it would be delaying by “at least” six months the maturity date of $59 billion in bonds issued by the city-state’s largest state-owned company, Dubai World,
The real reason for the falls, however, is that Dubai’s apparent insolvency confirms that default by hyper-indebted government borrowers is now a real risk right across the globe
but would usher in a second, and probably worse, phase in the global financial crisis.
Bank of America strategists warned
of a major sovereign default
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,”
“fearful investors have started to worry about how safe sovereign debt is,” citing Ireland and Greece as two examples.
$80 billion borrowed
to fuel the emirate’s property boom.
which came to an end when property values halved in a period of weeks from October 2008
world’s tallest building, a giant indoor ski slope and a series of vast man-made islands
It is testimony to the anarchy and irrationality of the global financial system that although the scale of the Dubai crisis has been apparent for months, the government’s default announcement still caught global markets unawares.
Banks had apparently assumed the existence of an implicit government guarantee of DP World’s debt,
But there was no guarantee—Dubai World is a limited liability company owned by the Dubai government. The expectation that Abu Dhabi would rescue foreign investors was just idle hope.
a surge in the insurance costs for national borrowings,
That cost is represented in the price of credit default swaps (CDS) on government bond issues
The key response of capitalist institutions to the global financial crisis has been to transform the toxic debts and unsustainable borrowings of private institutions into public debt via bail outs,
While Greece, Hungary, Latvia, Estonia and Turkey are at the top of the global watchlist,
default is also an eventual likelihood for the United States, which has public debts of $12 trillion. The key difference between the United States and smaller states, in this regard, is that the US is currently deemed by its bondholders, including the Chinese government, as ‘too big to fail’.