Dubai: Why, Yes, Our Collateral Is Underwater. Why Do You Ask? – J. Bradford DeLong’s Grasping Reality with All Eight Tentacles
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First, there’s the view that this is the beginning of many sovereign defaults, and that we’re now seeing the end of the ability of governments to use deficit spending to fight the slump. That’s the view being suggested, if I understand correctly, by the Roubini people and in a softer version by Gillian Tett.
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Alternatively, you can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation.
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Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it.