Financial Analysis 101: How to Analyze The Dubai Financial Crisis

11/29/2009 09:04:00 PM / Posted by Soullfire /

Although you could have easily missed it with all the news about Tiger Woods and his auto accident, or the White House party crashers taking up the majority of the air time, there was some very interesting financial news the past week.

Dubai, the play city for the wealthy, has run into financial problems due to plunging real estate values and has asked its creditors for a delay in its debt repayment schedule. Okay, so the fact that Dubai is in danger of defaulting on their debt and facing bankruptcy is just the first part of the interesting news.

The next part, which I find even more interesting, is the fact that none of the other United Arab Emirates (UAE) initially stepped up to "save the day" and even stated that they wouldn't be stepping in for any bailout. How about that? Forcing Dubai to take responsibility for their own debt problems - what a novel concept!

Could that be a lesson for how the US and Europe should regard corporate debt problems? It would seem it's a lesson they still aren't ready to learn as the financial markets responded by falling last Friday and the major complaint/question repeated over and over again by the talking heads on financial and news media was "why wasn't the UAE going to bail Dubai out?"

This type of mindset angers me to no end. How is it that banks and corporations feel they are entitled to special consideration and being bailed out for the "good of the markets", and yet these same banks show little to no mercy for their own individual customers like homeowners who fall behind on their debt payments. Their level of hypocrisy knows no bounds, and is a clear example that the harsh realities of accountability don't appear to apply to rich corporations. It disgusts me.

Meanwhile, the news media would rather keep you updated on fluff news like Tiger Woods, and White House parties instead of news that could actually have an impact in your life. This is why you should NEVER depend on the news for advance warning- by the time it's becomes "worthy" of their attention, it will be too late to do anything about it.

Here are some of the questions you should be asking about the Dubai situation since most news media isn't doing it:

1) How does this affect me or my investments?

Just because Dubai is half a world away is no guarantee that their actions have no global impact. The failure of US investment bank Lehman Brothers last year should make that very clear.

2) Could this crisis impact my country?

All investors in Dubai could be impacted - which includes many international banks and investment firms. How much have these corporations loaned to Dubai- which translates into how much of their capital is at risk?

3) What does this say about the remaining "systemic risk" out there?

Think Dubai is the only city-economy in dire straits? Think again. Could there be other cities or nations on financially shaky ground?

4) Why does the news ignore this story for the most part?

You can find news on Dubai if you're on the financial news network or online service, but good luck finding it on regular TV news, where they would rather compete with Entertainment Tonight or TMZ, rather than give you useful information.

5) How does this affect overall market risk in general and risk to my investments in particular?

By effectively gauging risk, you will be ahead of the curve in keeping your long term investments safe from severe market turmoil.


Post a Comment