Sean O'Grady: Is Dubai the 'New Lehmans'?

Is Dubai the “New Lehmans”? Not quite, at least on the broad numbers. Lehmans went down with debts of $500bn; the disarray in Dubai looks like losing everyone involved about $80bn, certainly not much when set against the $2,700bn ($2.7trillion) of banking losses accumulated over this crisis.

But the blow to confidence, at a time when the world is trying to crawl out of the worst downturn in three quarters of a century, is far more grievous. It has already shaken the stock markets; the fear now gripping them has the potential to induce more panic and set back recovery by months, if not years. That is prospect too horrible to contemplate.

Fortunately, we have had sufficient experience of financial crises to know precisely what needs to be done now; swift, bold international action. As with Iceland, the Ukraine, Hungary and many other states, Dubai can and should be saved. The damage is containable. Aid must come from Dubai’s partners in the United Arab Emirates, especially oil-rich Abu Dhabi; from the Gulf Cooperation Council, dominated by Saudi Arabia; and from the IMF. Abu Dhabi’s sovereign wealth fund alone is worth about $700bn, the biggest in the world. So the funds are there to organise some sort of rescue; the political will must be found.