The Great Debate

Dubai not a canary but another miner needing oxygen

cr_lrg_108_jamessaft1.jpg- James Saft is a Reuters columnist. The opinions expressed are his own -
Taken all in all, Dubai’s debt crisis is the most significant financial development of 2007. Here in late 2009 it amounts to far less.
Back in the day it would have been a newsflash that apartments ultimately require occupants, that investment needs to be ratified by cash flows, and that debt, Sharia-compliant or garden variety, someday must be repaid.
Dubai’s difficulties are being sold as the commercial real estate debacle somehow morphing into a sovereign debt crisis and it is true that the effective borrowing rates of the more raddled national borrowers such as Ireland have been driven up in recent days.
Dubai’s government said on Monday that it is not responsible for the borrowings of Dubai World, a state-controlled development conglomerate saddled with huge debts amid a property market where the going rate has halved.
Dubai last week applied for, or imposed depending on your point of view, a six-month repayment freeze for Dubai World and its property developer Nakheel.
“Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct,” said Abdulrahman Saleh, director general of Dubai’s department of finance.
Quite, and hopes that credit extended to Dubai World would be made good by the state of Dubai or by the richer emirate of Abu Dhabi seem to be foundering. This is bad news for those creditors, with the worst potential losses traceable to banks in Britain and Europe, but its probably just not that big of a deal.
For one thing, the amount potentially at issue, even if you allow for an extra 50 percent off balance sheet taking it to circa $125 billion, is simply not big enough in the scale of things to tip significant players over the edge.
And it tells us very little about the state of the world or the likely outlook for real estate. It is very hard to call something a canary in the coal mine when you are already cleaning up after a mining disaster.
For a time the magical thinking behind Dubai, “build it and they will come”, worked and despite it being remote, having an inhospitable climate and little inherent commercial reason for existing, the city boomed. It’s a bit like having a feast so the harvest will be good rather than when it actually is, but it was effective for a time as prices rose and investment was attracted.
The nub of the meme in financial markets is that this is about sovereign exposure and that creditors will be shocked if the state support they thought they had coming never arises.
But is it terribly bad news for the rest of us? Probably not. Investors should have seen it coming – there have been quite a few headlines recently about the real estate crash-  and should not have conflated “implicit” with “explicit”.
Dubai has made clear in its own bond prospectuses that it might lend support but that it was under no obligation to do so. Teaching investors the difference between “quasi-state” and “state” is a good thing.
So why then did the cost of borrowing for Greece and Ireland, as expressed in insurance contracts against default, go up?
Nothing about Dubai’s predicament will have much of an impact on Irish or Greek tax revenues clearly, and the banks and the pool of lendable capital has not been diminished by much.
Nor is it easy to draw a new connection between Dubai and the emerging European countries which represent a muchmore substantial and potentially grave threat to banks in Europe.
Perhaps this is ultimately about moral hazard – risk taking under the belief that you are “insured” -  as are all stories involving the words “quasi,” “government,” and “debt.”
Fannie Mae and Freddie Mac’s quasi-government status fed moral-hazard driven risk taking, as did Dubai World’s, as is most certainly the case where government insurance allows for cheap borrowing.
Markets went down on Dubai because they have become addicted to moral hazard and anything that doesn’t conform with the idea that all shall be bailed out is scary.
It is apparently terrifying that a government should say “hard luck” to anyone anywhere, no matter how difficult the government’s situation is or how ill-founded the investors claim to relief.
None of this is to say that the commercial real estate crash isn’t terrifying, or that countries like Ireland and Greece don’t face difficult times and huge risks, but only that Dubai tells us little new about those things.
There is definitely a moral hazard trade out there, but Dubai is not the event which will cause it to unwind.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. Email: jamessaft@jamessaft.)

from The Great Debate UK:

Newspapers and Democracy in the Internet era: ‘The Italian Case’

repubblicaCarlo de Benedetti, Chairman, Gruppo Editoriale L'Espresso/La Repubblica, will deliver the 2009 Reuters Memorial Lecture on ‘Newspapers and Democracy in the Internet era: The Italian Case'.

The Reuters Memorial Lecture commemorates journalists who have lost their lives in pursuit of their profession.

The lecture will be followed by a panel discussion chaired by John Lloyd, with Timothy Garton Ash and Paolo Mancini. Reuters correspondents will be live blogging throughout.

from From Reuters.com:

How has the credit crisis affected you?

