What's This Dubai Lark All About, Then?

I could get very bitter and twisted in this post: if I do, please forgive me. I lived in Dubai for thirteen years before moving to Spain a couple of years ago. We knew, about eight years ago, that Dubai was committing financial suicide. Nary a month went by without some new and totally barmy mega-project being announced. The Emirate had opened itself up a bit so that foreigners could buy property there, but only in Government-approved developments - principally those being built by Nakheel (Government-owned), Emaar (semi-Govt) and Damac (private and quite probably bankrupt by now). Many of our friends bought houses on some of these developments: a few of them made shitloads of money by speculatively buying and selling. I dare say the rest of them are now sitting on a mountain of negative equity, and praying five times a day to the deity of their choice that they will still have a job in the morning.

There's no get-out, you see. The United Arab Emirates (of which Dubai is a constituent Emirate) doesn't have a proper bankruptcy procedure for individuals or companies. If you default on a loan, the only legal recourse for the lender is to have you thrown in jail until such time as you can pay what you owe. You think I'm joking, don't you? I wish I was - you can even be jailed for issuing a cheque that subsequently bounces (and the country is very much cheque-driven: if you rent a flat for a year, you either have to pay the whole year's rent upfront, or give them three or four post-dated cheques). I know many people whose only way out was to run.

The attitude of Dubai (and, let's be fair, the rest of the Arabian/Persian Gulf region) to non-fulfilment of financial obligations opens up the fascinating possibility of Dubai World being jailed in its entirety for planning to delay a massive bond repayment. Or, at least, you might think, its owners / top management / shareholders would be held responsible. These would mostly turn out to be members of Dubai's Ruling family, the Maktoums, with Sheikh Mohammed bin Rashid Al Maktoum at the pinnacle of that posse.

I was intrigued / fascinated / pissed off throughout my years in the Middle East by the attitude of my paymasters towards putting money in my pocket. The direct employers that I worked for usually had a policy of keeping foreign workers a few months behind with their salaries so they wouldn't run away (I don't know if it ever occurred to them that if they treated their employees decently, they wouldn't want to run away). Running my own business, I rarely had problems getting paid by Western or Asian clients, but Arabs could be hard work and Government agencies were fucking impossible. In the end, I declined any approaches from the Government because I just couldn't afford to finance them.

And now, with a breathtaking display of utterly crap timing (close of business the day before a 10-day Government holiday), Dubai World announces it has no chance of paying the next installment of its bond repayments, and suggests its investors should wait six months. Yeah, right. Meanwhile, Abu Dhabi will be picking off Dubai's prized assets for fire-sale prices, and there's still little possibility of Dubai being able to pay for any of the stupid stuff it has left.

Sheesh.

Kebab.

I Promise To Pay The Bearer On Demand

The ongoing descent into recession gets more bizarre by the day. I guess none of us have ever seen anything like it. I left the UK in 1992, as that recession crushed the construction industry: I was an Interior Designer at the time, and the company I worked for had gone bust. I could have survived on state benefits for a bit, I suppose, but opted for the Norman Tebbitt 'get on your bike' approach. I cycled to Saudi Arabia, and then Dubai.

I know that recessions or economic downturns were supposed to operate on 11-year cycles, but we seem to have missed the one that was due for 2003. Ah, well, that's it then. Governments have abolished boom and bust, it's boom all the way from now on (actually wasn't 2003 when the dotcom bubble burst?).

What is happening now is pretty hard to comprehend. Banks began to realise, all of a sudden, that not only did they not have the money they thought they had, but they actually had anti-money in extremely large amounts. I find this to be totally astonishing. The idea of a bank is that it is a safe place to keep your money. You, as a customer, understand that while you are not actually using your money, your bank will use it for its own purposes (normally the creation of more money). That's okay, as long as you can get access to your money whenever you need it.

The problem is that banks are a bit more complex than that. If every single customer turns up on the same day and wants to withdraw all of their money, the bank will not be able to do it. Each bank branch only stocks enough cash to deal with its normal daily business. It could take them a few days to physically get cash money to the place where it is needed. But here's the thing: they will have cash tied up in medium or long-term deposits, in shares or bonds or whatever. They will not be able to immediately extract their money from these things.

And so there's a panic reaction from the public. There's a 'run on the bank'. There are paper assets but no actual cash. There's insolvency.

Normally a bank would get around short-term liquidity problems by borrowing from other banks, and that has worked well for centuries. But now, banks are wary of lending to each other. In fact, they're just not doing it. And then they discover that their highly-paid rocket-scientist investment bankers have placed the bank under some exceedingly large obligations. They have huge bills to pay, and they simply cannot raise the funds to pay them. There's insolvency.

How did all this happen? We have to blame Ronnie Reagan and Margaret Thatcher. They adopted an economic model that said markets were the best thing. You would find true value in a market. Traders in a market would never do anything bad, because the results would hurt them too.

Yeah, right.

So money market dudes were allowed to invent all kinds of stupid stuff that nobody could understand, with the end result, here in 2008, that the Western world owes itself more money than actually exists.

There is this place called Planet Zog. This is thought to be the location of the difference between the world's GDP and its financial liabilities. If it is, the place must be awash with money.

Which brings us to the real point of this post: what exactly is money?

Money is a means of exchange. It's a way to place a value on things. In the early days of currency (in the West - I'm not talking about conch-shells or stuff like that), money was real money: its value came from the value of the metal it was made from, gold, copper, brass or whatever. Then we got paper money, because the metal stuff was just too heavy to carry around. In Britain, banknotes carry the legend 'I promise to pay the bearer on demand the sum of x pounds.' What that used to mean was, 'this paper is worth the equivalent value in gold, and you can have the gold if you want.' What it means now is 'I want you to believe this is worth something, and don't ask for the gold because we sold it.'

We now have the slightly amusing sight of Western governments begging Arabian Gulf states and China for money. But guess what. They are broke too. We might as well adopt the Zimbabwe dollar as a global currency.