´óÏó´«Ã½

Presumably the UAE as a group could cover any foreseeable debt problems by oil sales and reserves?

Still a sharp lesson in how not to impress your lenders!

Pleased to see you back , Mr Peston.

Dubai, if a bird at all, would be more like a wounded eagle than a canary. And the 'Trucial States' were not even parallel to a coalmine when they were still the Trucial States.

An enumeration of assets of the Emirates to say nothing of the other Gulf States such as Qatar and Bahrain should be placed against their total indebtedness. Big debt perhaps, yet massive assets .

Its not all a matter of banking credit loss exposure. The UAE is the UK's largest market in the Middle East with 88% of exports going to Dubai and the Northern Emirates. Just imagine how many UK businesses have been benefitting from the Dubai development binge.

I do appreciate the arguments about Abu Dhabi standing behind Dubai and paying these debts.... but they didn't, did they? Or we wouldn't have heard about this.

Plenty of time must have been spent by the Bankers , Lawyers and investors on this and all that seemed to have been achieved is the non-agreement, or decision to NOT pay; was choreographed to co-incide with long holidays in the Islamic world (presumably to allow even more time to seek an agreement-lets hope they find one)

And to the list of heavily indebted countries above we can add the USA as well can't we?

The pain would be bearable.

The pain would be bearable to whom, the RBS?

Bearable to the British Tax Payer, that’s who.

I as a British Tax Payer, find this completely unbearable.

You think its bearable Mr Peston, then you bear it.

It all happens when a stock market goes on holiday. Is this down to the others gambling?

Cynical view I know but this is how it looks to me.

Robert,
Thanks for your comforting words. So the U.K. institutions are only exposed to a few billions in Dubai. A mere drop in the ocean.
Wow.....that makes me feel so much better!

My main concern right now is whether I should buy an Emirates ticket to fly to Australia next summer or go with Singapore Airlines. As I understand it the support Abu Dhabi gave last time wasn't used for the debt issue as intended but just to keep the normal Dubai household running.
That includes the airline subsidies.

Only someone whose income is paid by the tax payer could be so casual about how the hard working tax payer is shouldering this burden.

To us simple folk, 50bn is still a scary amount of money for any Government to be throwing away. It's like our leaders have lost their head and gone crazy and the ´óÏó´«Ã½ is trying to convince us, all is fine.

Robert, I find the tone of your report very scary - to us simple folk, we worry that if Dubia defaults (and who would blame their neighbours if they decide it really is not their problem ?) and we have another similar scare and with current mega deficit - we could easily have a run on the pound, a raise of interest rates and a ton of misery on misery.

We are close to the edge - yet the ´óÏó´«Ã½ keep telling us the glass is 3/4 full. You guys don't realise how much you are taking the tax payer for granted. You need to change your tone.

I write this blog because this article sees the further loss of billions by British Banks as bearable. And I realise that at the front of this loss is likely to be the RBS & Lloyds.

So consider this:
The banks take Government money to survive.
The Government increases tax on its citizens to pay for this.
The extra tax you now pay means that you can no longer keep up with your mortgage payments.
The bank in receipt of the government money then repossesses your house.

Now for those who think throwing a family out of their home is to be considered bearable, I say to you it is not bearable.

I have seen repossessions, and more than I wish to remember, I have seen families thrown out on to the streets, the eyes of worried children wondering where they are going to sleep tomorrow.

If this is considered bearable, then those who would consider it so lack both morals and compassion.

Post 8 if you buy your ticket via a credit card it doesn't really matter because if the airline goes belly up then you claim back from the credit card company and leave them to sort out the mess. Having said that both Emirates and Singapore are very good airlines with excellent service standards.

If the card is issued by one of the banks that lent the money to Dubai in the first place then there would be a certain degree of irony in it all.

As to Emirates Airlines that is possibly one of the few things in Dubai actually worth buying. I wouldn't be surprised to see it being "sold" at a knock down price to Etihad the Abu Dhabi national airline and a rebranding going on.

