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United Arab Meltdown & Bailout

posted by Jason Kilborn

It's often shocking how stories emerge from the other side of the globe that seem almost perfectly to echo the U.S. experience. Take, for example, this story, from the front page of the W$J today:

"The cash infusion from the [federal government] comes as [the country]'s once-soaring real-estate market comes crashing down. Falling prices, some down by 50% or more, have burned speculators who never intended to hold on to properties in the first place. Sales have plummeted, crimping cash flow for developers -- which are now scrambling to shed employees, cancel or postpone billions of dollars worth of projects and extend installment plans to avoid missed payments."

This story is not about real estate woes in California or Florida and a Washington bailout, it's about real estate in Dubai and a bailout from the federal capital of the United Arab Emirates, Abu Dhabi, in the form of a $10 billion bond purchase (i.e., a distressed loan!). I have found more than once in recent research that Middle Eastern governments have often resorted to bailouts in response to private sector distress, easing the pressure on the legal system to provide an effective bankruptcy-like remedy.

This latest round of crises (and a decline in oil prices) may well push the region more forcefully toward effective insolvency systems instead. Dubai adopted its own new insolvency law in 2004, modeled on British law. Perhaps due to the rising market and government proclivity for bailouts, the Dubai law saw its first winding-up hearing only in September 2007, and I have found no evidence of its use as of yet for a company voluntary arrangement. This may be on the horizon, though, as the largest Dubai developer recently sought Chapter 11 relief for its U.S. arm. The W$J article linked above mentions a surprising increase in debt collections actions in Dubai, which may well increase pressure for a collective and broad-based legislative mechanism for relief, perhaps even for individuals.

The farther away you go, the more things seem like home!

Comments

Oh, I need to spread news like this! I'm sure some peoples' heads would explode if I let them know that the United States government is doing the same thing as the United Arab Emirates.

Hahaha. And some people say that nationalizing our banks instead of handing them bail-outs is a bad thing...

because debt is illegal to have in Dubai, people are abandoning their cars at the airport and skipping town. not a good situation!

CW, your comment about debt is intriguing--do you happen to have reliable information on the frequency of imprisonment for debt in Dubai or elsewhere in the region? One can be imprisoned in the West for failing to appear at a judgment debtor examination or for lying, but not simply for having an unpaid debt. I have heard stories about this in the Middle East, but nothing confirmable.

Read Thomas Friedman's "Hot, Flat, and Crowded."

Americums are being added world over. We're being copied everywhere.

"Americans" are popping up all over now--from Doha to Dalian and from Calcutta to Casablanca to Cairo, moving into American-style living spaces, buying American-style cars, eating American-style fast food and creating American levels of garbage. The planet has never seen so many Americans.

Cities all over the world have caught America's affluenza--surely one of the most infectious diseases ever known to man." pg 56

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