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Ear to the Ground

Global Markets Hit by Dubai’s Debt Crisis

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Posted on Nov 27, 2009
Dubai financial towers
Flickr / omar_chatriwala

Trouble in the United Arab Emirates: Two skyscrapers stand in the financial district in Dubai, where local debt woes could have fallout beyond the international market reaction Friday.

Dubai’s debt issues caused trouble in other parts of the world Friday. Stock markets from Europe to Asia to the U.S. registered the effects of the city-state’s announcement that it would need to put off paying back $60 billion in debt incurred from investments, according to The Wall Street Journal.  —KA

The Wall Street Journal:

The Dow Jones Industrial Average was off 233 points at its morning low and ended the shortened post-Thanksgiving session with a 154.48-point decline, off 1.5%, at 10309.92, hurt by declines in all 30 components. The Dow, which entered Friday’s session at a 13-month high, ended the week down 0.1%, snapping a three-week winning streak.

Traders and money managers drew some comfort from the U.S. market’s recovery from its intraday lows Friday. Many point out that Dubai’s main creditors are European banks, not Wall Street firms. But that could still lead to gyrations next week and beyond if investors with exposure to Dubai’s troubles continue to unload commodities, U.S. shares, and other assets that have shown hefty gains this year to raise cash.

“We still need to see if there’s going to be a domino effect here,” with Dubai’s credit woes spreading to its neighbors and trading partners, said Kevin Shacknofsky, of Alpine Woods Capital Investors. “The markets are telling us for now that this is a containable problem, but we’re not absolutely certain of that yet.”

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Samson's avatar

By Samson, November 28, 2009 at 10:38 am Link to this comment

Good question. One would think a story by a supposededly leading finanacial paper like the WSJ would answer that question. Interesting that it doesn’t.  Sherlock Holmes always paid attention to what he didn’t hear, ie, the dogs that didn’t bark.

Googling for international info yields a bit more than the Murdoch propaganda sheet story.  An article in the Guardian refers to bad real estate debt.  An article from India does the same.  (Why is Truthdig printing the Murdoch propaganda rag’s half-useful story?)

It appears that Dubai is a part of the UAE that doesn’t have much oil.  The people there were making money via real estate speculation and a big building boom there.  They were also counting on a sister oil-rich emirate to bail them out, which didn’t happen because of internal disputes apparently over a quid-pro-quo that the guys with money didn’t get.

All in all, Dubai made the classic mistake.  They invested in a speculative real estate market using borrowed money.  It worked just as well as the guys on TV who used to tell you how to buy houses with no money down said it would work .... right up until the real estate markets crashed.

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By samosamo, November 28, 2009 at 12:16 am Link to this comment

Why in the hell is dubai in financial trouble? THIS IS the country where a lot of the
major american corporations have fled to keep from doing their financial
participation in america, in other words, leave the u.s. to keep from paying taxes
or just being a financial part of america but still dictate and control what is
beneficial to them(more profits less costs) via the their lobbyists, oops extortionists.

But I guess even dubai is feeling the effects of what the lousy american corporations have done to the u.s. so, dubai, how do you like halliberton?

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