If I was one of the many UK sporting events sponsored by the Dubai House of cards I would be quite worried though.

Robert, I hope things are improving at home.

I do I am afraid have to pick you up on one thing in your post. You state that Stephanie says there is no serious direct threat to the global financial system yet she goes on to say

"The sheer range of estimates out there for European banks' exposure to Dubai shows how little anyone really knows."

One thing the last couple of years has shown us is that confidence is everything. From Northern Rock to Bear Stearns to Lehman's to AIG to RBS and HBOS in banking or Woolworths; Zavvi; MFI; Threshers et all & Borders in retail once confidence goes the business often has only one way to go and it isn't up.

Dubai is far from alone in the Middle East in buying gloriously over done and stupidly exagerrated and farcically ostentatious projects it is however rather short on oil and gas compared to many of its neighbours.

Trust me Dubai will not be the last rapidly developing country that trips up in the next year or so.

Robert,

Although Dubai might not be the 'canary in the coalmine' for us, it is a disturbing development because it may herald yet another wave of financial crises quite simply because many of the businesses and economies over-reliant on consumers who were over-indebted will be experiencing problems. (Remember the companies going into administration a year ago?)

'Interesting' times lie ahead I think

Dear Robert,
You may or may not remember my comments at the beginning of the crisis - ie investing in potato futures in Bulgaria etc. but is 15 trillion dollars a lot of money? None of it seems to have filtered down our way yet.
Now Dubai is in trouble- what next?
Has Tiger lost his golf course in Dubai hence the road rage ?
Anyway, back to sheep slaughtering

So the British Taxpayer is underwriting the fiscal incontinence of Dubai?
I'm glad to know that someone feels that we are financially capable of supporting it.
Thanks RBS and the rest; anything else in your sack that you are about to dump on the British taxpayer? How you have the nerve to take the salaries that you do defies logic.

Abu Dahabi is now buying up Dubai bond debt at at miraculously low price of abot 40 c in the Dollar and will make a very quick 50% profit in the next few weeks.

This is an un story, a mere matter of fiscal arbitrage.

Look at hte assets of Q'tar and the rest of the very quiet U.A.E and see how Dubai is the stalking horse, front office bookies runner for the U.A.E bookies.

I would love to be in the position of the other Emirates and pick up the $20 billion in quick cash that this little "crisis" will make them.

This is insider trading on a huge and blatant scale.

U.A.E has the funds, Dubai screams "Default" , Dubai bonds tank, U.A.E buys said bonds and debt, Dubai admits " it ain't that bad" Bonds etc recover.

U.A.E takes 3 years worth of net Oil revenue in the back pocket. Simples.

I see that the 'saviour of the financial world' (a.k.a Gordon Brown) is saying that he does not think that The Dubai fiasco will destabilise world financial markets?

Remember the fives tests that Brown brought in regarding assessemnt of Britain joining the euro currency?

The Five Tests to assess whether Britain will join the Euro may be completely ignored by Peter Mandelson and it has not been revealed whether passing 4 of the tests and nearly passing the fifth will suffice.

Brown's Five Tests were as follows:

1. Can Britain’s economy run in sync with the Eurozone long term?

2. Will joining the Euro affect our flexible labour market?

3. Will it make unemployment worse?

4. Will it affect our 'world beating' financial services industry?

5. Will it stop foreign firms investing in Britain? (Let's hope so!)

Perhaps someone could ask Mr Brown how well the UK's financial industry is doing on 'beating up the world' or is it just pulverising the UK?

Does anybody know what "canary in a coalmine" mean? When I was working there (i.e. in a coalmine) old grandpas sipping bear outside the gates were telling stories about canaries and white mice giving warning about approaching methane eruption, carbon monoxide ouzing or dislocation...

