Apparently it really does pay to remember "Location, location location" when you build. When you remove all the cool architecture and urban playground for the ultra rich.....you are still left with Desert. Middle East. And Shithole.

http://news.bbc.co.uk/2/hi/business/8382103.stm

Someone is probably saying "I told you so" on this one, but does anyone have any idea if this will be limited impact on the rest of the world or is this going to drag us all under again? All those man-made islands and the now world's tallest building are worth far less than what is cost to build them.

Dubai is the Vegas of the middle east, but I'm thinking that the American shift in focus from Iraq to Afghanistan might have crimped the ex-pat vacation dollar that they claimed, with Far East vacation spots taking over. I'd have to check the civilian plane schedule to Mogadishu to be sure.

Apparently it really does pay to remember "Location, location location" when you build. When you remove all the cool architecture and urban playground for the ultra rich.....you are still left with Desert. Middle East. And Shithole.

http://news.bbc.co.uk/2/hi/business/8382103.stm

Someone is probably saying "I told you so" on this one, but does anyone have any idea if this will be limited impact on the rest of the world or is this going to drag us all under again? All those man-made islands and the now world's tallest building are worth far less than what is cost to build them.

I wouldn't worry about Dubai pulling us down significantly. Its troubles are a consequence (or manifestation?) of the world's financial troubles, not a cause.

Definitely time for a bit of schadenfreude though.

I'm sure it'll hurt in some regard. We hold about 3% of the debt they're about to default on domestically, but Britain holds over half (equivelent to $30 billion) and their banks trade with ours conciderably.

In related news, our stocks have slid some this morning at the news, not that the stock market is any decent indicator of anything other than some weird money hocus pocus.

It's a short trading week and there was little financial news yesterday, so the story breaking yesterday magnified its impact. People expected the Dow to be down 300+ today, based on overnight trading, but we ended down 150. Meh.

I'd be surprised if Dubai sinking into the sand would have any meaningful impact on our markets, long-term, much less this.

It could not happen to a more deserving place:
http://www.independent.co.uk/opinion/commentators/johann-hari/the-dark-side-of-dubai-1664368.html

QFT.

Wow. Heard it was horrible there for anyone that wasn't some rich ex-pat, tourist or Arab...but damn.

Its one thing to gloat on a failure on the part of those you don't particularly abide and then there is this situation where you almost have to applaud that this scheme failed. Still, its almost assured that all those migrant slaves are arsed out with not only no job now, but no shelter, food or way out of the desert other than charity or death.

Wow indeed!!
Slave labor, kangaroo courts with no representation, no coporate taxation. no wonder the Haliburtons of the world love it there. :devil

A brief fresh (today) update from the Independent on the Dubai crash: http://www.independent.co.uk/news/world/middle-east/dubai-babylon-the-glitz-the-glamour-ndash-and-now-the-gloom-1830672.html

Scroll down to the bottom, where Sheikh Mohammed's British investments are listed. 20% of the London Stock Exchange? Will Dubai be 'too big to fail' for the UK?

Dubai can rebound, but this collapse will certainly put all the problems of Dubai on the forefront. Investors will be wary the next go round and will demand that the glaring human-rights abuses be addressed as well as the corners that were cut along the lines of sustainability and infrastructure. People will see the dark underbelly for what it really is and will be less inclined to visit there either because the place is passe or they refuse to support a place built by such cruelty in one of the most inhospitable parts of the world.

Dubai has no depth that any well established metropolis such as London or New York or even other modern day boom towns such as Shanghai or Hong Kong. Even Beijing and Delhi have literally thousands of years of history. These places get woven into the fabric of human consciousness. Dubai has nothing like that. It has "no soul". No real roots. No one calls Dubai "home" except for what? 5%? Even Los Vegas which is the crown jewel of American kitsch, skin deep luster and shallow minded excess can probably weather the economic storm far better just due to the mystique that is Vegas and its history. Plus, Vegas is still a cheap date compared to Dubai and most anyone can find something to do there. As for other cities, people would want to save New York because...its New York for crying out loud! Its one of the world's great places. Dubai...well. It could almost just be considered just one big flimflam. A city built by slaves to pamper the ultra-rich. Outside of that and being a port, Dubai has no real fall back. No industry. No services other than to be the world's biggest resort hotel/shopping mall/theme park. Its a good chance Dubai will go bust before reaching the critical mass any big city needs in order to be its own self sustaining economy driven by its own mere presence. That requires second tier industry, services and a full range of economic classes and all the goods and services that cater to them. Dubai has none of that or so little of it to be next to insignificant. Slaves, rich ex-pats and a bunch of spoiled Arabs who can't think for themselves a city this does not make. Especially when it goes south and its so easy for the movers and shakers that brought all the money in to board an Airbus 380 and sip champagne and never look back.

