BoA warns on Dubai Sovereign Default

Bloomberg is reporting that Dubai World may end up in a sovereign default.

Dubai’s debt woes may worsen to become a “major sovereign default” that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.

“One cannot rule out -- as a tail risk -- a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s.

With that, I think it's time to review globalization and contagion.

As Brad Delong suggests, it might also be time to study Creditanstalt.

The Financial Times Alphaville post, CSI: Dubai, has some snippets from Dubai world prospectus.

Check out the graph of transactions pulled from the prospectus:

Dubai World transactions

Finally Krugman sums up the possibilities of Dubai World in this post; sovereign default, just a mega CRE bust or a brand new type of situation where no past history and corresponding analysis applies.

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I was thinking yesterday about LTCM

Regarding Dubai, we, the public, will never how bad the situation truly is. LTCM happened very quietly culminating over a weekend rescue plan. The cause for LTCM's collapse of the economic problems in Russia.

The big issue is interconnectivity again amongst the 'too big to fail' institutions. LTCM was rescued because of all the counter parties were 'too big to fail' institutions. Same for AIG - its counter parties were 'too big to fail'.

I wouldn't be surprised if Fed, Treasury and Bank of England are communicating very closely to try assess the damage from this. Remember it's not necessary Dubai that is the main concern but its more like how deep is Royal Bank of Scotland or HSBC involved and if they are in trouble who is connected to RBS and so on and so on.

With globalization of finance it not who owns your toxic debt but who is connected to holder of your toxic debt.

Robert - it is a matter of contagion. - Financial Information for the Rest of Us.

I agree and LTCM

I believe was bailed out by "vested private interests", i.e. Wall Street.

Our first case of derivatives going "way out of bounds of their models" as well.

and this was the issue with the financial crisis. They had all sorts of interactive derivatives going, esp. AIGFP, and why it was such a domino.

Political Message to the Fed

Bail out Dubai? Don't even f*cking think about it! Alan Grayson is watching, and so are we!
Frank T.

Frank T.

anybody reading this if you find analysis, Dubai, please post

I've been digging around all day, reading up on Dubai and frankly there is a lot of speculation, opinion and it's real short on numbers in terms of actual debt and what's going to happen in terms of a sovereign default.

CDSes jumped but still nowhere near last years 2008 levels.

So, if anybody else wants to dig up and write up some original analysis or finds someone else did so and it's well cited, credible, please let us know.

another point, watch this week's FMN, it's astounding how Congress says they cannot pass anything because lobbyists own D.C. Well, if lobbyists own D.C. why don't they do something about that? I mean it's circular excuses!