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What the Dubai Default Means to the U.S.

As Ed Glasier wrote in the NY Times:

Last Wednesday, the government of Dubai announced the restructuring of Dubai World, one of the emirate's three state-owned investment giants, which would "ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least 30 May 2010."

20380_dubai_towers.jpg

It appears that spending billions on buildings in the desert to hold indoor ski lifts, multi-million dollar condos with no tenants, and commercial real estate offices with no occupants except other real estate companies and their lenders is not a great business model. Who would have thought?

On the Corner of National Review Online, David Yerushalmi had this to add about Shariah-Compliant Finance (SCF) the mechanism developed to avoid the prohibition against charging interest on loans:

To understand the rather opaque world of Islamic finance, one must understand the players. Since its founding, the modern SCF world has been driven by essentially two groups. The first we can label the Shariah fundamentalists. They come in the form of the fundamentalists in Saudi Arabia and Iran and the Muslim Brotherhood "political Islamists" operating principally in Egypt, Jordan, Pakistan, Indonesia, and Malaysia. These Shariah-inspired financiers understand SCF as "financial jihad" -- indeed, as part of a larger stealth campaign to institutionalize Shariah in the West.

What makes this institutionalization a bit tricky is that the financial jihadists must convince the Western financiers and their governmental counterparts that Shariah-inspired finance is somehow distinct from Shariah-inspired global jihad against the infidel West. In other words, how do you export a financial model among infidels when that model is built upon a doctrine that manifestly calls for the death and destruction of the infidels and their political and social systems? The answer to this quandary is found in the second group of SCF advocates: the Western facilitators.


I recommend also reading the NY Times piece by Andrew Sorkin, called A Financial Mirage in the Desert . He writes:

Just as the United States stood behind its banks, in part, to avoid losing the confidence of foreign investors, Abu Dhabi might have to do the same.

That had to be what Citigroup, with its firsthand expertise with bailouts, must have been thinking when it lent $8 billion to Dubai last year. Oh, and here's an interesting fact: Citigroup made the loan to Dubai on Dec. 14, 2008. Take a look at the calendar -- that's after it received tens of billions in TARP funds. Citigroup's chairman, Win Bischoff, said at the time, "This is in line with our commitment to the U.A.E. market in general, and reflects our positive outlook on Dubai in particular." Good call. ...As Mr. Buiter described them on his blog, "these were window-dressing pseudo-Islamic financial instruments that were mathematically equivalent to conventional debt and mortgage contracts."


So our taxpayer money was used to bail out Citigroup, who turned around and used that money to invest even more money in indoor ski lifts, multi-million dollar condos with no tenants, and commercial real estate offices with no occupants except other real estate companies and their lenders. But because of the nature of Shariah-Compliant Finance, Citigroup now owns the assets. That's how they get around the prohibition against charging interest. The lender instead buys the target property and rents it at a profit to the tenant. Anyone want to go skiing in our US taxpayer owned indoor ski lift?


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Comments (16)

They should have let those ... (Below threshold)
GarandFan:

They should have let those fucking banks FAIL.

To think that this was the ... (Below threshold)
Stan25:

To think that this was the outfit that wanted to buy all of our seaport companies. No telling what would have happened if that deal had gone through. Through the efforts of people, like Rush Limbaugh and others, that deal fortunately fell through. Now the truth about the Dubai World outfit is going broke, the United States can breathe a huge sigh of relief until the next time some idiot wants to sell of a major entry point into the United States.

"So our taxpayer money w... (Below threshold)
Victory is Ours:

"So our taxpayer money was used to bail out Citigroup"

And the money loaned to bailout the banks is being paid back.

Your faux outrage is faux-y.

Vic

"And the money loaned to ba... (Below threshold)
GarandFan:

"And the money loaned to bailout the banks is being paid back.

Your faux outrage is faux-y."

The outrage is that they got money in the first place ya dumbass!

And don't give me the 'too big to fail' bullshit. Was TWA too big? How about PanAm? American Motors?

Bank of America - today.</p... (Below threshold)
Victory is Ours:

Bank of America - today.

Less than a year after grasping two multibillion-dollar bailouts from Washington, a resurgent Bank of America announced on Wednesday that it would repay all of its federal aid, underscoring the banking industry's swift recovery from the gravest financial crisis since the Depression.

Despite continuing problems with its loans to struggling homeowners and consumers, Bank of America plans to return the $45 billion in aid that it received at the height of the financial panic -- a step that, only months ago, would have been almost unimaginable.

I bet you guys just HATE that this money is being paid back. You'd like nothing better than to have BofA fail.

Instead, they are bouncing back and succeeding.

Sucks to be you - but good news for real Americans.

