Comments on: Dubai? Do Sell?

By: David Merkel

David Merkel — Sun, 29 Nov 2009 05:14:58 +0000

Right — F&F are big. But would they let Farmer Mac go down? There are certain odd DO Transportation bonds that are non-guaranteed. Would they let those fail? Would they let a FHLB fail? I don’t want to find out.

As for Dubai, it may be a bargaining ploy. Really not sure though.

http://www.breitbart.com/article.php?id=CNG.15417e8f63a995484187728fd215d360.b71&show_article=1

By: Stuart

Stuart — Sat, 28 Nov 2009 21:23:47 +0000

Thanks for the reply, David. I take your point about the guarantees.

The systemic importance of Fannie and Freddie was clear given their pivotal role in the market at/near the centre of the credit crunch. With Dubai World I’m less convinced. In normal times the failure of a construction company ought not to threaten disruption of the entire financial system. These, however, are not normal times.

A very nice blog, by the way. Regards.

By: David Merkel

David Merkel — Sat, 28 Nov 2009 19:54:25 +0000

I did not make any statements about Dubai government guarantees; there aren’t any explicit guarantees. Any guarantee is implicit at best… the US wouldn’t let Fannie and Freddie go under. That said, unless Abu Dhabi steps in, Dubai alone will have a hard time supporting Dubai World.

By: Stuart

Stuart — Sat, 28 Nov 2009 16:08:37 +0000

Hi, you assume that there are some debt guarantees from the government. How well based it that assumption?

Willem Buiter asserts that this is merely a case of limited liability working its magic:

http://blogs.ft.com/maverecon/2009/11/polite-sugggestion-to-the-dubai-sovereign-that-creditors-of-dubai-world-not-be-bailed-out/