Dubai Crisis May End in ‘Major’ Default, BofA Says

[Joanne98]

Nov. 27 (Bloomberg) -- 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,” Bank of America strategists Benoit Anne and Daniel Tenengauzer wrote in a report.

A default would lead to a “sudden stop of capital flows into emerging markets” and be a “major step back” in the recovery from the global financial crisis, they wrote.

Emerging-market stocks around the world have slumped for two days on concern a debt restructuring by Dubai World, with $59 billion of liabilities, will add to the $1.72 trillion of losses and writedowns from the global credit freeze. The MSCI Emerging Markets Index fell 1.9 percent to 940.30 as of 1:55 p.m. in New York, extending this week’s decline to 2.6 percent.

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a tourism and financial hub, suffered the world’s steepest property slump in the recession. Home prices fell 50 percent from their 2008 peak, according to Frankfurt-based Deutsche Bank AG.

‘Best-Case Scenario’

“In a best-case scenario, this will remain limited to a Dubai corporate sector problem, with either some bailout from UAE authorities or a market-friendly debt restructuring,” they wrote.

Bank of America estimates that Dubai’s debt totals $88 billion, and that its external debt equals 103 percent of gross domestic product, according to a separate report.

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http://www.bloomberg.com/apps/news?pid=20601087&sid=a8RD8uqjoLCQ&pos=2

[jwirr]

1. Bank of America? Bailout anyone?

[dixiegrrrrl]

2. Wonder what US exposure to Dubai is.

edit: Never mind, just read your other thread.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x72731

[barb162]

3. Dubai... Don't-buy

It's sometimes hard to see a bubble until it bursts.

[notesdev]

4. Aren't derivatives fun?

They let any institution anywhere be the potential trigger for a global economic meltdown. All that's got to happen is the wrong people holding the credit default swaps.

These things need to be made illegal and voided ASAP. The are not a form of insurance, they are a form of Russian Roulette (with no empty chambers).