Dubai, Abu Dhabi, Banks and Fear

We had predicted that the fear of default by Dubai's various property companies on $26 billion would prove to be unfounded, and now Dubai has shown us to be correct. Dubai new proposal offers what must be viewed as a very lender-friendly deal on the Dubai World and Nakheel debt. Dubai now offers to convert its $10.1 billion debt claims on Dubai World and Nakheel into equity, thus subordinating its claim to other creditors. In addition, Dubai will inject $9.5 billion of fresh capital of which $3.8 billion will come from its own resources and $5.7 billion from a loan from Abu Dhabi. This can only mean that Abu Dhabi approves of and supports this newest proposal. Going even further (in the right direction) Dubai says that if the lenders approve the deal, then holders of Nakheel's Sukuk bonds (2010 & 2011 maturities) will be paid in full and on time. All of this goes to the point that UAE is not interested in having anything derail its plans, not a small part of which have Dubai as the new "Beirut" for European and Gulf residents and an important financial and business center for the region.

U.S. Sovereign Default? Looks Like They've Solved the Social Security Problem

I have not heard "Social Security" since the day before the Presidential election so I guess Obama & team must have figured out how to fund the obligations. Well, maybe not, they've been awfully busy with the Iraq and Afganistan wars, Iran, the banks, housing, unemployment, education, health care, losing Senate and House seats, managing awkward press about relationships with Goldman Sachs and its past and present senior members, allegations of strong-arm tactics associated with bailouts and questions of inappropriate management of significant information regarding the Merrill Lynch-Bank of America deal, China's new found power, and a few other things. Consider the impact of all of the above on the U.S.' "ability to pay" when we are faced with a relatively slow growth economy and bruised consumers-can we just raise taxes to pay for all this? Probably not enough without killing the goose altogether. Then, the inflatorama is not as perfect a solution as many would like us to think as ultimately there is a limit to the money printing solution. So, it is worth noting that today, one of the bond credit rating agencies raised a flag about the U.S.' bond rating.