Saturday, November 28, 2009

What happened in Dubai?

We suddenly found our markets go deep in red this Friday (11/27/2009). There was some buzz about something happening in Dubai that sent the entire world financial markets on a downward spiral. Every minister in Indian government was talking about this. RBI asks all the banks to declare their exposure in Dubai. So what was it that could transpire in something so big? Let's try and ind out.

Dubai has been one of the many economies that lived and thrived on debt. So, when the financial markets around the world were in a boom, Dubai racked up a debt of $ 59 Billion to build lavish townships, to attract people with a great lifestyle.

Now that the boom has gone bust, Dubai is stuck with a glut of real estate that no one wants to buy or rent. Creditors and markets had always assumed that in any such situtation, 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.

News Clippings:


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