The crisis in Dubai has been a sharp reminder that there are still more aftershocks of the credit crunch to ripple around the globe. When Dubai World announced it was seeking a six-month debt standstill, the fear was this was a Lehman Brothers of the Middle East ushering in a dangerous second phase of the financial crisis. Just as economies were beginning to recover from the biggest shock since the Great Depression of the 1930s, it looked as if we were teetering again on the edge.
Dubai is a monument to the excesses that gave us this global financial crisis. The boom in the former British protectorate was spectacular and so has been the bust. Property prices went as high as its famous skyscrapers before plunging back down to earth. The 1.2m expats who went there in search of a new life, including 120,000 Britons, have known that the good times had ended, although most have chosen to stick it out.
If banks had an excuse for their reckless behaviour during the credit boom, it was that many of the assets they created that turned toxic were highly complex. In the case of Dubai there is no such excuse. Even casual observers could see this was a boom built on sand. Yet the banks kept lending, and some will suffer big losses.
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