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Commentary

Dubai Bailed Out

Dubai: Bailed out by Abu Dhabi

Abu Dhabi stepped in to help fellow United Arab Emirates member Dubai with a $10 billion injection, of which $4.1 billion was allocated to troubled state-owned conglomerate Dubai World to pay immediate obligations, Dubai said on Monday.

Dubai has announced a bankruptcy law that it said could be used in case Dubai World and creditors failed to reach an agreement on debt maturing in the future.
Mo< "Dubai will announce a comprehensive reorganisation law, a framework that is based upon internationally accepted standards for transparency and creditor protection," Sheikh Ahmed said. "This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations," he added.

The crisis has gone for now – the $4.1 billion payout will be a payout in full; this after the bonds fell to 40. The payout will mean the bonds go to 100 – that’s a 150% return in a couple weeks. Not bad at all!

The lesson learnt, although wrong, is that you can always figure on someone or the other to bail you out, even if you are tiny in the whole scale of things. After Lehman, nothing of any consequence will be allowed to fail. This is the best time to borrow your ass off, but they’re not lending to you and me; you gotta have overleveraged yourself already. Unfortunately, the only way out is to inflate our collective economies so the debt that sits in there is worthless. Inflation is a tax on the retired and on our children; but who cares, it’s not us, right? Right?

I would hate for this plan to work, because I’m debt free. But if it doesn’t, a lot of countries will struggle to get themselves out of the rut. Dubai included.

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