December 4, 2009
By Douglas McIntosh
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Well, I am truly surprised that people don't seem to get it about Dubai and its defacto debt default. After all, if you owe a credit card company money, and you suddenly decide you don't want to pay it for six months, this so called "standstill", the usual term is default. The economic press has been more gymnastic in their descriptions of what Dubai has done than the best Olympic gymnasts. There is spin control; there is information control; there are open lies, mistruths and delusional fantasies. I leave it to my intelligent readers to figure out which one I think describes the mass media reporting, such as it is, of the Dubai Debt Default. And yes Virginia, it is a bona fide, certified, signed, sealed and delivered debt default. I realize in our modern economic press and government pronouncements truth is a faint vapor. Still, they shouldn't lie so openly. Eventually, the brain dead populace might notice.
In my forum postings and the like several objections have been raised to my "doom and gloom" over what is now being described as the "contained" Dubai situation. Oh, give me a break. I mean REALLY! At this point in the economic collapse/crisis people have to have a lot of nerve to even talk about containment. Wasn't it Hank Paulson, the Goldman Sacks(sic) executive who became US Treasury Secretary under George Bush Jr., who opined in 2007 about the real estate crisis being "contained." Virtually every pronouncement from "official sources" has talked about how everything is contained. Real Estate was contained. Lehman and WAMU were contained. Wachovia and Bank of America and AIG et al were contained. No, they were not contained. What criminals like Paulson called containment is like dumping 55 gallon drums of toxic radioactive waste off the California coast, which they did, and then saying it is contained. It is contained, until they start to leak fifty years later. There is contained, as in dealt with; then there is covered up, buried and ignored until someone else, further down the road has to deal with it. Such has the economic crisis been contained since 2007. The more our idiot leaders, bankers, wall street whores and their ilk contain it, the worse it gets. It spreads like syphilis, flaring up every now and then, until it explodes and kills you. So to be clear, the economic crisis is not contained. The symptoms merely go away for a while when Dr. Braying Bernie doses it with heavy doses of taxpayer money.
The next objection, and this is my personal favorite, is the "$60 Billion is chump change and doesn't really mean anything." Hmm. It says a lot about the current state of our economic thought process' a sum of $60 Billion is considered bus fare. I am old enough to remember when $60 Billion was real money. Not quite prehistoric, at least in the economic sphere; however, I can remember working for 25 cents an hour in 1969 and being able to buy 5 candy bars with an hours work. Now it would several dollars to buy the same five candy bars. So, don't give me any of this petty cash garbage. The second aspect of this criticism is it assumes, and we know what ass of u and me means, the numbers are correct. I have been researching diligently on the web for the true amounts involved here. It has not been easy. As best I can tell, gazing through a glass not only dark, but spray painted black, the $60 Billion is a low ball estimate. The highest number for Dubai itself I have seen mentioned officially, is $88 Billion. The total for the 6 other United Arab city states is $184 Billion. And then there is a coy phrase I found which winked and said, "some of the debt may be off the book." Oh, gee what a surprise.
I would also add this. Back in 1998 when Long Term Capital Management bet wrong on whether Russia would default on its bonds, and very nearly took out the global financial system, the amounts involved were around $5 Billion. So, the official Dubai debt bomb is 11 times bigger than the LTCM one. Or bigger. Nuff said.
In case any of my readers have forgotten, during the whole real estate crisis thing, there was the whole mark to market, or what is it really worth, issue. Further, there was the whole, what is really truly on my bank books, battle. The whole point of modern derivative financing, as far as I can tell anyway, is to take as much debt as you can, bury it as far off budget, off the regulated books as you can; then make as much money in fees as you can. The risk is buried deeper than a gun in Australia, but the fees generated are reported as income and used to spike bonus pay, stock prices and show the Board of Directors what a genius the bank CEO is. I could add all of this is a criminal conspiracy, but the I am eccentric. Anyway, what we have in Dubai is x amount of "debt" that was borrowed to build all this real estate that is now worth 50% less than it was 18 months ago. Further, all these loans were made by various banks all over the planet: Europe, Japan, China, the USA etc. Multiple 10's of billions of loans were made to finance the "Dubai Miracle."
