UAE central bank intervenes
The United Arab Emirates offered banks emergency support on Sunday, the first steps to ease fears that a looming debt default by two of Dubai’s flagship firms could derail the global economic recovery.
The United Arab Emirates has pledged to stand behind foreign and domestic banks in the country, offering additional money while extolling the strength of the Gulf nation’s financial sector as world markets brace for a potential day of reckoning Monday over Dubai’s crushing debt.
The UAE’s immediate priority was arguably to avert any run, however unlikely, on banks by panicked depositors. But the promise of cheap funds also signaled to global investors that the country’s federal government — backed by oil money — will do what it can to limit the fallout from its indebted emirate’s woes.
In a statement Sunday, the UAE’s central bank said it had sent notice to Emirati banks and foreign banks with branches in the country making clear they would have access to “a special additional liquidity facility.”
Looks like the central bankers are coming to the rescue with some of that good ol liquidity! Crisis averted for now.
Looks like Dubai World can be added to the list of “Too Big to Fail” companies. Another notch up in the debtors guillotine rack! This is going to be messy!
Early morning here in Europe and the Asian markets seem to be greating this news with happiness. The Nikkei and the Hang Seng are both up by over 2% European markets seem to be reacting mildly with some indexes up slightly and others down slightly so far.
If the Fed thinks it will hurt the banks that it is wrapped up with or create systemic risk I could very well see our money going over there.
Note that the article said “part of the loss”. There is a real possibility that some type of a haircut will be given but in the end with the rest of the world on a bailout party Dubai will surely not be the odd man left out. Why would Dubai be allowed to go into default why everyone else gets a free pass? Central bankers will continue to create money and buy the worst paper on banks balance sheets until asset prices no longer fall. Then, once asset prices have reversed, central banks will increase the cash reserve ratios on banks so that they wont go crazy lending to anyone and everyone. Its interesting how so many analysts out there make forecasts based on what they want to see happen as opposed to looking at the potential realities. All the fed has to do is simply increase bank reserve ratios to say 15-20% and monetary/bank inflation will be curtialed.
Essentially, what is currently happening is a worldwide debt jubilee. Notice how lenders are being forgiven their debts as are many homeowners. Millions of homeowners are staying in their homes for free, some as long as 18 months. Thats a huge stimulus to these people as the mortgage could be 2500 a month. 2500 X 18= $45,000. With 45k they can use that money to rent for a very long time. Notice im excluding insurance and property taxes so this secret stimulis is quite large. How many millions of home borrowers are sitting in homes for free. Lenders dont even bother foreclosing for a very long time as mark to model and cash infusions help the situation in the short run. In addition, with Fannie/Freddie allowing foreclosees to rent the homes at a steep discount this is another stimulus.
Collapse scenarios must be thought out carefully. Rome wasnt built in a day nor was it destroyed in a day. The wise and prudent in Rome who saw it fall it apart watched a very slow process as it took 100’s of years for rome to finally fall. The same it will be with America. We have been in decline for 20 years but the steep decline began in 2008. There will be bumps along the road but the main road is down.