Monday, November 30, 2009

If You Were Stranded On a Desert Island

If you were stranded on a desert island it would probably suck. However, if there were other desert islands nearby, and if you were somehow able to fly over this man made archipelago of islands in a plane, and could see that together they seemed to form a map of the globe, well then, you'd have the excess/bubble that is Dubai.  If you heard that David Beckham (I don't think Becks actually owns one of these - although it seems he did buy at the Palms Dubai) or Madonna lived (disclaimer - she doesn't!) on an adjacent island, you might even be talked into paying more than twenty million bucks for your island, even though Becks and Madge probably won't spend more than a few weekends a year at their island pad - it's the middle of the freakin desert, after all.

Although Dubai World's imminent debt default may not have catastrophic global financial consequences, Dubai's woes are symbolic and indicative of potential future shocks in the financial space.  After all - even these wealthiest of wealthy projects were funded largely with debt, and perhaps conceived with less than robust business plans and lack the ability to weather economic storms.

In an effort to one-up their own excess, Dubai was planning to again build the worlds tallest building - a KILOMETER tall structure at a cost of $38Billion over the next 10 years.    As a point of reference, Las Vegas's Bellagio cost under $2B to build when it opened in 1998.  The coup de grace was a comment out of Dubai a year ago, revisited by Jeff Matthews: along the lines of how the 1KM tall tower was still going to be built (good luck!) because it will take 10 years to complete and thus will be facing a different  (read: better) economic world when it is done.

"I'm sure most of you are asking why we're launching this, and you'd be mad not to question it," Nakheel's chief executive Chris O'Donnell said. He added, "The project will be built over 10 years, and we'll have many more [economic] cycles before then...the world will be a different place by the time it's built."

Jeff Matthews: "Mad" is, we think, the exact word for O’Donnell's assurances, as reported by the Wall Street Journal, that the speculation in Dubai will survive whatever cycles the world will throw at it."

Ah yes... more hope and prayer that everything will be ok if we wait long enough.  This time it only took a year for reality to hit Dubai.



Onlooker said...
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Onlooker said...

Hubris is another word that comes to mind. And what happens when the debt servicing costs to fund this monstrosity start to skyrocket? Yeah, I'm sure they have conveniently not thought about that little factor.