#5 I'm a taxpayer in the UK... Are you a taxpayer in China?...Japan?...Germany?... Or,are you working for an industry, that is capable of creating value here? As it well might be, are you sure, that it is on your hard earned that the banks (ING, Nomura, RBS or whichever) prey for their redemption? I'm not 100% sure about my positive (?) input into the common pot. I'm not sure that the transfer of means perpetuated by banks leaves us much space for choice of our occupation - so the event like this where transfer of means led to a creation of a fairy land; a monument to megalomania 50 billion of losses looks a small price to pay for a bit of sobering up. Hopefully there will be some deeper feelings than grumpiness and shadenfreude.

"9. At 8:04pm on 27 Nov 2009, Joepublic wrote:

Only someone whose income is paid by the tax payer could be so casual about how the hard working tax payer is shouldering this burden. "

Agreed - Robert wrote off last week's story of the covert £60bn emergency loans to RBS & HBOS as a non-story too.

There's something here we're not being told - I worried less when you were digging deep into Northern Rock & exposing it's rotten core, at least the truth was out there - have they got to you, Mr Peston ?

Even my Grandmother recognises that Dubai's a house of cards built on shifting sands, the ultimate in sub-prime excess leaving our banks with exposure to billions of dodgy debts. Yet today mainstream media, the ´óÏó´«Ã½ included seem uniform in their response 'nothing to see here, move along'.

Bad news brought out just before a holiday ? We're back to the bad old days of Lehman rumours just before the weekend and even a massed gathering of the masters of the universe couldn't save them.

We're all coughing up for your journalism (and the bailouts) so keep digging, keep investigating, meanwhile I'll be checking Max Keiser for the real story.

I have worked in the Gulf for more than fifteen years and I have to agree with Robert Preston's comment that an assumption that Abu Dhabi will bail out Dubai is wishful thinking.
There are issues not immediately apparent to European ( and U.K.) eyes that may well preclude this.
The primary issue is the conflict between the Al Nahyan (the ruling familiy of Abu Dhabi) and Al Maktoum (the ruling family of Dubai) families. Although they are members of the same tribe they have a history of rivalry and occasional open conflict going back hundreds of years.
And now,it would be extremely foolish to assume Abu Dhabi will come to the rescue of Dubai as many in Abu Dhabi will take great pleasure is seeing liberal Dubai fail.
Their differences are personal and deeply felt and should not be underestimated.
Affronts, indignities and grievances from years past are openly being talked of again in all levels of society. And what better way of teaching 'arrogant Dubai' a lesson than see it made to suffer now?
This is not heresay.I myself have heard this said many times over the past two days.
The Emirates are tribes with flags with no allegiance to any other authority than their Amir.
I recommend the sophisticates of the financial world take lessons in the importance of Beduoin traditions and the history of hostilities between Abu Dhabi and Dubai in order to more clearly understand how more important traditions are, over what would be appear to be, from a European perspective, a pragmatic fiscal policy.

"the losses can be absorbed by the banks and other lenders" but for how long robert how long.

'But the pain would be bearable.' I find this comment outrageous!!!

As others have said it's easy to say things are bearable when you don't have to make any sacrifices to bear it.

Perhaps we should structure public sector bailouts the same way the now infamous CDOs work - politicians who voted for it fund it to the limit of their annual income (including expenses, bonuses etc) and only then can they come at the rest of us for raised taxes.

Not so amazing.....a 'doom' story..... and up pops Mr Peston again. Wouldn't it be refreshing if he and is fellow pundits put forward positive ideas before an event rather than pointing the finger afterwards. If they are capable, let them be constructive, not destructive.

Thanks Robert, welcome back.
I just heard Will Self on radio4 describe the desert development in very unsympathetic terms.
I know loads of people who go there for a holiday!
One actually went snowboarding in a giant shed!
I always wondered why anyone would want to build on sand on the coast when sea levels are rising.
We now know how giant follies come to be buried in the sand.
I have lost any interest in financial matters while you were away as the quality of other writers' contributions lacks that "je ne c'est quoi" you seem to bring to the party.
They also seem to have an axe to grind or someone's message to give.
Your helicopter view is rare and appreciated.

