Monthly Archives: November 2009

Kiran Stacey

The Times
Jo Tatchell, Enough glitzy debt: time for regime change
Michael Gove, Tiger and me – driving into trouble

The Guardian
Tim Luckhurst, Why journalism needs paywalls
Tariq Ramadan, My compatriots’ vote to ban monarets is fuelled by fear

The Telegraph
John Cassidy, Banks must pay for market failure
George Pitcher, The ‘just war’ that was illegal and immoral

The Independent
Yasmin Alibhai-Brown, I’m beginning to feel some sympathy for Tony Blair
Editorial: Left and Right square up for a battle over poverty

The New York Times
Paul Krugman, The jobs imperative
Mary Elise Sarotte, Enlarging Nato, expanding confusion

Wall Street Journal
Daniel Schwammenthal, Europe is missing the action in Afghanistan
George Papaconstantinou, The ‘Greek problem’ and economic change

From the FT’s comment section:
Clive Crook: Afghanistan is Obama’s biggest test
Wolfgang Münchau: Greece can expect no gifts from Europe
Jeffrey Garten: We must get ready for a weak-dollar world
Howard Davies: A better way to choose Europe’s top table
Editorial: The cost of China’s excess capacity
Editorial: Shareholder rights
Editorial: Russian justice
Global Insight: Roula Khalaf, Dubai’s neighbours are wary
Ft-dot-comment: Dubai’s Islamic divide
Techblog: The future of e-readers
Lex: The agenda-setting column on business and finance

James Mackintosh

State-owned conglomerate Dubai World’s decision to ask creditors to freeze debt payments has prompted worldwide worries. But it could also bring a nasty religious element into the financial markets, as the first bond repayments due are $3.52bn of Islamic bonds, or sukuks, due next month from property arm Nakheel.

My colleague Willem Buiter on his Maverecon blog warns that treating local investors or Islamic creditors differently to western creditors could increase the damage to Dubai’s reputation:

If Islamic debt were to be interpreted by the Dubai authorities as debt instruments that give preferential treatment – non-contractual seniority – to Islamic creditors, Dubai’s reputation would be damaged severely.

But the structure of Islamic debt might make this happen anyway. Due to a ban on usury, or paying interest – only fully abandoned in the 17th century by the Catholic church – Islamic bonds are set up so investors share risk with the borrowing company. In effect, Nakheel’s bond issue is a sale and leaseback deal. In theory, this should mean the bondholders not only can seize the assets on which the bond is secured: they actually own them. In practice, legal arguments are under way to see whether Islamic bondholders take precedence over ordinary bondholders in defaults such as those of Kuwait’s Investment Dar and Saudi Arabia’s Saad Group, and it remains unclear whether it will turn out this way.

Given the sukuks are designed to conform to Islamic law by ensuring the bondholders share risk with the company, it would be ironic indeed if they end up being given priority in repayment. It is unlikely western holders of ordinary Dubai World bonds would be happy with such an outcome, even if it is simply a consequence of the small print.

But if the emerging law ends up giving priority to sukuk investors in a default, and Dubai World defaults on all its debt, Dubai will be stuck in a nasty position.

Following the law and giving priority to Islamic investors would be taken by many as a case of Dubai helping those who follow the national religion – something financial markets would be unlikely to forgive, and which could drive a stake through the heart of the already struggling efforts to turn Dubai into a global financial centre. But not following the law would overturn the myth that an absolute monarchy can have a full rule of law in the first place, something which would also scare off potential international investors.

From the FT’s comment section:
Roula Khalaf: Reality catches up with the Gulf’s model global city
Christopher Caldwell: A climate of suspicion
Michael Schrage: Secrecy in science is a corrosive force
Lorien Kite: Outside Edge – The anger is blowin’ in the wind
Rachel Sanderson: Man in the News – Michele Ferrero
Editorial: Dubai reveals the fragility of finance
Editorial: Change in Brussels
Editorial: Season of goodwill
: The agenda-setting column on business and finance

James Mackintosh

Asking to delay repayment on your debt – or defaulting, as the world’s press is carefully not calling it – has turned out not to be a good way for Dubai’s Sheikh Mohammed to win friends and influence lenders to Nakheel, the property arm of the state-owned conglomerate Dubai World. Markets have tumbled worldwide; investors, reminded that governments can be subprime too, have dumped the debt of other dodgy-looking economies (including Greece); and in Dubai… everyone is on holiday.

What is surprising here is not that Dubai is on the verge of default. It is that anyone was willing to lend them ludicrous sums of money in the first place. Calculated Risk points out that Sir Win Bischoff, then at the (US) state-controlled Citi and now, appropriately enough, at the (British) state-controlled Lloyds Banking Group, was raving about raising $8bn of loans for Dubai last year and as recently as December chose to go public with a “positive outlook on Dubai”. Another non-surprise: state-controlled Royal Bank of Scotland was Dubai World’s biggest loan arranger. In the UK, Dubai World has been buying up a long list of property, according to Anita Likus at The Source; the assumption is it will shortly be selling.

I’m having déjà vu here. How could the bankers get it so wrong? In the case of the global property bubble, I have some sympathy for their “everything is different this time round” view (actually, no I don’t). But in the case of Dubai, it wasn’t just obvious to the top hedge fund managers and occasional economist who spotted the subprime crisis brewing. It should have been glaringly obvious to everyone: building a ski resort in a desert where temperatures often top 45 degrees centigrade, reclaiming islands from the sea to build super-luxury apartments and installing chilled swimming pools just made no sense, as Jim Krane pointed out in the FT this morning.

