(Source: Wall Street Journal)
With Dubai coming perilously close to defaulting on nearly $59 billion in debt, it is worth breaking down some of the issues behind the Arab city-state’s problems. It isn’t pretty. The government and its state-controlled companies, such as Dubai World, are drowning in debt, with assets such as cruise ships and golf courses that are worth a lot less than they cost to buy or build.
Dubai didn’t just turn its own slice of desert into a playground of excess and financial risk. It made top-of-the-market purchases around the world, financed with billions borrowed from foreign banks.
Will Dubai’s crash ripple across the world or will it be an isolated case of leveraged, luxury gone sour? If the financial crisis has taught us anything it is that nothing happens in isolation.
Check out Michael Corkery’s article “The Dubai Bubble by the Numbers” for the breakdown of Dubai’s bubble.