The encore of excess

The thing that impresses Guambat most about the Dubai situation is not its arguably small impact on the overall global economy, but its glorification of the excesses that brought down the first leg of the global credit meltdown.

The straw that broke the desert camel's back was yet just one more arrogant alphabet soup financial instrument, the sukuk. As noted in the prior post, a sukuk is a particularly Islamic arrangement, shaped by ideals hard for Westerners to fathom.

But, like the complex derivatives that sunk AIG, it is being passed off as something both benign and boring: a bond. In this case, it is every where referred to as an "Islamic Bond".

That's like calling something "genuine simulated". It's soy disguised as beef. In its theoretical, and theological, core, it is something quite unlike bonds as we know them.

It is not just the artful artifice of the financial instrument that marks this latest crisis as simply more of the same from the last one, it is the gaudiness of its trappings. As distasteful as a Goldman bonus is to the man on Main Street, Dubai is to the ordinary Arab on the sand dunes shaped to look like palm leaves in Dubai.

Guambat has previously posted on the curry-favoring of Dubai's bounty by American interests, and the dark side of Dubai itself.

Dubai's excesses are no less an abomination of its ideals than are Wall Street's, and raise similar fears and paranoia, as described in this Marla Singer ZeroHedge post.

What strikes Guambat about this current Dubai debt predicament is that, similar to the happy-days-are-here-again stupendous stock market rally of the last several months, in the very face of social and economic disruption to the vast numbers of everyday people, Dubai represents implicitly the vanity of excess.

It is a vanity that makes it perfectly rational for people to vote against their pocket book, to burn and tear down rather than put shoulder to the common good.

It is the stuff of social disruption, whatever rationale the economists might want to put on it. Just watch the pandering populist politicos and their imam counterparts feast on this one.

That is the worry that Wall Street must climb, since it prides itself so much on how well its bulls do that.

The spin doctors will try to play down this threat saying it doesn't amount to that much money.

But it's not the money that counts, here. It is the vanity of excess. It is as distasteful as Obama's gate crashers.

And that's what makes this encore performance as worrying as the first round.




And so the slings and arrows -- and apologies -- begin:

Dubai: Just deserts

Sheikh Mohammed’s plan worked brilliantly when money was cheap and the global economy booming. House prices quadruped in a decade. The value of Dubai’s investments grew.

There were so many well-upholstered bums on Emirates well-upholstered seats that the airline ordered 58 double-decker Airbus A380 jets at a cost of £10 billion.

By promoting Islamic finance and encouraging women to go into business, Dubai has also become a business mecca for hundreds of thousands of Palestinians, Syrians, Iranians, Lebanese and Indians who are unlikely to decamp to New York, London or Paris.

From the start, analysts warned of two big dangers: what locals dubbed “Dubai’s double jeopardy”. First, if there were a downturn, the emirate’s debts could leave it fatally weakened. Second, Dubai Inc was dependent on a handful of executives headed by Sheikh Mohammed, none of whom had proven his worth on a global business stage before. Certainly none had experience in the kind of “Lego for grown-ups” that Dubai was undertaking.

Unfortunately for Dubai, those two flaws have been cruelly exposed all at once.

Not only did Nakheel expand too far, too fast but the aggressive overseas expansion by Dubai World’s boss, Sultan Ahmed Bin Sulayem, has proved disastrous. He was behind the worst single property investment of the boom years when he bought half of a Las Vegas casino project for $3.6 billion. Two years on, the stake is worth $2.4 billion. [And what's it worth now, and does that have any knock-on effect on other Las Vegas prices?]

Sheikh Mohammed has other problems. Detractors accuse him of a lack of transparency and of weakness. They point out that only three weeks ago he made a speech saying that Dubai could meet all its obligations, dismissed its critics as ignorant and said they should “shut up”.

“He said everything was okay when we now know it was anything but. Was he lying or did he simply not know? I don’t know what’s worse,” said one local businessman.

“It’s like Alice in Wonderland here,” said one expat. “You never know what’s really going on until it hits you.”

“Western countries and companies are restructuring just as we are,” one Government official said yesterday. “And they are talking about much larger sums of money than we are but, somehow, outsiders can’t seem to resist doing us down. It’s real chicken shit.”

There is certainly an element of schadenfreude in the reaction to Dubai’s problems. As one westerner put it: “After insisting it would be the No 1 in absolutely everything, it’s good fun to ridicule Dubai for becoming No 1 in boom and bust.”

Dubai: Bling City is dead, but the desert dream lives on

Three years ago, when Dubai's debt-fuelled boom was at its height, the emirate launched its most ambitious project yet – a gigantic offshore replica of the planet Earth, made from sand dredged from the deserts and beaches of Arabia, with countries and continents carved out among a man-made archipelago of 300 islands. It was called simply The World.

Like most things in Dubai, it was for sale. Wealthy celebrities with $20m or so of loose change could buy Britain or France or Australia and erect their own secluded fun palace by the sea.

