The task of today's Daily Reckoning is to show that the Dubai debt story is more like Bear Stearns and less like Lehman Brothers. A second task is to show that the news from Dubai could be the catalyst for fund managers and traders to take profits on all of their 2009 winners. This could lead to steep falls in emerging market stocks, including Australia.
But first things first. Dubai World is not nearly large, leveraged, or systemically important as either Bear Stearns or Lehman Brothers when both those firms failed. For those reasons, it's unlikely that the failure of Dubai World (and we're not saying it will fail) would, by itself, cause a global deleveraging.
Dubai World has $59 billion in debt. That makes up the majority of the $80 billion in debt of Dubai itself. According to Reuters, international banks are exposed to $12 billion in debt. Incidentally, the Commonwealth Bank of Australia said it has exposure to Dubai but doesn't expect to make a loss.
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