Vic

Vic, That is <strong... (Below threshold)

Vic,
That is great news that Bank of America is planning to pay back all their bailout money. http://www.nytimes.com/2009/12/03/business/03bank.html

But it was Citigroup that loaned money to Dubai, and according to the Times,

Its repayment will leave Citigroup and GMAC standing alone as the only giant banks that have received such extraordinary aid, although other banks big and small have yet to repay single bailouts.

So it looks like we might get to go skiing in the desert after all on the American taxpayer's dime.

I know you're praying that ... (Below threshold)
Victory is Ours:

I know you're praying that Citibank goes under, Charlie - but as BofA is demonstrating - the economy is rebounding th ehealth of the baking sector is greatly improving.

DAMN! Maybe the taxpayers of the USA won't lose out after all. DAMN!

Sorry to disappoint you. There is no sign tha Citigroup will default or go under.

Citigroup Chief Executive Vikram Pandit has been vocal about his desire to repay the government, which holds a 34% stake in the wake of repeated federal rescues.

At a Nov. 20 meeting with employees in Washington, Mr. Pandit said he is working "very hard" to "repay the government as fast as possible, clearly with a debt of gratitude and also with a good rate of return. ... On that day, people will stop writing that Citi is a troubled bank with a $45 billion bailout package."

DAMN DAMN DMAN, don't you just hate it when it turns out Obama was right?

Vic

The road to where is paved ... (Below threshold)

The road to where is paved with what? Just asking.

vic "I bet you guys ju... (Below threshold)
Marc:

vic "I bet you guys just HATE that this money is being paid back. You'd like nothing better than to have BofA fail."

Not at all but many hated it was given cash to begin with.

Funny how you don't mention two points on the subject of BoA, 1. They are paying back in cash in part with capital they don't have, they are going begging for it and 2. they are attempting to pay it back to get out from under the draconian thumb of the obama admin because they MUST find a new CEO who's quitting at the end of the month.

Vic wrote: "the economy is ... (Below threshold)

Vic wrote: "the economy is rebounding th ehealth of the baking sector is greatly improving."

Whew - we've all been so worried about the health of the "baking sector"...I just couldn't live without my Fig Newtons.

Seriously Vic, the problem is that banks still aren't loaning money. Until capital is readily available for business to grow, the economy will remain in a slump. Geithner and Bernanke ought to be working on ways to get banks to have credit readily available again.

"DAMN DAMN DMAN, don't you ... (Below threshold)
GarandFan:

"DAMN DAMN DMAN, don't you just hate it when it turns out Obama was right?"

Oh? When was that? Before or after the actual unemployment rate hit 16+%?

Guess that explains this:
http://gatewaypundit.firstthings.com/2009/12/no-justice-no-peace-dems-plan-jobs-march-on-washington-to-protest-their-own-failed-policies/

Anyone want to go skiing... (Below threshold)
Speller:

Anyone want to go skiing in our US taxpayer owned indoor ski lift?

Why do you ask?
Has China invited you to go skiing in Dubai?
You know the U.S. is in the same financial predicament that Dubai is in.

D.B.A.I.(I.G.Y., Don... (Below threshold)

D.B.A.I.
(I.G.Y., Donald Fagan)
WilliamBanzai7

Sing it: http://www.youtube.com/watch?v=Ov2MnQG5hSo

Standing tough under the desert stars at night
We can tell
This pipe dream oasis's in sight
You've got to admit it
At this point in time that its clear
The future looks bright
On that train all graphite and glitter
Undersea by rail
Ninety minutes from new york to Dubai
Well by camel caravan well be a.o.k.

What a Dubious Dubai Debt world this will be
What a glorious time for a creditor freeze

Get your ticket to that Air Emirate wheel in space
While theres time
The fix is in
You'll be a witness to that game of chance in the sky
You know weve got to win
Here at home well play in the fantastic desert city
Powered by the rays of the sun
Perfect weather for a hyper-networked world
Therell be spandex keffiyeh one for everyone

What a Dubious Dubai Debt world this will be
What a glorious time for a creditor freeze

On that train all graphite and glitter
Undersea by rail
Ninety minutes from new york to Dubai
(more leisure for fast buck artists everywhere)
A just machine to make big decisions
Programmed by sheiks with compassion and vision
Well be clean when their work is done
Well be eternally free yes and eternally young

What a Dubious Dubai Debt world this will be
What a glorious time for a creditor freeze

Is it just me, or does that... (Below threshold)

Is it just me, or does that picture of those towers in Dubai look positively Revelationesqe? As in, the number of the beast?

Randall Flagg has office space there, I'm sure of it.

Dubai is broke and it isn't... (Below threshold)
OLDPUPPYMAX:

Dubai is broke and it isn't even supporting 30 million illegals and 40 million Obama voters!

But wait! You didn't tell u... (Below threshold)
Jake:

But wait! You didn't tell us how this is Obama's fault! I feel so incomplete...




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