Background: No Thanksgiving for Investors, Dubai's Debt Woes Rattle Stocks Around the World
http://www.alipac.us/ftopict-179513-dubai.html

Includes second article, "If Countries Like Dubai Begin to Fail, Who Is Going to Save Them?" by Jeremy Warner.

Dubai Debt Woes Raise Fear of Wider Problem

By LANDON THOMAS Jr.
Published: November 27, 2009

Of the many economies that gorged on debt in the boom years, Dubai stood out. In the space of a few years the emirate’s investment arm, Dubai World, racked up $59 billion in debt, borrowing to build lavish developments like a giant island shaped like a palm tree to entice celebrities like Brad Pitt, and to invest in glittery properties like the MGM Grand Casino in Las Vegas.


Chris Jackson/Getty Images
The Emirates Towers in Dubai, which has accumulated $59 billion in debt.

Kamran Jebreili/Associated Press
Golfers in the shadow of Jumairah Island Towers on Friday in Dubai. Fear that the emirate cannot pay its debt sent the Dow down more than 150 points.


Now that the boom has gone bust, both in Dubai and in the United States, Dubai is stuck with a glut of real estate that no one wants to buy or rent. Creditors and markets had always assumed that when push came to shove, its oil-rich neighbor Abu Dhabi would bail out Dubai. But that assumption was called into question this week, and the resulting fear that Dubai might not be able to pay its bills sent a wave of uncertainty rippling through markets just as investors thought the worst of the global financial instability was over.

The anxiety reached Wall Street on Friday, sending the Dow Jones industrial average down more than 150 points, as investors worried about hidden debt bombs in other countries and institutions — heavily indebted nations like Greece and even Britain, high-flying emerging markets and even European and American banks that had lent Dubai money.

In a worst-case contagion, Bank of America analysts wrote Friday, “One cannot rule out — as a tail-risk — a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s.â€