Dubai: Drowning in Sand

Leila De Kretser article in the Herald Sun titled, " Dubai drowning in financial sand" is a must read.

I append the article in its entirety for its full value.

"It always seemed a little silly that there could exist a city where you could ski in the middle of a desert and watch horse-racing on man-made islands in the shapes of palm leaves

Now, we learn that just like the rest of the absurd luxury that Wall Street lapped up in the recent era of the super-rich, the Arab port of Dubai is going to the dogs.

Well, not entirely.

If the most recent reports are to be believed, white knights from neighbouring states, such as the United Arab Emirates and Abu Dhabi, will rescue Dubai from its impending debt crisis.

It's hard to miss the irony that a city, in which the inhabitants openly scoffed at the restrictive laws of their Arab neighbours, must now turn to those religious zealots for a helping hand in paying back some of the $80 billion debt it now has owing.

For years, the ruler of Dubai Sheikh Mohammed bin Rashid al-Maktoum, along with global investors, had argued that the economic development of Dubai had progressed much farther than its neighbours because it was the only Arab territory not created from oil money.

Advanced infrastructure, an open attitude to Western business, tax breaks for foreigners and the pursuit of the global financial industry are what supposedly separated Dubai from surrounding states that had built their wealth almost entirely on the back of the oil industry.

Dubai garnered many admirers, be it Wall Street financiers who came to regard it as a sister city almost of the ilk of Hong Kong, London or Singapore, or politicians who praised its leaders for advancing the cause of democracy in the Middle East.

In the United States, Dubai came to play an integral role in the property market in New York, along with the racing industry in Kentucky. (In Lexington, where the Kentucky Derby is held, the arrival of Sheikh Mohammed's custom-built horse jet was sure to hike the average price of yearlings sold at sales.)

So there's no escaping the absurdity that Dubai has suffered from the same ailment that has plagued Wall Street and, hence, the US economy over the past decade.

The "irrational exuberance" that took the financial industry to its dizzying heights in 2007, and then crashing down immediately afterwards, was nowhere on better display than in the city that houses the world's tallest building.

Lucky for Dubai and the industries to which its money has poured (horseracing in the United States doesn't need another death knell), it's highly likely the doomsday predictions for the Arab city will be just as overblown as they were for Wall Street last year.

The key, as it was here on The Street, are the deep pockets and vested interests of those who will bail it out.

Just like Uncle Sam was completely reliant on Wall Street to keep the country's economy from collapsing, Dubai's Middle Eastern neighbours are deeply invested in the city's long-term success. It's their wealth, much more so than that of Wall Street billionaires, which has kept Dubai's streets paved with gold.

Besides, $80 billion may sound like a lot to us mere mortals, but it's $100 billion less than what was needed to save AIG."

So,it is a perspective thing. To the Arabs, $80 billion is just a scoop from the money jar!

Believe, me, it will only be a matter of time before Wall Streets shrugged the Dubai debacle off and continue to push up the market.