The demise of Lehman Brothers a year ago sparked a collapse in financial market confidence and set of a series of reactions that have spread hardship into the four corners of the globe.

Reuters News has charted the key events and their impact in "Times of Crisis" -- a major new multimedia production on Reuters.com. (See it here.)

We'd like to add the experiences of Reuters readers. So, if you or your family have been affected by the events of the past year then use the comments section below to share your story.

from For the Record:

A is for abattoir; Z is for ZULU: All in the Handbook of Journalism

dean-150Dean Wright is Global Editor, Ethics, Innovation and News Standards. Any opinions are his own.

The first entry is abattoir (not abbatoir); the last is ZULU (a term used by Western military forces to mean GMT).

In between are 2,211 additional entries in the A-to-Z general style guide, part of the Reuters Handbook of Journalism, which we are now making available online. Also included in the handbook are sections on standards and values; a guide to operations; a sports style guide and a section of specialised guidance on such issues as personal investments by journalists, dealing with threats and complaints and reporting information found on the internet.

from For the Record:

Counting quality — not characters — in social media

dean-150Dean Wright is Global Editor, Ethics, Innovation and News Standards. Any opinions are his own.

Are we too connected?

In recent days and weeks I’ve been wondering if our mobile phones, Blackberries, text messaging and constant access to email and social media have brought us too close together for our own good.

Or maybe the quality of our connected life is only as good as the information we share.

U.S. fights fire, Germans fear flood

Paul Taylor Great Debate– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

The United States is fighting a fire in the world economy, but Germany and some other European countries fear a flood of inflation as a result.

That clash of cultures is at the heart of transatlantic debate over whether Europe should spend more and ease monetary policy to revive growth, with a deep economic contraction certain this year and an end to the recession not yet in sight.

from For the Record:

After the warm glow, telling the cold, hard truths

dean-150Dean Wright is Global Editor, Ethics, Innovation and News Standards. Any opinions are his own.

The president was inaugurated in front of adoring crowds and positive reviews in the media. As the unpopular incumbent sat on the platform with him, the new Democratic chief executive took office as the nation faced a crippling economic crisis. The incoming president was a charismatic figure who had run a brilliant campaign and had handled the press with aplomb. The media were ready to give him a break.

That was 1933, and in Franklin Roosevelt’s case, the media gave him a break.

For Barack Obama, the honeymoon was shorter.

Less than 36 hours after Obama took the oath of office, the White House denied news photographers access to the new president’s do-over swearing in, instead releasing official White House photos of the event. Reuters, The Associated Press and Agence France-Presse protested and refused to distribute the official photos (which nevertheless showed up on the websites of a number of large U.S. newspapers).

from For the Record:

Reporting in Gaza: Striving for fairness

dean-150Dean Wright is Global Editor, Ethics, Innovation and News Standards. Any opinions are his own.

Let’s say it up front: Almost all of you will find something in this column to take issue with.

That’s because the subject is the conflict in Gaza and perceptions of bias in reporting on it. News consumers detect media bias on any number of subjects, but there is nothing like the continuing Mideast conflict to bring out the passions of partisans on all sides.

from Photographers' Blog:

Finbarr from the field

On Jan. 14 Reuters hosted a live video Q&A with our renowned photographer Finbarr O’Reilly about his experiences in the war-torn Democratic Republic of Congo. Finbarr addressed what drew him to Africa and the most difficult aspects of being a photographer in a war zone.

Finbarr is still available to answer questions, submit them in the comments section below or send a Twitter message with the hash tag "#finbarr" .

LIVE CHAT: Finbarr O Reilly

Follow the latest updates

Check out "Death all around," his multimedia report from a Congolese refugee camp, dispatches from Chad and Afghanistan, selected photos from his portfolio, and an audio slideshow from his most recent Congo assignment.

from Reuters Editors:

Typewriters, Technology and Trust

dean-150Dean Wright is Global Editor, Ethics, Innovation and News Standards. Any opinions are his own.

A little girl in my family got a typewriter for Christmas.

Not a laptop. Nothing with a screen. A typewriter. The old-fashioned manual kind with a smeary ribbon and keys that stick.

Typewriters had pretty much gone the way of dodo birds, car tail fins and cigar-chomping editors who yell “Stop the Presses” quite some years before my granddaughter was born. But it was the typewriter used by the school-age, aspiring journalist in the movie “Kit Kittredge: An American Girl" that captivated her.