Dubai Collapses, the Markets All Fall Down, and I Gloat

I'm gloating too. Dubai does not create anything and it has nothing to offer to the world. They do not create any culture, ideas, science, technology or innovation. It can only buy these things. The Disneyland of sand had it coming. And the corrupt Europeans and Asians, filling their pockets and picking Arab ass hairs out of their teeth, had it coming too. Civilization is based on people, not money, and above all, those civilized people who create.
--B.B.

"The Disneyland of sand had it coming"

"The dark side of Dubai

Dubai was meant to be a Middle-Eastern Shangri-La, a glittering monument to Arab enterprise and western capitalism. But as hard times arrive in the city state that rose from the desert sands, an uglier story is emerging. Johann Hari reports"

http://www.independent.co.uk/opinion/commentators/johann-hari/the-dark-s...

"Yeah, yeah. Americans had nothing to do with the phenomenon..."

Oh sure, this is why European Banks are heavily invested in Dubai.

"Still, one concern is that some British banks with large credit exposure to the United Arab Emirates are already troubled. Royal Bank of Scotland, majority-controlled by the British government, was one of the largest lenders to Dubai World, having secured $2.3 billion worth of loans to it since early 2007, according to a report by J.P. Morgan. Standard Chartered and Barclays were also large lenders to the region, with more than $10 billion between them, analysts said. HSBC has $17 billion exposure to the United Arab Emirates...."

http://www.nytimes.com/2009/11/28/business/global/28dubai.html

I dunno, Disneyland of sand sounds kind of cool.

After our own massive meltdown of last year, which essentially wiped out all of the gains I got back from the last meltdown after 9/11, I find myself pretty much where I was 10 years ago, all of my investments (in the states at least) that last ten years swallowed up whole. The only thing that saved me was buying an apartment in Shanghai, but it is my wife's and she ain't ever selling.
So essentially, I am not in any mood to gloat on anyone elses misfortune. But I guess I had it coming, investing my money in my retirement accounts. Stupid me, I should have opened my own bank, made insanely risky investment loans, taken a huge commission from each, and then let the government bail me out.

I tend to think Marty's gloating might be short lived, when oil prices rebounds all of those pretty new buildings will eventually get filled up by Saudi princes and their harems. And prices will rebound. Most of the oil left in North America is in deep water in the gulf, or in hard to process places like oil shales, or the Arctic. But yeah, lets pretend a real estate bubble bursting in some desert shiekdom is somehow good for us.

socrates, I do agree with your formulation by the way, it pisses me the hell off that 8 years after 9/11 we are still so readily funding Arab oil men knowing all the while they are passing the money off to jihadist nutjobs intent on killing Americans. Where the hell is the nuclear power, the solar, wind, thermal, hydrogen, etc.? And don't tell me we can't do it. Where I live in Mexico all of the electricity in this region of the Isthmus comes from the wind farm in La Ventosa. But God forbid any windmills disturb the vistas of the limo liberals up on the coast in Mass. (where one big project was shot down)

"America vs. The Narrative" By THOMAS L. FRIEDMAN

"What should we make of Maj. Nidal Malik Hasan, who apparently killed 13 innocent people at Fort Hood?

Here’s my take: Major Hasan may have been mentally unbalanced — I assume anyone who shoots up innocent people is. But the more you read about his support for Muslim suicide bombers, about how he showed up at a public-health seminar with a PowerPoint presentation titled “Why the War on Terror Is a War on Islam,” and about his contacts with Anwar al-Awlaki, a Yemeni cleric famous for using the Web to support jihadist violence against America — the more it seems that Major Hasan was just another angry jihadist spurred to action by “The Narrative.”

What is scary is that even though he was born, raised and educated in America, The Narrative still got to him.

The Narrative is the cocktail of half-truths, propaganda and outright lies about America that have taken hold in the Arab-Muslim world since 9/11. Propagated by jihadist Web sites, mosque preachers, Arab intellectuals, satellite news stations and books — and tacitly endorsed by some Arab regimes — this narrative posits that America has declared war on Islam, as part of a grand “American-Crusader-Zionist conspiracy” to keep Muslims down.

