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Author Topic: Overshoot  (Read 861 times)

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Offline OldSchoolGamerTopic starter

Overshoot
« on: November 26, 2009, 04:51:27 PM »
http://www.ft.com/cms/s/0/46b4065c-d9f7-11de-b2d5-00144feabdc0.html

To make a long story short, high-flying Dubai, where billions of dollars of gleaming skyscrapers magically blossomed from the desert, has asked for a moratorium on its debt payments.  World markets wilted at the news.

Of course, Wall Street is shut for Thanksgiving, but one wonders what will happen when it opens tomorrow.  And a bigger question is, since Dubai was the darling of the something-for-nothing financiers, how much of the quadrillion dollars in derivatives out there are based on the hyper-overvalued buildings in Dubai?  If those instruments lose so much as 1% of their value, after all, it sucks an amount of money out the global economy roughly equal to the U.S. GDP.

For several months now, there have been comments about how commercial real estate (CRE) has overshot its true market value even more than the housing market did before its correction began two years ago.  The impending default of Dubai is only going to add to those fears.  U.S. banks are still weakened rather substantially by residential mortgage defaults...a CRE default on that scale would likely bring about the end of many of them.  After the first round of bailouts, there's scant political will in Washington to extend a second tranche of tax dollars to shore up banks. 

The next several months are going to be rather interesting...

Offline Jude

Re: Overshoot
« Reply #1 on: November 27, 2009, 05:58:35 AM »
Thanks for making my night depressing :(

Offline OldSchoolGamerTopic starter

Re: Overshoot
« Reply #2 on: November 27, 2009, 01:33:12 PM »
Thanks for making my night depressing :(

Actually, I don't view this as depressing.  We do have some pain to go through, but hopefully at the end we'll have an economy based on the production of actual value rather than paper bullshit. 

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Re: Overshoot
« Reply #3 on: November 27, 2009, 02:58:30 PM »
I'm not at all surprised by this, sad to say.  A while back, there was a post around here about how oil-based economy was collapsing, and Dubai's excesses in building struck a sour note with me.

Offline Revolverman

Re: Overshoot
« Reply #4 on: November 27, 2009, 06:50:50 PM »
How can ONE city drop every market on earth? More so that you would have to had your eyes and ears drilled out of your skull to not see this coming.

Offline Callie Del Noire

Re: Overshoot
« Reply #5 on: December 02, 2009, 03:35:00 PM »
Having been there.. and seen some of the buildings in question, I can imagine the average person wondering. It was truly MINDBLOWING how much Dubai grew in the five years I saw it doing deployments on the Nimitz and Stennis.

I saw pictures of Dubai before Gulf War I and compared it to what I knew.. it BOGGLES the mind. One thing a LOT of people don't know is the most important buildings in Dubai aren't the billionaire hotels.. or the island they are making but the BANKS. A lot of the money in the gulf goes through there.

Offline Vekseid

Re: Overshoot
« Reply #6 on: December 02, 2009, 09:51:34 PM »
How can ONE city drop every market on earth? More so that you would have to had your eyes and ears drilled out of your skull to not see this coming.

Dubai owes people who owe people who owe people who...

Keep in mind the total amount of US currency is only roughly a trillion dollars. So an eighty billion dollar hit will toss people around a bit.

Offline Asuras

Re: Overshoot
« Reply #7 on: December 07, 2009, 03:30:17 AM »
Quote from: Old School Gamer
how much of the quadrillion dollars in derivatives out there are based on the hyper-overvalued buildings in Dubai?  If those instruments lose so much as 1% of their value, after all, it sucks an amount of money out the global economy roughly equal to the U.S. GDP.
]

The "OMG A QUADRILLION DOLLARS!?!1!1!" number is the notional value of outstanding contracts. The actual amount of money that banks would have to cough up to cover their derivatives is called their credit exposure, which is much, much less. Read this.

Quote from: Old School Gamer
For several months now, there have been comments about how commercial real estate (CRE) has overshot its true market value even more than the housing market did before its correction began two years ago.

No, commercial real estate is pretty much sucking just as much:



Quote from: Old School Gamer
The impending default of Dubai is only going to add to those fears.

I find it hard to believe that after global stock markets fell by as much as two-thirds of their value - THAT was catastrophic - that a default in a single emirate which doesn't even constitute a sovereign country is going to break the camel's back.

Quote from: Old School Gamer
After the first round of bailouts, there's scant political will in Washington to extend a second tranche of tax dollars to shore up banks.

On the contrary, I think with us going into an election year - in addition to the fact that the Treasury and Fed have been given extraordinary authority to do magical things - I don't think that they want to be caught fucking up like they did last September. Because, after all, that error on the part of the Treasury and Congress is what sent us tumbling to the edge of armageddon in the first place.

Quote from: Old School Gamer
We do have some pain to go through, but hopefully at the end we'll have an economy based on the production of actual value rather than paper bullshit.

Who gets to decide if society should invest in cancer drugs or CPUs?