Friday, November 27, 2009

Trouble With The Bubble

Modern Dubai

Dubai, 1960

So Bubble Land is in trouble. Surprise, surprise.

Over the last few years I have been following with fascination the development of Dubai, and listened to "experts" discuss the economic miracle that the enlightened sheiks in this medieval kingdom were performing. They were diversifying, they were modernizing, they were developing, and they were loosening their reliance on income from oil.

While the experts were looking at the economic development, I was looking at something else. I was looking at an enclave in the middle of the desert, depending on quasi slave labor from Eastern Europe and South Asia, and governed by a kleptocracy based on nepotism in a culture where baksheesh is still the way to do business. Revenue was based on oil with its fluctuations in price and on investments around the globe, with the ups and downs of the global market.

While the world economy was growing everything was wonderful. But it also was wonderful for Bernie Madoff. It takes no genius to make money when the economy is bullish, but it does take genus to prepare for the bears, or in the case of the Emirates, the camels.

And so it went on for years. While revenue was coming in, the al-Maktoum dynasty prepared for the rainy days; sorry, for the sand storms, by doing the fiscally responsible things. Every economist knows that to prepare for economic downturn you have to do the following: Build the world's tallest building, create skiing resorts where you import or desalinize water to create snow, build artificial islands in the shape of palm trees to increase the size of your beaches, and import everything you need.

Then make sure that 84% of the population is foreign born, underpaid and treated as an underclass. Have your native population live like parasites, place relatives in key positions, and declare yourself a financial hub. If you build it, they will come. And they did. Russian Mafiosi, arm dealers, speculators, con artists and legitimate businesses that thought the boom will last forever. And the bubble kept growing.

But, like all bubbles, this one too had to explode. And yesterday, as we in America dealt with turkey and stuffing, Dubai managed to provide the world with the biggest turkey when the debt-laden Dubai state corporation was unable to meet its interest bill. As in all deserts, the oasis very often proves to have been a mirage.

Decades from now, a caravan will cross that desert, and from a sandy hill will protrude the ruins of what once was the world's tallest building. Not many tears will be shed.

Read Times report.

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