Yes, after two decades in which U.S. foreign policy has been largely dedicated to rescuing Muslims or trying to help free them from tyranny — in Bosnia, Darfur, Kuwait, Somalia, Lebanon, Kurdistan, post-earthquake Pakistan, post-tsunami Indonesia, Iraq and Afghanistan — a narrative that says America is dedicated to keeping Muslims down is thriving.

Although most of the Muslims being killed today are being killed by jihadist suicide bombers in Pakistan, Iraq, Afghanistan and Indonesia, you’d never know it from listening to their world. The dominant narrative there is that 9/11 was a kind of fraud: America’s unprovoked onslaught on Islam is the real story, and the Muslims are the real victims — of U.S. perfidy.

Have no doubt: we punched a fist into the Arab/Muslim world after 9/11, partly to send a message of deterrence, but primarily to destroy two tyrannical regimes — the Taliban and the Baathists — and to work with Afghans and Iraqis to build a different kind of politics. In the process, we did some stupid and bad things. But for every Abu Ghraib, our soldiers and diplomats perpetrated a million acts of kindness aimed at giving Arabs and Muslims a better chance to succeed with modernity and to elect their own leaders.

The Narrative was concocted by jihadists to obscure that.

It’s working. As a Jordanian-born counterterrorism expert, who asked to remain anonymous, said to me: “This narrative is now omnipresent in Arab and Muslim communities in the region and in migrant communities around the world. These communities are bombarded with this narrative in huge doses and on a daily basis. [It says] the West, and right now mostly the U.S. and Israel, is single-handedly and completely responsible for all the grievances of the Arab and the Muslim worlds. Ironically, the vast majority of the media outlets targeting these communities are Arab-government owned — mostly from the Gulf.”

This narrative suits Arab governments. It allows them to deflect onto America all of their people’s grievances over why their countries are falling behind. And it suits Al Qaeda, which doesn’t need much organization anymore — just push out The Narrative over the Web and satellite TV, let it heat up humiliated, frustrated or socially alienated Muslim males, and one or two will open fire on their own. See: Major Hasan.

“Liberal Arabs like me are as angry as a terrorist and as determined to change the status quo,” said my Jordanian friend. The only difference “is that while we choose education, knowledge and success to bring about change, a terrorist, having bought into the narrative, has a sense of powerlessness and helplessness, which are inculcated in us from childhood, that lead him to believe that there is only one way, and that is violence.”

What to do? Many Arab Muslims know that what ails their societies is more than the West, and that The Narrative is just an escape from looking honestly at themselves. But none of their leaders dare or care to open that discussion. In his Cairo speech last June, President Obama effectively built a connection with the Muslim mainstream. Maybe he could spark the debate by asking that same audience this question:

“Whenever something like Fort Hood happens you say, ‘This is not Islam.’ I believe that. But you keep telling us what Islam isn’t. You need to tell us what it is and show us how its positive interpretations are being promoted in your schools and mosques. If this is not Islam, then why is it that a million Muslims will pour into the streets to protest Danish cartoons of the Prophet Muhammad, but not one will take to the streets to protest Muslim suicide bombers who blow up other Muslims, real people, created in the image of God? You need to explain that to us — and to yourselves.” "

http://www.nytimes.com/2009/11/29/opinion/29friedman.html?_r=1&pagewante...

For those who missed it, these are the crucial paragraphs:

"It’s working. As a Jordanian-born counterterrorism expert, who asked to remain anonymous, said to me: “This narrative is now omnipresent in Arab and Muslim communities in the region and in migrant communities around the world. These communities are bombarded with this narrative in huge doses and on a daily basis. [It says] the West, and right now mostly the U.S. and Israel, is single-handedly and completely responsible for all the grievances of the Arab and the Muslim worlds. Ironically, the vast majority of the media outlets targeting these communities are Arab-government owned — mostly from the Gulf.”"

This means Dubai too.

This in answer to people who think it's not the Islamicists:

"“Whenever something like Fort Hood happens you say, ‘This is not Islam.’ I believe that. But you keep telling us what Islam isn’t. You need to tell us what it is and show us how its positive interpretations are being promoted in your schools and mosques. If this is not Islam, then why is it that a million Muslims will pour into the streets to protest Danish cartoons of the Prophet Muhammad, but not one will take to the streets to protest Muslim suicide bombers who blow up other Muslims, real people, created in the image of God? You need to explain that to us — and to yourselves.”"

