Friday, November 27, 2009

Dubai debt default: a paradox and contagion; it may help force ING to break up


Major financial media sources report that Wall Street was unnerved today by reports that Dubai (including developers -- the state-owned company Dubai World (link - "The sun never sets on Dubai World"!)) are asking for a six-month extension on its $60 billion debt, due to the 50% drop in Dubai real property values this year. There is a fear that other “sovereign” emirates could default.

All of this happens in a culture that still will put debtors in prison, leaving Europeans and Americans to flee, leaving property and further depressing values.

Dubai may have built the largest manmade artificial island projects in history, all of which could be jeopardized by seal level rises.

Partly as a result (and also to meet the terms of previous Dutch bailout), Dutch financial services company ING Groep took a beating today, and is offering rights to its stock at discounted prices. And apparently ING will have to sell or spin off all of its insurance subsidiaries, like ING-USA, (and ING Direct) which individually are healthy. This may be a better thing for ING employees and retirees.

Wikipedia attribution link for Burj Dubai. It sounds like a fascinating destination anyway, a sci-fi modern Arabia.

Update: Dec 4

Check the op-ed by Sebastian Mallaby in the Washington Post today, p A27, "A bad omen in Dubai", link here. Despite the erosion of confidence in the stability of sovereign states, the stock market went up, he says.

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