Dubai:
From Mirage to Near Bankruptcy

Dec 21, 2009

While top government officials continue to spout assurances that the economic crisis is easing, an entire country almost went bankrupt, setting off a minor panic on stock markets around the world. That country is Dubai, a very tiny emirate that, on paper, is one of the richest countries of the world. Its emir, who considers Dubai to be his own personal property, is also a businessman who compensated for his country’s lack of oil with speculation in Britain’s real estate market.

Dubai is one of those countries to which the bankers of the entire world have willingly lent money. Investments include the construction of the tallest building in the world, artificial islands built in the shape of a palm tree, luxury hotels with rooms that have direct views of underwater animal life, an indoor ski slope and a canal for luxury yachts in the middle of a desert! This country imitates Disneyland to attract rich tourists with enough money to pay for one of the luxurious villas that have sprung up like mushrooms. Real estate speculation has been especially lucrative in Dubai.

Those with money fought to lend to Dubai, for the good reason that money attracts money. They hoped for a good return on their investment.

Then, lo and behold, Dubai announced that it could not make the payments on its colossal debt. For a few days, the entire financial world trembled. The banks, of course, who lent a lot of money to this state, and the stock markets where these banks are listed, were shaken. So were all the big construction and engineering companies, who had hoped to make a fortune from the frenzy of the emirate’s building plans. One-third of all the world’s construction cranes have been sitting on Dubai’s soil! Boeing and Airbus were concerned that Emirate Airlines wouldn’t honor its promises to buy their planes.

In Dubai, construction sites are silent now, and countless thousands of workers who came from Asia and Africa have been sent home.

Will the consequences of Dubai’s near bankruptcy stop there? No one knows how many larger countries will turn out to be as incapable as Dubai of honoring their debts.

Is the Dubai crisis over? It isn’t even the end of the international financial crisis. All the big governments of the world have spent hundreds of billions of dollars, taking it from hospitals, schools, infrastructure and public transit. They have run up enormous debts to the same bankers whose banks they saved with public money. They all did it while proclaiming it was necessary to save the economy!

But money given to the bankers doesn’t go to production, to the creation of useful jobs. It has only restarted the speculative machinery. Money has flooded out, but production continues to retreat, businesses lay off and the number of the unemployed rises.