I think it's ok for Muslims to blow up other Muslims, or that's the impression I get. I mean, it could be a bit like the Irish being able to tell Irish Catholic jokes, the Jews being able to tell Jewish jokes, and so on, but it's kind of inappropriate to tell ethnic jokes in the company of the target ethnicity.

No Muslim likes it when a westerner kills a Muslim.

It's sort of like the joke problem.

Except.

Except bloodier.

I assumed it was mostly Europeans who are so heavily invested in the Dubai real estate bubble, on the basis of the following clip (http://www.youtube.com/watch?v=sk9Sbpnkd-4) .... I don't know the relative or comparative contribution of Americans or Asians... but they have it coming too for being so seduced by this mirage of pleasure and no income tax.

The Chutzpah of the Royal Family of Dubai is staggering. They, the family, are also the government, and own 100% of Dubai World, which is defaulting on payments of $60 billion in liabilities. The same people of the government do not consider it their obligation, through the little gimmick of 'limited liability' to address the debts of the company that they own.

"I think it's ok for Muslims to blow up other Muslims,"

Z-word's Eamon McDonagh posts:

"Writing in El País today, Moisés Naím condemns the silence of the Muslim world in the face of Chinese repression of the Uighurs and contrasts it with the indignation produced the the publication of a few cartoons in Denmark. Readers will be able to figure out for themselves the relevance of all this for the themes with which this blog mainly concerns itself. The following is my translation of Naím’s article."

http://blog.z-word.com/2009/07/deaf-dumb-and-blind-muslim-reactions-to-t...

"It's sort of like the joke problem."

I think the joke analogy is in poor taste, facile and evasive, an attempt to shrink this gargantuan obscenity to manageable, knowable size and a familiar phenomenon.

If it were even slightly analogous one would have found similar indifference to fratricide in other human societies. Yet when an Israeli Jew killed Rabin, Israelis were massively shocked. Incidents of soldiers getting killed by friendly fire are particularly painful and usually evoke great fury.

Instead, what we get from Syrians, for example, vis a vis the Hama massacres, is total forgetfulness, as if the event never happened and even if 40,000 were killed in that siege, it is totally negiligible compared with Israel's Gaza war.

For Muslims it seems there is no imperative for balance at all. It comports well with an ethos that teaches the believers that a Jew's testimony in court is worth only half the weight of a Muslim's testimony. Or that Jewish homes must always be lower than their Muslim neighbour's home. Or a Jew must always lower his head when passing a Muslim in the street. I guess Muslims killing Muslims entails no inherent shame but Jews killing Muslims is somehow an audacious reversal of this inferiority/superiority dichotomy which can not be tolerated. It shakes the very foundational premises of a proper Islamic soul, I guess.

Well, Europeans will be always bailing each other out. I'm just still shocked at the gall of a family, that runs the government, and owns 100% of a company that is $60 Billion in debt, that it can get away letting the debts of one sink and not be accountable. The Europeans who reside in Dubai, are a particular kind of breed -- one that (I'm speaking as a European), I want nothing to do with. As far as I'm concerned, they deserve what's happening to them.

luis, "...Indeed, a system that channels absurd funds to Dubai and to its giant artificial works - as the global financial system we have today - instead of making sure that the same funds are used in things which are actually important to regular peoples' lives and the well being of future generations is a system that should not survive.."

And what "system"would you replace it with?

Luis, with respect, I didn't think that you answered my question. What is the system that you would replace and what is the system that you would replace it with?

No, I'm not working with an all or nothing distinction. The wording of your comment "...the global financial system we have today ... is a system that should not survive.." gave me the impression that you were making an all or nothing distinction.

As for your other points, they are so general, there's really nothing for me to respond to. You're the one making the insights, not me. I was just asking for some specificity.

You propose "regulation of banks". Well, banks are regulated, as are all legal markets. If you have better regulation in mind, a desirable and necessary objective, then what is it you're proposing?

You propose a "correction of the ECB system in order not to have all policies determined by monetarist purposes". I doubt that they all are, but what is the correction that you propose?

You propose "finding mechanisms of ending the rating agencies' tyranny" What other mechanisms do you propose, and what would be your process for determining them?

As for your questions, they strike me as rather rhetorical.

"For Muslims it seems there is no imperative for balance at all."

Precisely. Hence the joke "analogy" joke, intentionally freighted with "poor taste."

