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Castles in the sand

DAN ROBERTS - Nov 28 2009 06:52
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The biggest mystery of the Dubai debt crisis is not why this desert dream has turned into a nightmare, but why it took so long. Ever since United States homeowners started defaulting on subprime mortgages two years ago, the tightening of international lending conditions has put the squeeze on investment bubbles around the world. Some, like Iceland or the British housing boom, popped relatively quickly, but others have been slower to collapse.

The common feature is that an excess of cheap borrowing lulls investors into thinking that more permanent wealth is being created. Like any investment bubble, it works well as long as more money is sucked in to keep inflating asset prices, but fails when that new money disappears.

The key difference with a debt bubble like the one bursting around us now is that there can be a significant time lag between asset prices beginning to fall and investors acknowledging their losses. Unlike the dotcom share bubble, for example, which drove stockmarkets up and then quickly down again at the turn of the century, credit bubbles often take a while to fully deflate.

The developers who built those skyscrapers in Dubai knew it was getting harder to fill them, and that property prices were falling, but as long as they could pay their interest bill to the banks it made sense to try to hang on, in the hope things would improve.

The banks had no incentive to foreclose because it would only force more property on to the open market and further depress the price of their remaining assets.

If anything, it has become easier to keep hanging on because governments around the world have driven down interest rates and pumped fresh money into the markets.

Yet the fragility of Dubai's castles in the sand was hard to ignore for ever. With little prospect of a new boom to replace the old one, property developers have finally acknowledged the unpalatable truth. The big fear now is that international banks will no longer be able to pretend that these half-empty office blocks are worthy collateral for the billions of dollars of debt that has been extended.

Banking analysts at UBS estimate that the emirate's total debt burden is well above the $80-billion to $90-billion admitted so far, with sizeable off-balance sheet liabilities lurking in the shadows.

Not only does the Dubai crisis threaten to further destabilise the West's battered banks, but it also points to the danger of thinking that the world economy is through the worst.

CONTINUES BELOW


From Dublin to Shanghai, there are plenty of property bubbles that have yet to fully burst. In Britain, many think the commercial property market is also hiding some painful horrors, with banks unwilling to accept that many developers are insolvent.

The Dubai crisis has also thrown a new name into the lexicon of toxic instruments. Just as credit derivatives helped to exacerbate the subprime crisis by obscuring who was ultimately exposed to losses, the use of Islamic finance has complicated the reckoning. "Sukuk bonds" are designed to get around religious laws banning the payment of interest for money lending. But one of the most volatile debts in the Dubai World standstill is a $3,5-billion Islamic bond due to be repaid in December.

Because Sukuk bonds replace interest payments with a promise to share profits, investors are effectively owners of the underlying assets, rather than traditional secured creditors.

Default on this scale has never been tested before, echoing the nervousness in derivative markets when the banking crisis first started. HSBC estimates there is $822-billion Islamic finance debt outstanding in the world. - guardian.co.uk © Guardian News and Media 2009
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Dubai: A Morally Bankrupt Dictatorship Built by Slave Labor


Dubai is finally financially bankrupt - but it has been morally bankrupt all along. The idea that Dubai is an oasis of freedom on the Arabian peninsular is one of the great lies of our time.

Yes, it has Starbucks and Dunkin' Donuts and the Gucci styles, but beneath these accoutrements, there is a dictatorship built by slaves.

[Sheikh Mohammed is just another US supported dictator]

The people who really built the city can be seen in long chain-gangs by the side of the road, or toiling all day at the top of the tallest buildings in the world, in heat that Westerners are told not to stay in for more than 10 minutes. They were conned into coming, and trapped into staying.

In their home country - Bangladesh or the Philippines or India - these workers are told they can earn a fortune in Dubai if they pay a large upfront fee. When they arrive, their passports are taken from them, and they are told their wages are a tenth of the rate they were promised.

They end up working in extremely dangerous conditions for years, just to pay back their initial debt. They are ringed-off in filthy tent-cities outside Dubai, where they sleep in weeping heat, next to open sewage. They have no way to go home. And if they try to strike for better conditions, they are beaten by the police.


Johann Hari - The Independent

http://www.commondreams.org/view/2009/11/27-4
Billy Hill on November 28, 2009, 7:14 am
I was always proud of Dubai that for the first time if one wanted to experience luxury they were not forced to go to western worlds to enjoy it. I was really hoping that they are investing their money wisely and they would never face this situation because the western world will be the first to laugh at them, happy to know that they are only ones that can maintain supreme worlds. I hope this is a minor setback and once again a non first world will outshine as one of the best places to visit.
And Bill for you information I don’t think there was slavery labour in building Dubai. We live in a world of choice. Those people were free to quit their jobs and go back home. But I think that first world countries used horrendous ways to build their wealth. And until today all nonrich countries are still suffering the effects of those ways.

