Furious investors warn troubled Dubai it will 'never raise a penny again' | Hacker News Reader

Furious investors warn troubled Dubai it will 'never raise a penny again'

guardian.co.uk

17 pointsfiaz17 comments

Any investor who decides furiously will not remain an investor for long.

OTOH, I can't imagine what sane person would invest there. Can't they tell a bubble when they see it?

Investors can tell a bubble when they see it, but we must consider that hindsight is 20/20 in these situations. And perhaps investing in a bubble is okay, just as long as you get out at the right time?

A lot of the press makes this look like the end of the world. I don't want to make a hasty comparison, but let's contrast it to the $700bn dollar bailout that we saw earlier in the States .. $60bn exposure isn't quite as bad as it seems.

The question is in underlying value. Aside from the world's speculation and the good word of the ruling family, there isn't so much backing Dubai. AFAIK, nobody owns a huge share of the markets, just the royal family.

At the same time, it doesn't take much to apply some startup thinking to Dubai -- put a couple people together with some good ideas on how to shape the markets there, and Dubai could look drastically different 24-36 months from now. Islamic Finance could be an interesting starting point.

Dubai will be very interesting as soon as all of this smoke clears up.

It seems like the real shock to the world markets was that Abu Dhabi stood quiet instead of immediately stepping in to guarantee at least some of the money.

It happened before http://online.wsj.com/article/SB123532630416442781.html so why not again?

Dubai and Abu Dhabi haven't always had the best relations - they're both Emirates but that doesn't mean that they agree on everything. Fiscal policy could very well be in this set of things.

http://news.bbc.co.uk/2/hi/middle_east/8382275.stm - have a look through the section titled "Competition".

Also, oil is relatively inexpensive right now. Abu Dhabi exports a lot of oil. I don't want to risk making a false correlation, but that could have something to do with it.

There is definitely the fiscal policy aspects (Abu Dhabi has good reason to let Dubai and its backers know that it will not necessarily bail them out) and there are also socio-cultural aspects as well. Abu Dhabi is much more conservative than Dubai and there is some friction there that is getting magnified by the financial aspects.

Knowingly investing in a bubble is almost as bad as propagating a Ponzi scheme. It may be legal, but it's quite unethical.

Islamic finance prohibits interest rate lending because of the Koran's condemnation of usury. What bank can achieve a profit under those circumstances? Especially in 24-36 months!?

Islamic banks and finance institutes (like most finance institutes) are really good at coming up with various creative ways of working around annoying legislation. Basically they use various financial engineering tricks to create products that look they pay interest, while technically not paying interest. Google for 'sukuk' if you want a simple example.

No they can't. They are so anxious to beat their quarterly earnings estimates and get their bonuses that they will invest in anything that pays an extra quarter of a percent. Hence the huge losses in the 70's from investing in South American dictators, the savings and load crisis of the 80's, the Mexican devaluation, the collapse of the ruble, the Japanese real estate collapse, the southeast Asian collapse, the current derivatives mess.

The problem with investors in the developing world is that investors have always had a not unreasonable expectation that if anything went wrong, someone would be there to bail them out. Someone almost always had - whether it be the World Bank, IMF, or some other organization - and I suspect at the end of the day, we will see some form of bail out by Abu Dhabi. To worry that this sets a horrible precedent ignores all the previous examples you point out.

If we started to allow some of these countries to see the consequence of their governance, perhaps we would see significantly better governance. This has as much to do with investors as it does with the governments and multilateral organizations that enable them.

this is actually partially true. A lot of the investors that are putting their money in dubai and the emmirate states do believe that these countries and investments will not fail and the world community will not let them fail. The reason being these places are suppose to be the model for whole islamic world. Showing a vision to the whole islamic community of what is possible when there is strong economic relationship with the global community and the westernized world. A huge catastrophic failure in these areas will greatly hinder globalization in the middle east.

So you're suggesting that despite years of education and learning from mistakes, investors never learn from their past mistakes, and that all of these crises you mentioned are exactly the same thing?

This could make sense if you're talking about currency arbitrage, but investing in entire sectors of a nation is different from trading tenths of a cent of a dollar.

So you're suggesting that despite years of education and learning from mistakes, investors never learn from their past mistakes, and that all of these crises

Well, given the words "all of these crises" ... you tell me, do they?

I think you're suggesting that they're all the same.

No two historical events are ever identical. But these crises do have things in common. For one thing, they're all crises. For another, the people who benefit the most on the way up (bankers, brokers) are not the people who suffer the most on the way down (taxpayers, working poor, newly unemployed). That asymmetry, I think, has a lot to do with it. Investors have learned, yeah, learned how to game the cycle by externalising the losses.

>So you're suggesting that despite years of education and learning from mistakes, investors never learn from their past mistakes

Investors learn that the best bets are betting on being too big to fail, or being risky as possible to get a massive short term profit and then retiring. (Or alternatively, being hired to clean up the mess you made ala Geithner)

These are human beings working for corporations. They have limited liability. They get no benefit by being safe, but have all the incentive in the world to do stupid things that will make several million in bonuses today.

I read The Ascent of Money, by Niall Ferguson over the summer and I am reminded of a passage discussing Argentina:

"So successful did Argentina's default prove (economic growth has since surged while bond spreads are back in the 300-500 basis point range) that many economists were left to ponder why any sovereign debtor ever honours its commitments to foreign bondholders"

http://books.google.com/books?id=JA_IYJ0P4ZkC&lpg=PA4...

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