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What happened in Dubai just over a week ago was the bright flash, and the media have used the intervening period before the shock wave hits to reassure everyone that everything is going to be just fine - "You just relax, nothing will come of it, it's only $60 billion down the drain or whatever - have a cup of tea". The trouble is that it's not $60 billion at all - the reality is that this is a default on a massively larger scale. Dubai was a vast sinkhole into which western banks and governments unquestioningly poured not just billions but trillions of dollars which was then leveraged enor
Originally posted by SevenThunders
Good riddance. These guys were funding terrorists anyway. Some say the elite are taking down Allah's treasure chest by crashing oil prices.
Originally posted by SevenThunders
Good riddance. These guys were funding terrorists anyway. Some say the elite are taking down Allah's treasure chest by crashing oil prices. No investment will be safe.
The Bible says that just when they are saying "Peace and Safety" sudden destruction will come upon them.
When people think of Dubai the things that come to mind are the massively extravagent 7-star hotels, the towering record breaking skyscraper, palm-shaped island resort complexes etc and forests of new office buildings and apartments etc. What the vast majority don't realize is that the stupendous leverage afforded by derivatives has in addition enabled Dubai to create an immense global empire of businesses, most of the elements of which are broke, having racked up staggering levels of debt. Dubai is the nexus of the derivatives pyramid and it is flat, stony broke. Where did all the money come from to pay for all these things? - why from taxpayers and pension fund contributors the world over of course, but especially in the US, with Wall St acting as a giant conduit sluicing a torrent of cash into Dubai. The interesting thing is that there was never any accountability - countries and companies vied with each other for the privelege of pumping money into the exalted kingdom, seduced by its supposedly limitless oil wealth, and requesting or requiring guarantees was regarded as impolite.
Now that Dubai is broke, the Dubai government has suddenly distanced itself from Dubai World, and the attitude towards the Western banks and governments who have poured trillions into Dubai is "Tough luck - you lose, suckers". What this means is that trillions of dollars which are now counted as assets on the balance sheets of banks worldwide and especially in the US are actually liabilities.
UK banks have an aggregate exposure to Dubai World of about $5bn, the Financial Times has learnt, confirming them as the biggest creditor group at the crisis-hit emirate holding company.
A week on from the emergence of Dubai’s financial turmoil, banks and their advisers are still scrambling to pin down exactly how much they are on the hook for, but last night it became clear that Royal Bank of Scotland was the most exposed of the UK banks, ahead of HSBC, Standard Chartered and Lloyds Banking Group.
Of the $40bn of total Dubai World debt, bankers close to the situation said RBS had between $1bn and $2bn (£3.3bn) of exposure, compared with about $1bn apiece for the other UK institutions. One senior banker with knowledge of the debt portfolio said Emirates National Bank of Dubai was the biggest single creditor with outstanding lending of about $3bn...
...Other top 15 creditors include international banks such as BNP Paribas, Société Générale and Calyon...
Anger has been mounting in recent days, particularly among bond investors, who complain that they were duped by assurances given this year from Dubai’s rulers as to the emirate’s creditworthiness. After an announcement by Sheikh Mohammed bin Rashid al-Maktoum on September 8 that he was “not worried” about Dubai’s debt position, international investors piled into Nakheel bonds.
...“Nakheel is one of the most leveraged companies I’ve seen in my entire career,” said one hedge fund manager. “People bought it because they’d assumed there was some kind of state guarantee, which there wasn’t.”
Ashmore, the emerging markets fund manager, was a substantial buyer of Nakheel bonds this year. It increased its holdings in debt issued by the property developer by as much as 25 per cent, according to people familiar with the fund.
Other large institutional money-managers thought to be involved include Blackrock, Julius Baer and Bank of America Merrill Lynch.