I can see James Whitmore waving that can of Miracle Grow on the TV ad from years ago. The media shills did the same thing. To be clear here: we have the debt issue, who owes what to whom as I said before. This is muddled to put it quaintly. This lack of clarity is driving the stock markets bonkers. The stock markets hate uncertainty and Dubai has given them uncertainty in spades. I will also add the Dubai stock exchanges have lost over 20% of their value since they peaked at 2300 in October. They are now around 1800 and change. Don't see that covered much on shillovision do you?
There are two other aspects to the Dubai debt default that deserve a closer look. The first would be what I call the vegematic effect. The vegematic, for those much younger than myself, was a kitchen utensil advertised on late night TV, back in the days before cable TV and the infomercial. The Vegematic would, "slice, dice, chop and mince" onions and the like. You would put your onion in, push the little pump handle and a pile of diced onions would appear. It has been clear to me that the main innovation in modern finance has been the ability to package debt and sell it in bite sized chunks. The real estate crisis in particular has shown vast numbers of independent entities bought debt from various banks without reading the fine print. The germane question in regard to Dubai is simple. We are told, for instance, that Citi Bank gave Dubai an $8 Billion dollar loan. Of course this was after Middle Eastern Investors bought $7 Billion worth of Citi bank stock: whether this was before or after Braying Bernie, using looted US taxpayer funds, bailed out Citi Bank I can't remember. So much corruption, so many bailouts, who can keep track these days? The key question is who, if anybody, did Citi Bank or other Dubai debt holders, sell this debt to? Did they sell it at all? Or is it sitting on bank books like a vulture? Who really knows? We will find out eventually. It will be a surprise like Dubai was. Except any economic analyst with an IQ above 3 could have seen it. That precludes the mainstream ones I might add.
The final issue, and most likely the most lethal one, is the credit insurance for this debt. The $60, $88, $184, $1.7 TRILLION (I just picked the last number out of the air like the bankers do) must be insured. The credit insurance rates have skyrocketed for all the Gulf States. Greece is tottering also. Russia et al are wavering. The point of all this is simple. Dubai calls into question all, repeat ALL, government backed debt. Then again, Dubai shows that what investors think of as government backed debt isn't actually government backed debt. This single fact will be why Dubai has legs as they say. Since Dubai has shown so called government backed debt isn't really anything of the kind, then it all comes into play, including the 15 TRILLION dollars included in the larger $600 TRILLION unregulated derivatives market. Somebody is going to have to pay this money off. It will not be Dubai, although some of the other city states may chip in. It will either be the loan holders, the banks or whomever they sold it to. Or it will be the third party insurers, like AIG etc. who will be left holding the bag. Remember we have already bailed out AIG for having to deal with the kind of credit default insurance disaster we are dealing with in Dubai. The final choice, preferred by the New World Order criminals running our banks, Wall Street and our bought and paid for politicians is a taxpayer financed bailout. It will be very interesting to see the political fall out from bailing out a bank, or insurer who lost big on the "Dubai Miracle."
Dubai will either spread the disease to "government backed debt" in Greece, Eastern Europe; Central Asia among others, or the various banks will eat it, or the various CDS insurers will eat the loss. It is also probable the scum in the Federal Reserve and other Central Banks will allow, Dubai to get in line at the US or European taxpayer teat. Like I said, the politics on that one will be very interesting, especially in an election year in the USA. A Democrat politician running on a campaign of nationalizing health care, endless war in Afghanistan, I love Obama and finally, bailing out Dubai will find themselves, well you can supply your own verb.
The reason I have written two essays on the Dubai debt default is I think it is the trigger event which will cause the underlying confidence in the whole debt based global economic system to implode. I may write more, depending on how this plays out in the future. One thing I am sure of, Dubai has revealed the flaws in logic and execution inherent in the scam called the global economic system. The fraud is out in the open now. Now that the idea governments can default on loans long thought to be backed by them, even if actually issued to private banks is floating around, things will get interesting very quickly. Deadbeat Dubai has lighted the path for a host of deeply troubled governments and economies to follow. And that, dear reader, is trouble.