The super-rich footballers and movie stars who bought the apartments set up yet another example of the madness of crowds as ordinary punters were convinced – by the property developers – of Dubai’s story: it could become a holiday resort for the world’s wealthy, justifying the insane sums spent on architectural fantasies. On top of that, oil-rich Abu Dhabi was expected to bail out Dubai if the unthinkable happened.

Now the unthinkable has happened, and Abu Dhabi held back. It could still step in – indeed, Jeremy Gaunt at Reuters thinks other rich regional states might want to help out too – but the question has to be asked: could there be more bubbles to burst? Actually, the question is not whether, just: where is next? The Agonist thinks it is the US: big debts, enormous income disparity between the huddled masses (Latinos in this case, rather than imported south Asian workers in Dubai), and, in the case of the US, no rich uncle in Abu Dhabi. I’m not sure the parallel works that well, but the fear that US Treasuries could be devalued through a debasement of the dollar is valid – with the debasement already well under way. China, of course, is another popular target for would-be bubble-bursters, with Morgan Stanley predicting this week that Shanghai’s stock market bubble will pop next year.

The problem, as ever, is the madness of crowds (full book here on Google Books, for anyone who needs a refresher). Fidelity’s Anthony Bolton said it nicely on yesterday:

“As everyone knows, a bubble is a market that rises rapidly in which one is not invested; if one is invested, then it is a bull market.” I have sympathy with this view and I believe that, like bull markets, bubbles normally continue for several years.

He drew the opposite conclusion to Morgan Stanley: investing in China is a good idea, to take advantage of the growing bubble. The soaring gold price shows how many investors share my scepticism and are on the fear side of the greed and fear scale.

Kiran Stacey

The New York Times
Paul Krugman, Taxing the speculators
Roger Cohen, Iranians in exile

The Guardian
Simon Jenkins, Bankers are the wrong target
Editorial: Dubai: Storms in the Gulf

The Independent
Steve Richards, The real reasons Blair went to war
Ian Birrell, Rwanda: The dark shadows that stain the new darling of Africa

The Times
Tony Brenton, Behind the scenes at the biggest deal on Earth
Matthew Taylor, Conferences – what a waste of money

The Telegraph
Jeff Randall, If Britain’s got talent, why are we being run by foreigners?
Editorial: A bankers’ rich list only plays to the gallery

Wall Street Journal
Editorial: Innocent until sampled

From the FT’s comment section:
Al Gore and David Blood: Time is up for short-term thinking in global capitalism
Samuel Brittan: Changing government is never easy
Jim Krane: Dubai gambles with its financial reputation
Avinash Persaud: Boomtime politicians will not rein in the bankers
Anders Åslund: The Group of 20 must be stopped
Anthony Bolton: Chinese stocks are set to lead the world
Guy Jubb: A welcome call for engaged investment
Editorial: Mr Obama goes to Copenhagen
Editorial: A breathtaking blunder in Dubai
Global Insight: Roula Khalaf, Emirate has a lot of explaining to do
Market Insight: Gillian Tett, Greece and Dubai show system remains unstable
Lex: The agenda-setting column on business and finance

Kiran Stacey

The Times
Ben Macintyre, The ghost of Robin Cook haunts Chilcot’s feast
Editorial: Washington’s delay in announcing its Afghan strategy has left Brown drifting

The Guardian
Timothy Garton Ash, With this timid choice of leaders, the EU may have the faces it deserves
Editorial: Bank reform: what a carve up!

The Telegraph
Edmund Conway, Shock news – Britain still makes things
Alex Spillius, Has Obama’s charisma deserted him?

New York Times:
Nicholas Kristof, The Religious Wars
Editorial: Iran punishes its people

Sydney Morning Herald
John Passant, Church’s opposition to gay marriage a by-product of capitalism

The Jerusalem Post
Abraham Cooper, What we can learn from India’s 9/11

From the FT’s comment section:
John Gapper: A healthy appetite for the right price
Max Hastings: Obama’s damaging silence on Israel
David Pilling: A peace dividend Sri Lanka cannot squander
Maurice Saatchi: Only competition can safeguard free markets
Editorial: Operation Stealth
Editorial: Turks’ eastern turn
Editorial: Barroso must resist national bullying
Global Insight: Gillian Tett, Brazil catches banks adept at capital flight
Market Insight: Donald MacKenzie, Culture gap let toxic instruments thrive
Notebook: Robert Shrimsley, Bail de Jour blogger exposed
In depth: Beyond the financial crisis
John Gapper’s Blog: Facebook follows Google’s dubious example   
Lex: The agenda-setting column on business and finance

Kiran Stacey

The Times:
Daniel Finkelstein, How to stop the Queen picking the next PM
Giles Whittell, To save the planet, strike a deal with Big Oil

The Telegraph:
Praveen Swami, One year after the Mumbai attacks, the threat is as great as ever
Editorial: A unique opportunity to rebuild parliament

The Guardian:
Dan Kennedy, Will Murdoch’s Bing gamble pay off?
Editorial: Complicity in torture: looking the other way

New York Times:
Maureen Dowd, Bill Clinton was a warm bath, Barack Obama is a cold shower
Phillip Levine, False alarm on abortion

Wall Street Journal:
Mortimer Zuckerman, Finding the right fix for too big to fail
Holman Jenkins, The ugly AIG post-mortem

FT dot comment

FT dot comment is no longer updated but it remains open as an archive.

Politics, economics, high finance and morality – this blog addresses the issues being considered by the FT’s comment team, and their thoughts.

FT dot comment: a guide

Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.