Dubai: the lavish playground of the rich in the midst of barren desert--what a metaphor for the great disparity of wealth on this planet. For years the oil rich investors of Dubai have been building man made islands in the shape of palm trees, and the world itself, and constructing mazes of condos, shops and other commercial developments, including a project to build the world's tallest building, the Burj Dubai. You would think the "folks" who showed the world how easy it was to knock down tall buildings would be a little more discrete in the land that invented modern forms of terrorism and the art of hijacking and using airliners as lethal weapons. But bigger was reflexively assumed to be better in Dubai. The fantasy land theme park they built dubbed "Dubai World" is twice the size of the city of San Francisco!
The NY Times reported: "Now that the boom has gone bust, both in Dubai and in the United States, Dubai is stuck with a glut of real estate that no one wants to buy or rent." Sound familiar? When the fat cat "investors" found they had big rollover payments due on nearly $60 billion in loans, payments they could not make or refinance, banks the world over were suddenly scrambling to see what their exposure was on a possible default. Neighboring Abu Dhabi was considering which investments it might bail out, if any.
The message we should take from Dubai is not simply one of an extravagent and decadent investment gone bad, and rightfully so. Dubai is just the tip of the iceberg for commercial projects all over the world that will soon be desperate for finance as their own debt rollover dates tick off in the months ahead. Dubai is but the churning white froth at the crest of a wave of impending commercial real estate defaults now bearing down on the banking systems of the world. It is a problem twice the size of the "sub prime" mess in residential real estate. Watch commercial RE collapse in spectacular fashion in 2010-12. Just think of that amazing scene in the movie 2012 as most of Southern California slides into the sea. Far from being over, this depression is really just beginning to gather steam.
For now, however, take this one maxim to heart, especially when you hear the phrase too big to fail: "The bigger they are, the harder they fall." The world trade center showed us that in spectacular fashion. How soon we forget.
The message we should take from Dubai is not simply one of an extravagent and decadent investment gone bad, and rightfully so. Dubai is just the tip of the iceberg for commercial projects all over the world that will soon be desperate for finance as their own debt rollover dates tick off in the months ahead. Dubai is but the churning white froth at the crest of a wave of impending commercial real estate defaults now bearing down on the banking systems of the world. It is a problem twice the size of the "sub prime" mess in residential real estate. Watch commercial RE collapse in spectacular fashion in 2010-12. Just think of that amazing scene in the movie 2012 as most of Southern California slides into the sea. Far from being over, this depression is really just beginning to gather steam.
For now, however, take this one maxim to heart, especially when you hear the phrase too big to fail: "The bigger they are, the harder they fall." The world trade center showed us that in spectacular fashion. How soon we forget.
