
I am letting you know this not a sour grapes story. Think about it.
I live in an amazing beautiful little town in the mountains of Colorado.
A Mom in Colorado
Scott... I'm wondering about ripple effects... Specifically the airline Emirates... Seventh largest in terms of passenger load and fourth largest in terms of passenger-miles, even though it has only been around about 25 years. It's growth has been explosive and seemingly unstoppable in a time when other airlines are struggling for survival.
It's primary hub is Dubai International, and there had been talk that the airport would some day become the new "super Heathrow," a mega hub for all long-haul traffic between the east and west to replace overwhelmed airports in London, Paris, and Frankfurt.
In recent years Emirates has been buying airliners like they were going out of style, loading up the order books at both Boeing and Airbus. Emirates has been just about the lone shining star for plane manufacturers in the past few years. In fact, Emirates is responsible for more than a quarter of all the orders for the new Airbus A380 super jumbo.
I don't know if the events of the past few days have any direct impact on Emirates, but if they start trimming back their orders it could be hugely disastrous for Boeing, and particularly Airbus which has been overly dependent on new orders from the Middle East.
I'd be curious if there is anyone else out there with an ear to the ground on this aspect of the story...
Maybe... Although Dubai produces less than a quarter million barrels a day, and the expectation is that number will move down to zero in the next 20 years. Though the country was built on oil production, oil has become decreasingly significant in the overall economy of Dubai.
Sure... Maybe Emirates gets a break on fuel costs... But if they can't fill their planes, then what?
