Saturday, November 28, 2009


I'm surprised anyone is surprised by the looming defaults on Dubai's debt. Everything about Dubai was absurdly excessive: indoor skiing in the Persian Gulf! Russian sex slaves! a 7-star hotel! Islands shaped like palms! While the idea of a city-state growing wealthy as the situs of international trade and culture is reasonable, Dubai tried to do in 5 years what Singapore and Hong Kong spent decades building. It was too much too soon. That didn't work for Elvis, and it won't work for Dubai. George Washington has a good round-up: DuBubble DuBurst

One thing, though: the immediate crisis has been brought about by a near-default on $59 billion of debt (that's not all Dubai borrowed. The UK alone apparently loaned $50B). $59B is a lot of money, but it's just a little less than the $62B that was given to GM and Chrysler to bail them out. Question: what the hell were they doing at those companies? Dubai built a glittering fantasy play-land for the transnational rich, while GM built ... the Chevy Cobalt? The misallocation of resources at all levels of society during this decade has to be its overriding theme.

I leave you with the apocalyptic stylings of Simon Jenkins, who seems to have watched the 30th Anniversary Edition of Mad Max while contemplating the fading mirage that is Dubai: Dubai: A City Built On Sand

I still have no doubt that Dubai will survive, despite its lack of oil or other natural resources. But it will do so as a benighted settlement on the Gulf shore, in hock to neighbouring and more cautious oil-rich states, such as Abu Dhabi. Its luxury apartments will become tenements to an ever shifting army of refugees from the torments of the Islamic world. Its towers will stand empty, unable to afford their energy-guzzling services. Its fantasy islands will be squatted or will rot and sink back into the sea. Where fresh water will come from, who knows?

But before the desert sands close over it, Dubai's lesson should be learned. It is the oldest in the book. Like the credit crunch in the west, the short route to folly is the belief that what goes up need never come down and there is no such thing as bad money.

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