Nobody Knows

Is Dubai World's default more like Lehman Brothers or more like CIT? Lehman Brother's bankruptcy sent shocks through the financial world, while CIT's bankruptcy hardly caused a ripple.

The connections between world financial markets are so complicated that nobody knows the answer and one can only hazard a guess. The size of the default is much smaller than Lehman Brothers, but this is more of a surprise than CIT was.

In and of itself the Dubai World default is not a disaster. However, the jitters seem to be spreading to Greece. It is the contagion effect that is worrying. This could be nothing or it could be a black swan. We will soon find out.

1 comment:

Anonymous said...

Banks across the globe are insolvent and have been hiding their condition with accounting trickery. It is hard to tell what will cause the crowd to see that the emperor is not wearing any clothes, but a catalyst like Dubai World's insolvency could conceivably start the landslide. If I read one more time about Bank of America's $3 "normalized" earnings potential, I will vomit. B of A, Deutsche Bank, and their brethren are still deeply insolvent and can survive only with continued infusions of taxpayer money.