That project is unlikely ever to be completed. Work on it stopped earlier this year when the developer, Nakheel, ran out of money. Deprived of essential maintenance and reinforcement, the islands are slowly slipping back beneath the waves. "They're just blobs of dirty sand sinking back into the sea," said my sailing friend. "It must be the biggest shipping hazard in the Gulf."

The financial experts will pick over the bones of the "Dubai model" for years to explain what has happened, but the basics are simple: with minimal natural resources in an energy-rich region, Dubai decided to go for broke with an ambitious strategy of economic growth designed to turn the Arab fishing village into a global trading metropolis. [Sounds a bit like the tale of the Mexican fisherman and the vacationing merchant banker.]

It did it with borrowed money, vast quantities of it. The palm-shaped islands, the glamorous beach resorts, the seven-star hotels, a state-of-the-art metro system – all were built on borrowed money.

Neither I nor any of my friends and colleagues ever felt we were living on borrowed time. Life in the emirate is good – great weather most of the year, cheap cars and petrol, and a touch of high life in the swanky hotels. Affordable domestic help is the norm – armies of Filipina and Sri Lankan maids and Indian drivers and gardeners mean that life for expatriates is free from much of the drudgery of Europe or America.

Property prices were a worry. A three-bedroom villa in a nice part of town – close to the beach and near the arterial highway, Sheikh Zayed Road – would set you back more than £3,000 a month. But salaries were about 50% higher than in Europe – and tax free – so it was affordable. The things I liked best about Dubai were summed up in four words: no tax, valet parking.

There is no doubt that Dubai has had a bad year, image-wise. Virtually every couple of weeks some western correspondent would pop up in the emirate, announce he was "writing a piece on the dark side of Dubai" and leave after a few days in the sun at a five-star beach resort to launch another attack on the emirate and its residents.

There were interviews with exploited Asian workers in filthy labour camps, hilarious encounters with Ukrainian prostitutes in Dubai nightclubs, and heart-rending accounts of jailed expats or sacked foreigners having to sleep in their 4x4s. For those of us living and working in the country, it almost seemed like they were writing about somewhere else.

There is a "dark side" to Dubai, like there is to any big city anywhere in the world, in every era of history. Labour exploitation is probably the most obvious scandal. Construction workers from India, Pakistan and China are lured to Dubai with the promise of wages big enough for them to give their families a better life back home, only to have their passports confiscated on arrival as they are hit with huge "fees" for their travel and accommodation. The conditions they live in are primitive compared to the rest of the city and the west (though probably not those of their home countries).

The government blames it on unscrupulous middlemen, and promises to take action with each new report.

Prostitution is rife, too, mainly women from the former Soviet countries or China, but fairly self-contained in well-known bars and districts. It depends on your attitude to prostitution, I guess. Along with the ready availability of alcohol, it means Dubai will always have a unique marketing advantage compared with Riyadh, or Doha, or even Abu Dhabi.

If only the western correspondents who spent so many hours in desert labour camps or Russian cat-houses would take just a couple of hours on a Friday afternoon to visit Safa Park, Dubai's equivalent of Hyde Park or Hampstead Heath, sprawling between the beach villas of Jumeirah and the slums of Satwa, with the needle spire of Burj Dubai, the world's tallest building, in the background.

There, Arab families spread their picnic lunches on the lawn, ladies in abayas and men in dishdashas; Indian groups play football and light barbecues; Filipino couples stroll by the fountains, wheeling pushchairs; westerners lounge in the sun just chilling, maybe taking an occasional swig from a (theoretically) illicit can of beer.

It is a pastoral vision of social, cultural and racial integration that would surely soften the heart of even the most sceptical foreign correspondent.

Dubai leads the Arabian peninsula in this respect. Christian churches and Hindu temples lie a couple of blocks away from an imposing mosque. There is a synagogue discreetly hidden among the big villas of Jumeirah, built to accommodate an American Jewish banker who would only relocate to Dubai on condition that he could practise his religion.

Dubai is not just a social and cultural melting pot. It's also a major commercial hub at the heart of a strategically vital region. The US fleet loads up at Jebel Ali port – owned by Dubai World – before it moves its cargoes on to Iraq and Afghanistan. The Iranians, who have been cross-fertilising with this part of Arabia for centuries, use Dubai as a social and financial pressure valve. During the recent contested elections in Iran, the biggest demonstrations outside Tehran were in Dubai.

Saudi Arabia, the biggest economic power in the region, uses Dubai as its entrepôt to the wider financial world, and as an escape from the cloying Islamic orthodoxy of the kingdom. You can see young Saudis in bars and nightclubs most weekends, drinking bottles of Johnny Walker Blue Label ("Saudi Coke") and trying to chat up Uzbeki ladies in broken English.

Despite all its flaws, Dubai is as close as the Middle East gets to the Islamic concept of "harem" – a place of peace and reconciliation where conflicts and arguments can be forgotten, and disputes resolved in a spirit of mutual understanding.

Yes, it sounds a great deal like Beirut just a few decades ago.