For now, that kind of over the top opulence has fallen out of favor but there is too much money tied up in all those projects to just cut losses and walk away. The Bruj Dubai may be the new Tower of Babel, but someone will find a way to buy it up dirt cheap eventually. The Chinese. Other Arab states. Maybe even our buddy in Nebraska. Granted the UK really has a vested interest in making Dubai work but how much more money can you pump into a house of card built inside a wind tunnel. Especially when the world is ill-equiped to absorb anymore bad debt.

As for the "W" shaped recession theory...well its not so much of an impossibility. The credit market is still tight and banks are wobbly. If any major global lender goes bust due to this mess than it could very well drag some of the more marginal ones down with it and then we are right back where we started 2 years ago and its doubtful China will come riding into the rescue. Granted the second trough would not be as deep, but there is no more money for stimulus if things slip again. The recovery from the first trough has little to no margin in it to absorb another round of major losses. More hard lessons are probably in store.

You forget how quickly people forget.

People didn't stop visiting DC just because we all but committed genocide and built the place with slave labor. People still visit the pyramids. People will continue visiting Dubai and barely remember any of this soon enough.

Edit: Don't get me wrong, I'm not a fan of the place. Even if the labor situation were better, I generally dislike the idea of the place to begin with. It's nothing more than a superficial, ostentatious show of wealth, catering to the rich and shallow.

You forget how quickly people forget.

People didn't stop visiting DC just because we all but committed genocide and built the place with slave labor. People still visit the pyramids. People will continue visiting Dubai and barely remember any of this soon enough.

Edit: Don't get me wrong, I'm not a fan of the place. Even if the labor situation were better, I generally dislike the idea of the place to begin with. It's nothing more than a superficial, ostentatious show of wealth, catering to the rich and shallow.

You mean borrowed wealth? Someone has to pay for all this, and its doubtful it will be those that masterminded it. It will be businesses and their owners and employees totally unrelated to Dubai since someone figured out a way to pull out all of the global equity to finance this boondoggle and now there is going to be little left to lend for financing new ideas and growth. You are right though. Whats built is still of value. Someone will find a way to make it work, after the humbling effects of reality fade into the past.....and the rest of the world pays the piper for all the foolish pseudo prestige. Once again more of the common people will face hardship as penance for the bad rolls of the dice of the ultra greedy, who will more than likely escape any major hardship. Well, other than those who are living in their BMWs and Range Rovers. There will of course be some other bubble to ride and more easy cash to spend in places like Dubai and then as you said, the lesson will be forgotten.

From evidence, if enough people with investment bankers friends are invested in Dubai's debt-repayment, a whole lot of things people take as natural law can get politicked, and that matters more than anything tangible about Dubai itself.

Care to explain that one, Malse? We talking about the UK government or the EU bailing out these investors? There isn't money for that. The UK is in worse shape than we are.

Just saying that a lot of things that, in the academic sense, were not possible got done by inventing trillions of dollars and euros of mostly public debt obligations with quite literally no real backing. Our own federal reserve has been handing out billions per day for the last year, the UK's new floating debt obligation is actually not known since they don't disclose it the same way. If the right people convey their feelings of distress, there is no functional problem throwing Dubai's debt on the bonfire at this point.

Yes, in the long run it will be more destructive than letting them collapse, but the people with authority over monetary policy have been aggressively passing that buck every chance their get since the 1980s. These people have demonstrated a will to bend the rules whenever they feel it profitable regardless of the consequences.

So as long as you own the printing press, its money for nothing and chicks for free eh?

Nah. They sign checks for the guy that does own the printing press though. That way it's his fault when things go South.

Dubai has no depth that any well established metropolis such as London or New York or even other modern day boom towns such as Shanghai or Hong Kong. Even Beijing and Delhi have literally thousands of years of history. These places get woven into the fabric of human consciousness. Dubai has nothing like that.
Dubai doesn't need a "soul." Dubai and Abu Dhabi are the two largest ocean cargo ports on that side of the Persian Gulf. All the stuff that the other Arab countries purchase go through Dubai or Abu Dhabi. Saudi oil exports go through a massive facility at Ras Tanura. Even if Dubai ends up bankrupt and has to merge with another emirate state of UAE, they'll still be major players in transportation.

Until the container revolution, both London and NYC were huge in shipping. Neither could survive the transition. Your local library should have a copy of The Box (http://www.amazon.com/Box-Shipping-Container-Smaller-Economy/dp/0691123241). I strongly recommend reading it as it is hard to explain just how much of an impact the container has made in shipping product around the world, and that it is almost impossible for a person born after containerization to understand what it was like beforehand.

