Days like this, I feel like I'm stuck in one of those surreal science fiction movies about an unending time loop. Around this time last year, I remember sitting around with the kind of people who matter - bankers, CEOs, analysts and journalists - all muttering and shaking heads in hushed tones about Dubai. We had the prospect of Dubai imploding, a mad scramble to find out exactly what everyone's exposure was to the crisis.
A year on, it's the same old, same old. Okay, Dubai. Don't panic. Or yes, do, because to me it seems like those traders and financial market players haven't learnt a single lesson in the past two years. Despite even the most respected oracles like the JP Morgans and Merrills putting out large Don't Panic signs, everyone decided to panic en masse. Again. Some smart commentators are calling it lehmanitis: when world markets stage a concerted walk out at the first sign of trouble.
Unless they make it so, what has happened in Dubai should not be Armageddon Part II. Dubai wants to delay paying a lot of money to its creditors for six months. Yeah, so? Most of those lenders are already heavily underwritten by their respective governments and, according to analysts I trust (not necessarily the ones the market swears by), the UK banks at least should be able to absorb the hit, with a little bit of discomfort. Or I'll end up paying for it, again. Not the markets.
The funniest bit, to me, is the sense of outrage and betrayal coming out of the largely western media, reflecting the views of the investors and the market. Ooh, Dubai didn't tell us things were so bad. Ooh, this creates such a huge confidence crisis, we assumed the Arabs would pour in oil money to protect the interests of its western lenders and investors. They're not 'one of us' they need to work that much harder. Exactly how are palace politics any worse than Wall Street politics, pray? Which planet were they living in the past year, with thousands unemployed, building projects lying derelict, and so on?
If you look at the Dubai model, which UK media today is vehemently criticising, it's very similar to the UK model. Little island with not too many natural or manufacturing resources, surrounded by more powerful neighbours, a rich trading history, fabulous time zone and location, let's make it an entrepot and playground for the rich and powerful. Not surprisingly, since Dubai is largely run by Brits.
Okay, so here's yet another theory, which could be as right as anything that all the frantic sellers were moved by. First, the announcement came on the eve of a long Eid holiday break in Dubai, coinciding with Thanksgiving weekend, I'd bet key trading desks were probably staffed with those who drew very short straws. On Thursday, the LSE had a technical problem, and was down for three hours. So, the FTSE tanked. Also, from what I hear, most international banks have already frozen their bonuses for this year - usually decided by Christmas - and no trader is in the mood to take excess risks now. Not worth it.
Now why did the emirate behave as it did? They said it was part of a plan. I suspect that the Sheikh is aware that this year, most of his lenders have again started making obscene profits. Like the rest of us, he doesn't see why he should pay up meekly without a bit of a fight. Or go to Abu Dhabi with a begging bowl, maybe make his own people suffer, just to keep western investors happy. So maybe he's just pushing for a better deal.
Or he's decided that they don't really need another tallest tower in the world, or yet another pleasure island in the sea, and he's making a point that the Emirates isn't about to bail out everyone just to save global face. Maybe he's been listening to Mervyn King and others who say that bad entities should be allowed to go under, only socially-productive ones should be bailed out.
In the post-Lehman world, the lines are blurred. Lenders are not always the good guys, defaulters are not always the bad guys. It's not a term that's come up much this weekend, but 'resetting a banking covenant' - which hundreds of private companies have done - is something similar. You tell your bankers you can't pay in time, or at the rate and how they want, you renegotiate your penalty clauses and everyone comes to terms.
After all, these guys pretty much bought, as the adage is, the Brooklyn Bridge. Why exactly anyone needed complicated financial instruments to evaluate the potential risk for increasingly more outrageous building projects is one for the historians. It was obvious, even to the most humble labourer, that Dubai's building mania had reached unreal proportions. I do wish I'd managed to start that project for a spa on the moon back then. Someone would have lent me the money.
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