Is Du Bai that story that is supposed to go away quickly?
By Daniel at 30 November, 2009, 10:10 am
I don’t think so.
The reason $60B is important is because it’s printed on margin. In other words, the US bank or banks (most say it is JPM) that underwrote it, does so using fraction reserve rules regulated by the Federal Reserve. Right now there is no reserve requirement, so JPM may write the loan with no backing cash, but the average reserve is 2.5% or lending 40 times what you own.
That makes JPM’s (or the sum of the writing banks) exposure to the crises about $2.4 trillion dollars in extendable credit.
If Dubai defaults, that amount of paper gets called, maybe more.
11 years ago, it was $4 BILLION that almost brought the financial systems to its knees.
I would contend that $60 Billion today is still a lot of money.
Everything I’ve read says that UAE WILL guarantee Dubai World’s debt, however, on CNBC’s front page (right now, anyway) is this foreboding statement: “Dubai Govt Does Not Guarantee Dubai World Debt, Banks Don’t Need More Liquidity: Finance Ministry Official (click for Dubai markets story)”. Naturally, the article itself does not say anything more…
This obviously says the opposite of what all other sites are saying. A simple misprint on CNBC’s part perhaps or has UAE come out and “clarified” what Gov’t support does and does not mean?
Anyone know the truth? Although I’m finding truth is VERY elusive these days…
(Updated)
Turns out they finally posted an article: http://www.cnbc.com/id/34203542
Turns out the whole world was wrong. Dubai World is NOT owned by the Gov’t (opposite of what I’ve read on most news sites) and they will NOT guarantee the debt (opposite of what I’ve read on most news sites). Should I start laughing now or wait until the US Markets close today?
- Vics
No comments yet.