What's a few billion here or there?

We're in hock by a trillion, and the derivative exposure is into quadrillions the last I heard.

While the conmen play with big numbers, ordinary folks scratch and save few quid so they can bail out the losers.

Scary? Not half!

The danger here is over stated for a number of ways.

For a country with no income tax or corporation tax, introducing a modest taxation regime would wipe out the debt at a stroke.

Robert, have you heard the one about the camel and straw?

27. SgtPatrickHarper

Seems that you learnt something in your Peninsular War.

Pitt brought in income tax to pay for it, and it was such a good idea, that they kept it ever since

Smacks of market manipulation, Dubai announces debt repayment holiday before long public holiday, markets drop and if you are right Robert, in a few days Abu Dhabi (after Eid) announces it will stand behind Dubai, guess what markets go back up. Downside being a bit of a reputational smudge, upside being buckets of dosh to bolster the bank balance.

Presumably there will be a lot of sports outfits looking anxiously at all this? Racing on Channel 4 (and presumably Racing UK?) is sponsored by Dubai racing, and the Sheikh has significant racing interests, both worldwide and in racing in Dubai itself (Godolphin?). I am not sure if the Emirates shirt sponsorship of Arsenal might be affected, and nor do I really understand what effect it might have on Arab interests in clubs like Manchester City.

Changing the subject, if Susan is reading this the Robinson sites are all closed down so I couldn't put my input in on there but I thought your last post on schools was one of the best I have read. Straightforward and exactly right in my view. Hope that doesn't embarrass you.

Incidentally, one of the biggest symbols (and most nauseating) of celebrity Britain is in the Telegraph today:

Page 1 has a big picture of Tiger Woods, before he had crashed his car at 1am in the morning on his way to goodness knows where.

Page 12 has a picture of Able Seaman Kate Nesbitt MC, proudly displaying her medal which she had just received from Prince Charles.

The first is an American golfer, who is good at what he does. The second is a national hero, who was awarded the Military Cross, only the second to be awarded to a woman, for saving the life of a colleague under fire. With no regard for her own safety.

Shame on you Daily Telegraph.

Dubai is one of the few places where it is still possible to be imprisoned for defaulting on a debt or for bouncing a cheque, in conditions approaching the horrors described by Dickens. It may be too much to imagine that the Emir would present himself to the judiciary but would this not be a good opportunity for the UAE to reconsider whether it is appropriate to have laws that only apply to the little people? Now is a good time to embrace reform and to do away with imprisonment for debt.

hummmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm

The UK government never learn do they?

Our banking crisis was caused by a massive amount of toxic debt where the borrower was not able to pay back the money that they had borrowed or where they were unable to do so at the rate required by their agreements with the loaning banks.

Money borrowed in the UK has the advantage that the borrowers generally live in the UK and where necessary the banks and the government can take action to retrieve non-payment from other assets owned by borrowers.

Loans to overseas borrowers are in a different position and it would be harder if not impossible to retrieve reimbursement if the borrowers defaulted.

It does seem that with all the overseas development loans to third world countries etc, the government and banks seem highly reluctant to invest in that most necessary of investments i.e.the UK economic infrastructure without which overseas loans would not be possible.

Our economy is over-dependent on the banking industry and if we were to experience another major financial crisis there is a great risk that the UK could be bankrupt.

Given that prevention is better and cheaper than cure, you do wonder what action the government and banks are taking to prevent a further crisis as massive risky overseas loans does not seem to be a prudent idea.

$22 bn? It's $59 bn and Moodys have estimated that it could be as high as $80-90 bn if all the debt is accounted for.

Yes British banks raised this easily from the tax payer. Now even before they start paying it off there's another brick falling on us (not counting the bankers' bonuses they awarded themselves).

How much longer am I going to have to pay for bank losses.
My premium bonds are not earning my savings are hardly earning anything is it us pensioners who are paying for all this.