Senzo Jasentle on November 28, 2009, 11:04 am
Ticking time bomb indeed, and a sobering warning to everyone celebrating the end of this global financial crisis. Seems like Dubai-itis is going to blow away any recovery we've made, and the Sukuk bonds impact is going to hurt big time. And, yes, @Billy Hill, I agree with you: Dubai is built on the back of exploitative labour practices. A less well reported fact is the environmental degradation in that region. The two are linked. This does not bode well for the Emirates states.
Set Lah on November 28, 2009, 11:14 am
I know a few people living and working in Dubai, and the Emirates exploitation of people in general to build their dream is pretty disgusting. @Bill above spot on, there have been numerous instances of peoples passports being seized and forced to work in inhuman conditions. The environmental consequences of some of the grand projects like the Palm Jumeirah have been devastating, interfering with ocean currents and destroying the ecosystem.

I was initially impressed by their grandiose schemes, but it seems the reality is somewhat different. What goes around comes around I guess, but unfortunately it will more than likely be the common people who will take the fall and lose their jobs, be discarded once their usefulness has expired, and the immoral policy makers will walk away.

The Sukuk "no interest" bonds made me laugh, people always find a way to ignore the tenets of their own religion in the endless hunt for wealth.
chris on November 28, 2009, 12:11 pm
Billy boy, nice one dude. I am enjoying your odd comments. Senzo, Billy is completely spot on. Sure there are or might be a few "choice labourers" but the bulk are essentially modern day slaves. Actually Senzo, you sounded a little surprised by that comment. It is a very common and highly profitable form of labour. This is the primary reason we, and most "modern" societies, as you called them, are unable to compete on the labour markets without the rand being raped. (And that without the obligatory breakfast and taxi fare home) Set Lah, you too are correct, the financial crises is just about to get fcuken deadly. However, senzo, don't despair, I suspect the these sovereign funds will be somehow bailed out. They are too close to some other banks that can't afford for them to drop, RBS etc.
Apocalypse Now on November 28, 2009, 2:29 pm
If ever there were a dull, useless, superfluous space on Earth it would be Dubai. Amazing that anybody fancy sitting in a high rise looking out on a hazy desert of concrete, glass, cement (built by slave laboures) and sand, if not a hazy sea. Takes all sorts.
Victor Brown on November 28, 2009, 3:06 pm
Good stuff - at least the spuriousness of the benefits of globalisation are being shown in all its glory. But why limit it to the Arabs? There are entire nations in debt (ostensibly sustainable debt) whose productive structures are decimated, and only thrive to export to earn currency to pay of debt (most of which is structural), have economic decisions made "for" them by the US controlled World Bank or EU dominated IMF, and export roses while their people starve (remember Ethiopia in the 80s). The Paris Club of Creditors (the usurious financeers) organised a bail out of their over-extended private banks and vultured the debts and continue to demand payment. Nation-state-debt-slavery must also be brought to the discussion, it cannot be limited to the Arabs. Enslaved nations (slavers still the usual suspects from colonial days) are also a concern and this must be brought to the fore. After all these are the GLORY YEARS of liberalisation!
bashar teg on November 28, 2009, 4:48 pm
Well said bashar.
Billy Hill on November 28, 2009, 5:18 pm
Full on basher dude.
Apocalypse Now on November 29, 2009, 10:46 pm
Dubai should stop builing tall, fancy glass buildings or else they will eat those glasses and use the left-over (glasses) has a new currency to buy food locally.
pingpong afrijap on November 30, 2009, 2:39 am
What always was disturbing, was how many SA'ns, overwhelmingly white & coloured, jetted off to work in Dubai and the rest of UAE.
Something like 40,000.

I understand that they felt marginalized and sidelined by the new racist ANC BEE policies. They were gatvol of being told that they are not welcome to help the state provide services. They all had the skills: engineers of all kinds, artisans, electricians, teachers, nurses, i.e all the kind of jobs a developing country like SA and Dubai so desperately need.

Dubai was the winner hands down. They realized the excellent knowledge they were attracting at no cost to them. The ANC prefers to believe that somehow SA does not need its majority of skilled labour; race trumps a decent government service ....

My question is:
why these SA'ns preferred to take their rare skills to the highly racially stratified bling world of the Arab nouveau-riche?? Here, Philipinos, & Indians, etc. are the exploited workers. It is exactly like apartheid SA. They should have been disgusted by that exploitation! It's there for everyone to see. We have been thru' that; why on earth go back to a racist state!?

I hope they will come back - I hope that the SA'n government sees this as an opportunity to get back some of the excellent SA'n human resources they lost thru' their stupid racial exclusion nonsense.

I also hope that the returning SA'n realize that they were in Arab apartheid state. And that somehow they have overcome their racist tendencies.





Peter Bu on November 30, 2009, 12:09 pm
If you see a spark for a far distance don't think that it's a light.
pingpong afrijap on December 1, 2009, 8:56 am
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