Black Friday (2)
Well, let's hope the celebrities who put all their money into Dubai World don't lose it all, or, worse, thinking they'll lose it all, spark a panic. It's certainly our duty to prevent that. (One imagines the calls: "Don't you know who I am?") Felix Salmon has a nice post, with a chart, and makes this point:
Personally, I’m quite happy about this default, since it sets another very useful precedent of a state-owned company defaulting on its debt. Historically investors in state-owned companies have perceived an implicit sovereign guarantee — there’s even a German word for it, Anstaltslast. The result is a huge and unhelpful [to whom?] moral-hazard trade.
So it’s great that the government of Dubai has made it clear that Dubai World’s lenders aren’t going to be automatically bailed out by the sovereign, despite the fact that the government has hundreds of billions of dollars in its sovereign wealth fund. Would that Treasury will follow suit when it comes to the creditors of state-owned companies like AIG.
Anyhow, here we're sedated with Tryptophan, and the Arab world is having Eid al-Adha, a four-day holiday of its own, so nothing will really be known until Tuesday. With a mere $60 billion at stake, you'd think there'd be no reason to panic. But who knows?