No, really. Here’s the opinion of a Saudi Arabian banker on the Dubai default, dated November 27th: “We believe that Abu Dhabi will come to the rescue… but like all rescues it would have a price. In that case it may well be first of all a political price.” Why did they believe that Abu Dhabi would rescue it’s neighbor? Simple: ADIA, Abu Dhabi’s sovereign wealth fund, has enough assets that if it seemed like bailing out Dubai world might preserve market values, then ADIA had enough of a stake in those markets to make the bailout a paying proposition. Saudi did too, but Abu Dhabi, unlike Saudi, could more easily extract political gains in addition to the economic returns from a bailout.
Thus, the bailout. Stocks still seem to have reacted well, despite its wholly predictable nature. Ni modo.
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