Investors Skittish Amid Dubai Debt Crisis Troubles in the emirate of Dubai are making investors nervous around the world. A government-run financial conglomerate wants a time-out on debt payments, stirring fears of another bubble tied to risky bets on real estate. Dubai has invested in huge luxury projects at home and abroad.
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Investors Skittish Amid Dubai Debt Crisis

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Investors Skittish Amid Dubai Debt Crisis

Investors Skittish Amid Dubai Debt Crisis

Investors Skittish Amid Dubai Debt Crisis

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Troubles in the emirate of Dubai are making investors nervous around the world. A government-run financial conglomerate wants a time-out on debt payments, stirring fears of another bubble tied to risky bets on real estate. Dubai has invested in huge luxury projects at home and abroad.

D: Adam Davidson is part of NPR's Planet Money team. He joins us to explain it. Adam, tell us, please, the latest in the Dubai debt crisis.

ADAM DAVIDSON: And since it was owned by the government of Dubai, the rest of the world was saying, hey, is the government going to come in and help them out? We learned in the last 24 hours, no, the government is not going to help them out, that this is a private company and even though we own it, we're not going to bail them out. So, markets in the Arab world really, really collapsed today as people realized, boy, this government-owned company is going to default on its debt.

: Sort of confusing, Adam. This could be a wholly-owned company by the government of Dubai, yet, they're not guaranteeing its debt. How does that work?

DAVIDSON: So, first up, what is an Emirate? An Emirate is little bit less than a country, but a little bit more than a state. The United Arab Emirates is this alliance of seven emirates, who largely run their own economies, but join together on foreign policy, military issues, things like that. So the government of Dubai, led by Mohammed Al-Maktoum, said that we created this as a private company to signal to the market that it will live and die on its own. You are on your own, it said to the investors in Dubai World.

: How did Dubai become this central node in the global economy?

DAVIDSON: It is an amazing story. Dubai is tiny. It's really more a city than a nation. There are only something like 100,000 native Dubaians. But, basically, the leader of Dubai, Mohammed Al-Maktoum, realized that Dubai was running out of oil and that if they were going to continue to live a prosperous lifestyle into the future, he needed to find other things to invest in. He decided we're going to become the new Lebanon.

D: the MGM Grand casino, $5 billion, the largest homebuilder in the U.S. All these businesses that we now realize they invested at the top of the bubble of the subprime housing bubble. That bubble burst, costing Dubai billions of dollars.

: If you think about it globally, Adam, how much might Dubai's troubles then ripple out through the rest of the world?

DAVIDSON: Today, the story that the financial markets and the financial press are telling is, no, we dodged that bullet. Although I will tell you, I remember one day after Lehman Brothers, people were saying we dodged the bullet. There won't be financial collapse and of course later that week there was. So it is still a scary time, although calmer than yesterday.

: Adam Davidson of NPR's Planet Money team. Thanks so much.

DAVIDSON: Thank you, Melissa.

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