36. At 7:28pm on 28 Nov 2009, lizziescar wrote:
How much longer am I going to have to pay for bank losses.
My premium bonds are not earning my savings are hardly earning anything is it us pensioners who are paying for all this.
------------------------
It is all of us for all our lives, so all of us when we are pensioners will still be paying (if there is then such a thing as a meaningful pension).

Sure, the banks and other lenders will absorb the shortfall in Dubai. That's what banks and other lenders do.

But, for most of us it is still the shock to the system that these banks got themselves in such a mess in the first place and we are all so dependent upon them and feel totally impotent whilst they fiddle and play.

This is still probably the tip of the iceberg of many such stories that will come out across the world - each one of which will shock us and make us all even more concerned about any type of potential stability in our own lives. That's the real crunch - how it affects each of us as well as us as part of a community and a country.

With incompetent politicians and banks, it also makes it difficult to be proud of our country. And, we do want to be.

With almost bated breath, we are waiting for a second crunch, a double dip recession and are concerned that it will be really bad in the first half of 2010, when it has been very difficult in 2009 anyway.

As politicians run a secret society about bank lending, for far longer than it was necessary to keep it so, we can only judge that they have more hidden away which will rock our personal, national and world boat even more.

On top of that they don't seem to take it seriously but carry on making political points, however spurious, rather than dealing with the issues properly at all.

We need to have faith in our government but cannot whilst it behaves in such a way. Don't they understand this?

A factor which seems to be forgotten, is that as the effects of global warming become more and more obvious, the intense lobbying of the fossil fuel industry will become less effective, and the world will belatedly begin to reduce the burning of fossil fuels such as oil and gas.

Even if large scale CO2 capture can be made to work, it will be expensive and fossil fuel burning may not be able to compete with alternative ways of producing energy. The result would be a large reduction in the demand for and therefore the price of oil. It is possible that within the next decade or so, not just Dubai, but all of the states, with economies based on oil production, will be in trouble.

Hi Robert. Good to read you.

There is a lot of talk about cutting the UK deficit. £100 billion a year is mentioned. This figure is the equivalent to 5 million people earning £20,000 a year losing their jobs.

There is an expectation that growth will fill this gap. That concerns me for several reasons:
-Without the consumption fueled by equity withdrawal, US GDP since 2002 has been about 1.5% pa. For the UK the figure is even lower.
-UK financial services ripped off their biggest customers for $ trillions. Do we really expect them to come back when we have failed to root out and legislate against the fraudulent business practices and the fraudsters who practiced them.
-we have 2 natural resources with more than 10 years life in them, wind/wave and coal.
-A huge building program (ie the 30s) to soak up unemployment will lower house prices and in turn lead to further mortgage defaults that we taxpayers have to cover through the govt guarantees to the banks. So we can't do this. That means even more unemployment and more adults living with their parents, not having children.
-The web and global economy are presented as if its all about competing on wages. Thats rubbish. What is really measured is a nations legal, physical and tax infrastructure. For example. The NHS is outsourcing it's typing to freelance typists in New Zealand, Australia and Canada. Not because UK freelance typists are more expensive per line, it's due to UK Employment Agency law which adds huge admin costs and outlaws the business model being used by our competitors. The govt's stated rational for our legislation is the need to protect star struck girls from being conned by bogus talent agencies.

The last point is the one that really worries me. We have a very serious problem with unemployment and it's about to get much worse. But the UK govt continues to favour off shore providers by outlawing the same business models in the UK. Various political and business lobby groups, together with an outdated understanding of economics and business models, are dominating policy and legislation, to the detriment of the UK economy and our people.

Adopting the business models allowed in Australia, New Zealand and Canada would create upward of 4 million full time jobs in the UK within 5 years. Thats all our current unemployed and most on incapacity benefit. Currently these are costing us over £100 billion a year in benefits.