Port capacities are measured in TEU (http://en.wikipedia.org/wiki/Twenty-foot_equivalent_unit), which means "twenty-foot equivalent unit" (so the 40' long container you typically see on the back of a semitruck = 2TEU and the largest container ships (http://en.wikipedia.org/wiki/Emma_M%C3%A6rsk) can carry 15000 TEU). Abu Dhabi and Dubai can handle on the order of 10 million TEU/year. The other ports in the region can handle maybe 1 million TEU/year.

The sovereign wealth funds in that part of the world took a beating with the crash in the stock and bond markets in 2008/9, so it wouldn't surprise me that they're going to let the bonds go bust just to get even with "the west."

Yes I am aware of how much goes through Dubai. I have been to the Middle East and the Horn of Africa. There isn't much in that part of the world that doesn't get routed through there.

The sovereign wealth funds in that part of the world took a beating with the crash in the stock and bond markets in 2008/9, so it wouldn't surprise me that they're going to let the bonds go bust just to get even with "the west."
So basically they feel they are too important as a transportation node to bother with actually honoring business contracts. Wars have been fought for less. Fucking rag heads.

More or less. With enough people invested in their survival, they can do what they want as long as the money keeps moving.

So basically they feel they are too important as a transportation node to bother with actually honoring business contracts. Wars have been fought for less. Fucking rag heads. The way you phrased this reminded me of an article written in 1998 called "Spotting the Losers: Seven Signs of Non-Competitive States" that I think is relevant: Blaming Foreign Devils

The cult of victimhood, a plague on the least-successful elements in our own society, retards the development of entire continents. When individuals or cultures cannot accept responsibility for their own failures, they will repeat the behaviors that led to failure. Accepting responsibility for failure is difficult, and correspondingly rare. The cultures of North America, Northern Europe, Japan, and Korea (each in its own way) share an unusual talent for looking in the mirror and keeping their eyes open. Certainly, there is no lack of national vanity, prejudice, subterfuge, or bad behavior.

But in the clutch we are surprisingly good at saying, "We did it, so let's fix it." In the rest of the world, a plumbing breakdown implicates the CIA and a faltering currency means George Soros--the Hungarian-born American billionaire, fund manager, and philanthropist--has been sneaking around in the dark. Recent accusations of financial connivance made against Mr. Soros and then against the Jews collectively by Malaysia's Prime Minister Mahathir only demonstrated that Malaysia's ambitions had gotten ahead of its cultural capacity to support them. Even if foreign devils are to blame--and they mostly are not--whining and blustering does not help. It only makes you feel better for a little while, like drunkenness, and there are penalties the morning after.

The failure is greater where the avoidance of responsibility is greater. In the Middle East and Southwest Asia, oil money has masked cultural, social, technical, and structural failure for decades. While the military failure of the regional states has been obvious, consistent, and undeniable, the locals sense--even when they do not fully understand--their noncompetitive status in other spheres as well. It is hateful and disorienting to them. Only the twin blessings of Israel and the United States, upon whom Arabs and Persians can blame even their most egregious ineptitudes, enable a fly-specked pretense of cultural viability.

{snip}

Family Values

After the exclusion of women from productive endeavors, the next-worst wastage of human potential occurs in societies where the extended family, clan, or tribe is the basic social unit. While family networks provide a safety net in troubled times, offering practical support and psychological protection, and may even build a house for you, they do not build the rule of law, or democracy, or legitimate corporations, or free markets. Where the family or clan prevails, you do not hire the best man (to say nothing of the best woman) for the job, you hire Cousin Luis. You do not vote for the best man, you vote for Uncle Ali. And you do not consider cease-fire deals or shareholder interests to be matters of serious obligation.

Such cultures tend to be peasant-based or of peasant origin, with the attendant peasant's suspicion of the outsider and of authority. Oligarchies of landed families freeze the pattern in time. There is a preference for a dollar grabbed today over a thousand dollars accrued in the course of an extended business relationship. Blood-based societies operate under two sets of rules: one, generally honest, for the relative; and another, ruthless and amoral, for deals involving the outsider. The receipt of money now is more important than building a long-term relationship. Such societies fight well as tribes, but terribly as nations.

{snip}

Where blood ties rule, you cannot trust the contract, let alone the handshake. Nor will you see the delegation of authority so necessary to compete in the modern military or economic spheres. Information and wealth are assessed from a zero-sum worldview. Corruption flourishes. Blood ties produce notable family successes, but they do not produce competitive societies. Source (http://www.carlisle.army.mil/usawc/Parameters/98Spring/peters.htm)

And one other passage stands out If you want to guarantee an underdeveloped country's continued inability to perform competitively, grant it rich natural resources. The sink-or-swim poverty of northwestern Europe and Japan may have been their greatest natural advantage during their developmental phases. As the Shah learned and Saudi Arabia is proving, you can buy only the products, not the productiveness, of another civilization. I think Dubai is also proving Peters (http://en.wikipedia.org/wiki/Ralph_Peters) correct in other places.