It was the opposite of evasive, indeed.

Luis, I think we're pretty well at the end of the trail for this one, but for what it's worth, "monetarist deficit goals" is an oxymoron. Monetarism doesn't target deficits, monetarism targets a stable, predictable growth in the money supply.

Also for what it's worth, Milton Friedman was an ECB skeptic.

"...The euro is going to be a big source of problems, not a source of help. The euro has no precedent. To the best of my knowledge, there has never been a monetary union, putting out a fiat currency, composed of independent states. There have been unions based on gold or silver, but not on fiat money—money tempted to inflate—put out by politically independent entities."

- Interview with New Perspectives Quarterly Magazine, 2005

bl: "As for your other points, they are so general, there's really nothing for me to respond to. You're the one making the insights, not me. I was just asking for some specificity."

bl. Luis doesn't deal in specifics, he deals in generalities. He loves to make speeches.

That's his style of debate.

I don't think the problem was "capitalism" as such, but the fact that the same people who run the government and own a large private equity firm like Dubai World, can put Dubai World $60 Billion in debt, and let it sink. What gall.

Apparently the UAE Central Bank said that they will support smaller banks, but this is not a bailout of the creditors of Dubai World. (http://www.nytimes.com/2009/11/30/business/global/30dubai.html?hp)

I don't think the problem was "capitalism" as such, but the fact that the same people who run the government and own a large private equity firm like Dubai World, can put Dubai World $60 Billion in debt, and let it sink. What gall.

Apparently the UAE Central Bank said that they will support smaller banks, but this is not a bailout of the creditors of Dubai World. (http://www.nytimes.com/2009/11/30/business/global/30dubai.html?hp)

".... But let me just ask you: doesn't that "stable, predictable growth in the money supply" involve low inflation which involves low budget deficits?..."

No.

"...Am I wrong in saying that the objective of monetarism ends up demanding non expansionist policies that would, for instance, promote employment?"

Yes.

For greater clarity, Luis, both of your statements are incorrect.

Here's a link to a good non-technical article on monetarism in Wikipedia.

http://en.wikipedia.org/wiki/Monetarism

What, in principle, is the difference between Dubai and Wall Street?

Luis, throwing a "moral" temper tantrum is not the same as saying something meaningful about economics.

dhurt: "What, in principle, is the difference between Dubai and Wall Street?"

Well, the spelling, for one . . .

Luis,

Couple points.

"...It is patent that European central institutions are being stuborn in pursuing deficit goals that relate to inflation while unemployment hits records".

The ECB is not responsible for pursuing deficit goals. The ECB is responsible for monetary policy to ensure price stability in the Euro zone. It is the descendant of the Bundesbank, and was set up to be independent in pursuing its monetary policy mandate to ensure price stability. It is my understanding that by treaty neither EU institutions nor component national governments can influence the ECB's monetary policy decisions. As Friedman notes, there are inherent problems in having a single fiat currency for the heterogeneous component national economies of the European Union.

"...it is patent that 60 billion that could have been spent usefully were down the toilet under "AAA ratings"

Not to defend the rating agencies, but a credit rating is an opinion on the probability of default, not a guarantee against it. Caveat emptor and yes, also caveat vendor. And sure, it could have been spent on alleviating poverty, improving infrastructure, education or health care rather than on building luxury islands. But that's a different horse - the amount and composition of and source of funding for such social policy spending is a normative fiscal policy decision of the responsible government(s), not a private sector investment decision, which is based upon maximizing expected return for a given risk tolerance.

"...if the same country has to pay usurary interests to banks (according to the the rates determined by rating agencies)"

Rating agencies do not determine interest rates, rating agencies provide opinions as to the likelihood of timely repayment of principal and interest. Interest rates are determined by supply and demand in capital markets. Countries borrow in capital markets through the issuance of bonds and shorter term securities such as treasury bills, not from banks.

"...the same country will not be free to pursue its social or fiscal policies freely. Considering this last aspect, the same country will be restricted by a system that allows for resources to be in the hands of private banks (and for policies to be indirectly determined by private banks and rating agencies)."

see above.

"... But their ratings determine the interests ending up being charged, since there will less "supply" for that state's need for capital"

Uh, no, Luis. You're confusing the cost of capital with the availability of capital.