Deserts have a way of reclaiming whatever is built upon them. In the case of Dubai, on the Persian Gulf, the global financial implosion has sent that process into overdrive. After six years of frenzied expansion, during which the emirate's population grew at 7% annually and nearly $600 billion went into construction (the world's tallest building! the world's largest shopping mall! the biggest man-made island! an indoor ski resort!), reality has come rushing into view.
"They have no oil, no culture, no history," says Peter Harradine, a prominent landscape architect in Dubai and manager of Harradine Golf. "So what they have been able to produce is a miracle." Or was it a mirage? Today, an estimated 50% of the slated developments are frozen or canceled. Banks have stopped lending. Housing prices fell 41% in the first quarter of 2009 and are expected to drop to preboom levels. The stock market has plunged 70% from its peak. And people across the socioeconomic spectrum are being laid off -- and fleeing -- in droves. But even fleeing is harder than it sounds: When foreigners, who once made up perhaps 80% of Dubai's 1.7 million residents, lose their jobs, their work visas are rescinded and they generally have 30 days to pay their debts and leave. Those who fail to pay risk debtor's prison. And debt here is now as deep and ubiquitous as the sand itself.
The wealthy, like the Emiratis, remain well cared for. Designer Roberto Cavalli, asked why he spent $30 million on his new Cavalli Club during a financial crisis, replied, "What financial crisis?" These pages may remind him.
Road to Nowhere
DUBAI OUTSKIRTS
Dubai's expansion was as ambitious as it was improbable. Dubailand, a $64 billion mixed-use development initially planned at 107 square miles, was to be the world's largest collection of theme parks, shops, residences, and hotels. For now, though, its roller coasters, life-size dinosaurs, snowy mountainscape, and polar bears will remain a fantasy, one of the gaudier casualties of the economic downturn. While formal cancellations are rare in Dubai, a number of other projects have been delayed or scuttled, including an underwater hotel; a Tiger Woods golf course; a residential community set among full-scale replicas of the Seven Wonders of the World; a rotating skyscraper; and a beach designed by Versace, complete with chilled sand.
Last Gasp
PLASTIK BEACH CLUB, 30 MILES OUTSIDE OF DUBAI
With requisite hookah and a jeroboam of Champagne, a group of German businessmen celebrate their purchase of an Alaskan oil field at Plastik Beach Club, a playground touting itself as "exclusively for the filthy rich and aesthetically perfect." Public intoxication and displays of affection are jailable offenses in Dubai, but private clubs are quietly ignored by the authorities, often rendering them happy havens of vice. Plastik offers a helipad and a dock for its wealthy guests, many of them Russian; as the economy crumbles, they party on. One American expat says that while Dubai's promise has faded in the economic downturn, "people who dream of a better life dream of coming to Dubai. You can call it the American dream."
Frozen Desert
THE VIEW NORTH, NEAR BURJ DUBAI
Dubai was a modest trading settlement until the 1980s. Fueled by cheap credit, tax-free living, and limitless ambition, the city-state pushed into the desert and up to the sky, culminating in the frenetic growth of the past six years. Now, with cash scarce and many of Dubai's expats moving away, the cranes (a quarter of the world's supply) have quieted and the streets are all but empty. A resident from Ireland reflects that living in Dubai during the rush was "like being on a drug. Every six months, the city would morph into something completely new." Kayla, a South African, recalls, "Everyone was talking about how it couldn't go on like this. Then, all of a sudden, everything changed."
Ghost Workers
SONAPUR LABOR CAMP, OUTSIDE OF DUBAI
Once Dubai's most valuable import, foreign laborers have become a liability to their former employers. Hundreds of thousands of them, mostly from South Asia, were drawn by the promise of plentiful work and money to send home to their families. Now that much of Dubai's construction has ground to a halt, many are being sent home; the number of migrant workers here has reportedly fallen by a third. Of those who remain, many are locked in labor disputes: They can't work, but can't leave. These jobless Bangladeshi men can't return home because, as frequently happens, their employers confiscated their visas, effectively leaving them shackled. Living four to a room in a labor camp, they haven't been paid in seven months. They say they live as "ghosts" in a "prison," unacknowledged and unknown.
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COMMENTARY: This is another great example of extreme capitalism, or "Gucci Capitalism", as Paul Allen refers to it. I just call it stupid capitalism mismanagement. This is the sort of thing that the U.S. began and everybody copied. Everybody never thought this ride would ever end. Cheap money, very little regulation, investors foolishly believing that real estate values would increase year-after-year.
When you combined this crazy optimism with subprime borrowers, sneaky financing schemes, very little or zero down, and banks that could sell those mortgages (now known as "toxic assets") to Fannie Mae or other financial institutions, you had all the makings of a financial meltdown. I have no pity for Dubai or any country that did not see this financial collapse and deep recession coming.
Today Dubai announced that it would default on its over $60 billion in debt to various banks, and would need another six months to "work things out" so they could figure out how to pay that debt. I wonder just who are all the banks or Wall Street firms they owe money to. I understand the the UAE's Abu Dabai bankrolled Dubai during the last seven years, and Dubai spent that money faster than an alcholic can down a fifth. Apprently Abu Dabai is not coming to the rescue this time, and the response by the financial markets was predicable. In the U.S. stock prices on the DOW dropped by 154 points.
I just have to wonder how many other countries are on the financial brink. You can add the US to this list of countries, with a total of over $12 trillion in federal debt outstanding. Good job, US, this insures that the recession will last another five to ten years, is what I keep hearing. A lot of experts are saying that the recession "is over", but ask those 20 million in unemployed or under-employed Americans, and they will tell you something different.
The DOW has dropped to 6,600 in early 2008, and is now at 10,300, a 60% gain. Applause!! I wonder how much of that is from borrowed money, secured by stocks or derivatives (see my previous post on this). Wall Street has never created a single job, only made the rich, richer and the poor, poorer.
I watched PBS' Financial News that Dubai is the excuse we need for a market adjustment. The Obama administration better get cracking and start regulating banks, insurance companies and brokerage firms, or we will have a second bubble. I have actually predicted one in the middle of 2010 (see my previous post, sorry I don't have the link), and some very knowledgeable economists are saying the same thing or predicting a W-shaped recession. The Fed even said to expect unemployment to remain high 8-10% for the next five years.
If you are buying bank REO's like a madman, think again. One out of four homes are now under water. I could just get worse, before it gets better. Xmas sales figures will probably bear this out. The National Retail Federation has forecasted negative or flat growth and comScore is forecasting similarly online sales. When 2009 is compared to 2008's decline of 3% in retail sales, and about 7% during Xmas, that's not a very good sign.
I wish that I could find a silver lining in all of this, but this has a lot to do with my upbringing and training as a former CFO and controller for a number of companies, whose owners used their companies like their private banks. Multiply that a million times, and you get a very clear picture. Extreme capitalism at its best.
Just think about it, a lot of former CEO's of big Fortune 500 companies, banks and Wall Street Firms are now running our country's finances. I hate to turn this blog into a political podium, but it is so difficult to ignore the signs that we have a lot of fixing up to do. Dubai is nothing, but a symptom of global problems. Like a small mole, that can be safely removed before cancer sets in. So what if Dubai goes out of existence. They got what they deserved.
Courtesy of an article appearing in the August 2009 issue of Fast Company
That is all fresh info for me. Indebted to you for having posted it.
Posted by: Personal Injury Compensation | 09/14/2011 at 07:56 AM