Peston, you make this sound if everything is o.k when it is clearly not. The banking system is corrupt and this is supported by a political party that is also corrupt. Brown has a lot to answer for his toadying up to the Bankers and his bailing them out with taxpayers money. Brown has gambled on the future of our economy but assured himself a nice little earner in the city with big fat bnuses when he is booted out of office.

There is more to this debacle than honouring debt.
Even assuming the 60Bn eventually gets paid.
How safe is the rest of the pile of sand?
What will all those clever traders be doing when the DFM opens for business?

Will they all be busy trading - just like Enron's were?
Who would trade with them?

Too many ? marks..

Some good responses to your posting Bobby.

Don't be surprised if the UAE see this as nothing personal, just business.
They will ensure that the Islamic Bond is met before anything is given to Western banks.
We might be then left with a basket-load of half-built multi-storey corporate garish monstrosities as Dubai World dumps their security onto our banks.
Perhaps we can then relocate the most clueless and greedy parts of our financial sector to tax-free Dubai.
That might reduce the 'bearable' pain.

Regards,

Let's take a step back...the government investment vehicle, Dubai World wants a grace period on its debt obligations. Abu Dhabi, another emirate within the UAE has a Sovereign Wealth Fund which manages the vast accumulated revenues derived from its oil production. Although there are no official figures, estimates suggest the total value of this fund in the area of $800 billion! This money is invested in a diverse range of assets many of which are however liquid (eg government bonds).

There is absolutely no way, despite their foolish and reckless lending that UK banks should be made to take writedowns on their loans to a UAE government investment vehicle when there is so much liquidity than can be tapped by the Abu Dhabi government.

After all the Abu Dhabi Investment Authority is one of the largest funds in the world, there to ensure prosperity when the oil runs out, surely this is the moment that the UAE can use their own financial muscle to help themselves? If not now then when and what is the point of ADIA?

So you don't think this is a made in America 'crisis' specifically targeted at undoing the financial/commercial links between Dubai and Iran. Abu Dhabi the pro-American state eventually, I would suggest, will come to offer bail out funds either selectively to non-Iranian ventures or overall conditional on the severance of the Dubai - Iran relationship. Just a wild guess.

Ah the return of normal service: banks realising they don't have as much money as they thought they did; politicians and commentators claiming that everything is ok and there is no cause for concern - and the average taxpayer ends up footing the bill.

When looking at Dubai, I find it amazing that people seemed to think that an entire economy could be based on shopping, property investment and very little else - but on second thoughts that seems to be a good reflection of UK policy as well over the last few years.

The big question that seems never to have been asked is 'what happens if the elevator stops rising'. The supply of money seems to have been created in a world where everything only ever went up and no one prepared for the inevitable downside.

If there is anything we can learn from history it is that there is always a downside. Whether it comes in 10 years or 20, it always comes. People who thought they knew better or could manipulate the market to such an extent to create artificially conducive conditions were merely adding to the problems.

Post 46. All very valid points. Until you mentioned it I hadn't quite tied in the similarities between Dubai's bubble and our own.

Having said that the more you think about it the more you realise the same banks and the same "get rich quick" merchants with buy to let loans and speculative appartment block developments seem to be involved with the same Ponzi type deals.

I fear we are going to repeat the same mistakes that happened at the end of the 80's and into the early 90's when a speculative asset bubble fueled by borrowing, low taxes and loose monetary policies led to a lost period of five years or more where property prices dropped, tens if not hundreds of thousands lost homes or were stuck in properties below their purchase price for many years.

I bought my first flat in London in 1994 in the Docklands for just over 70% of what it was sold for when first built in 1989. It didn't reach the original selling price till just before I sold it in early 2000.

As you say people never seem to learn.

Thanks for great read Robert,
Just wanted to make a general observation, that is that you concentrate on Dubai, Ireland, Greece and the UK as having large debts. Why do you not mention the fact that France, Germany and especially Japan all have similar or much higher debt to GDP ratios than the UK. Is it just that we tend to talk our country down all the time while forgetting that there are worse countries in this aspect, relatively speaking.