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Belmont Club

Lunatics

November 30th, 2009 - 9:30 pm

Michael Totten writes a half obituary, half-paean to Dubai, that Secret Dubai termed the “‘strict Muslim emirate’ [that] is akin to describing Amsterdam as a ‘puritanical Christian state’”. It’s a glittering city with a cosmopolitan and unreal air.

“People in the region who visit Dubai,” he writes, “return home wondering why their governments can’t issue passports in a day or provide clean mosques and schools, better airports, airlines and roads, and above all better government.”

He’s right. Most Beirutis I know look down on Dubai as artificial and gimmicky, but just about everyone else in the region who isn’t a radical Islamist thinks it’s amazing.

It’s different geopolitically, too. The government is more sincerely pro-American than the nominally pro-American governments of Egypt and Saudi Arabia. Michael Yon put it this way when he visited in 2006 on his way to Iraq: “Our friends in the UAE want the Coalition efforts in Iraq and Afghanistan to succeed, and they are vocal about it. While much of the west, including many of our oldest allies, postures on about how the war on terror is a horrible mistake, the sentiment in the UAE is that it would be a horrible mistake not to face the facts about our common enemy, an enemy that might be just as happy to destroy the UAE as America.”

Maybe it was unreal. The main problem with Dubai is that it may be about to go bust. As late as November 27, the Times Online reported that investors were consoling themselves with the idea that Abu Dhabi, one of Dubai’s guarantors, was going to ride to the rescue. But now the New York Times reports that it ain’t gonna happen:

The Dubai crisis began last week, when the emirate said Dubai World would not be able to make on-time payments for some of its $59 billion in debt. The company invested in lavish real estate projects, including artificial islands in the shape of a palm tree and a globe, and spent heavily to acquire stakes in glittering properties like Barneys in New York and the MGM Mirage in Las Vegas….

Last week, investors fled the stocks of banks with outstanding loans to the tiny emirate and its investment arm, Dubai World. Now, analysts will be watching to see whether investors desert other highly indebted companies.

While Dubai is not big enough to set off financial repercussions outside the Middle East, the main fear is that investors could flee risky markets all at once in search of safer havens for their money.

The NYT wrote in horror that unlike the US government, which intervened following the failure of Lehman Brothers, the government of Abu Dhabi is not planning to intervene. The investors are going to be left to fend for themselves.

Indeed, the director general of Dubai’s Department of Finance told state-run Dubai TV that the emirate’s government has not guaranteed Dubai World’s debt, and that creditors must share in the pain that comes with any reorganization.

“The company received financing based on its project schedule, not a government guarantee,” the director general, Abdulrahman Al Saleh, said in response to whether the government was backing the debt. “The lenders should be part of the responsibility.”

The extent to which the federation and its wealthiest member-state, Abu Dhabi, which has vast oil reserves, appear to guarantee Dubai’s debts could affect how investors view many other companies previously believed to have the implicit backing of their governments.

“There are plenty of people around in world capitals who are tired of bailouts,” said Simon Johnson, a former chief economist at the International Monetary Fund.

But maybe not for the best of reasons. The underlying motivation for letting the devil take the hindmost is that is the way the world operates there. Zerohedge says that while Abu Dhabi “is the Anti-Fed/Anti-Treasury that some Americans have been lusting for” it comes at the price of “information assymetries” in which foreign investors essentially never know what’s really up. “Particularly in the Middle East that’s usually a hint that foreign investors are going to get their lunch money lifted, find themselves framed for the crime by local authorities when they complain, imprisoned by the uncle-of-the-thief (who also happens to be a judge) immediately before being repeatedly raped while in custody, caned and then deported “accidentally” to Azerbaijan.”

The Emirates Economist calls this “information assymetry” the ‘never mind syndrome’, a phenomenon in which a long established and well-trodden policy regime can suddenly vanish into thin air as if someone said, ‘never mind’. “I’ve not quite figured out the dynamics, but it’s pretty common in the UAE for one body to come with a new decision or rule, and then for a sheik to announce at the last moment that no we won’t be doing that.”

The close cousin of ‘never mind’ appears to be now-you-see-now-you-don’t. The Wall Street Journal described how the UAE removed the Sunday London Times from the local newstands because it “featured a double-page spread graphic illustrating Dubai’s ruler Sheik Mohammed bin Rashid Al Maktoum sinking in a sea of debt”. It was a senseless act in an era when many if not most people get their news over the Internet. But simply because something is senseless doesn’t mean its not going to happen.

The Times of India writes that a “a lot of people are pretty freaked out”. That includes some people who think Dubai is in trouble because it has succeeded.

“A lot of people are pretty freaked out,” said one American businessman with long experience in the region, who asked not to be named for fear of repercussions. “They’re all watching CNN and going: ‘Is Dubai going to default?”’ Many in Dubai have a shockingly different perspective. “Dubai is a victim of media distortion,” wrote one reader to a Web forum of one of the Emirates’ most popular newspapers. “All the Western countries have ganged up on Dubai. Why? Because it has succeeded.” Another reader wrote, “This is all because of jealousy from the Western world.”

But before anyone dismisses the events in Dubai as the result of the overheated fantasy of desert dreamers, it’s probably useful to ask how different in principle it is from the the subprime crisis in the US and America’s headlong gallop into Obamacare and Cap N’ Trade.  That makes sense too, doesn’t it; and if Abu Dhabi has Dubai Washington can have Copenhagen. Who knows but that the Arabs may get the better deal? At the end of the day Dubai may have beautiful buildings occupied by goat herders, but the result of Western fantasy may be millions of people living in self-imposed darkness lit only by the light of Triana and walking around barefoot, holding on to little pieces of paper in the expectation that they’ll someday be worth something.

Deep Space Climate Observatory (DSCOVR) (formerly known as Triana) is a NASA satellite proposed in 1998 by then-Vice President Al Gore for the purpose of earth observation. It is intended to be positioned at the Earth’s L1 Lagrangian point, at a distance of 1.5 gigameters. At this location it will have a continuous view of the Sun-lit side of the Earth.

The satellite’s original purpose was to provide a near-continuous view of the entire Earth and make that live image available via the Internet. Gore hoped not only to advance science with these images, but also to raise awareness of the Earth itself, updating the influential The Blue Marble photograph taken by Apollo 17.

We live in strange times. Yahoo reports that a Japanese gamer liked his virtual girlfriend so much he married her for real “in what must have been the weirdest ceremony in the history of ceremonies. We can only assume that Ms. Pac-Man was the maid of honor.”
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