The Dubai syndrome.
There’s an old saying that people with too much money on their hands soon find themselves with the opposite problem, and Dubai has just handed the world a prime example.
Global financial markets were rocked Thursday by the stunning news that the Persian Gulf emirate’s sovereign wealth fund (SWF), Dubai World, is effectively insolvent and has arbitrarily declared a six-month moratorium on debt payments it’s unable to make.
Global currencies from Colombia to Singapore took a tumble, and stock markets worldwide had a panic attack, fretting that some of the world’s other 30 or so SWFs might soon also be in dire straits. Many SWFs have extensive debts outstanding with the world’s largest banks.
For all the worldwide efforts to bail out the global banking system, it has only returned to stability, not good health. Having endured the spectacular collapse of the U.S. housing market, the system is now girding for a string of defaults in commercial real estate. Additional failures among SWFs, unforeseen until last week, would not cause a second global credit freeze. But they would further delay a complete recovery of the banks and a sputtering world economy.
What’s the origin of this latest disaster in world finance?...
...Full story in Sunday's Toronto Star.