The Middle East is roiling with news that Dubai will postpone repaying $60 billion in loans to international banks. Faisal Islam of Independent Television News has the story.
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World markets were thrown into turmoil today on news of financial trouble in the Persian Gulf city-state of Dubai. Dubai announced that it planned to put off repaying almost $60 billion dollars in debt owed to international banks.
That led to big losses in Asia, worries in Europe, and a rough day for stocks on Wall Street. The markets closed early for the holiday weekend. And the Dow Jones industrial average lost 154 points, to close above 10,309. The Nasdaq fell 37 points, to close at 2,138.
We begin our coverage with a report from Faisal Islam of Independent Television News.
For a second day, the collapse of Dubai's property boom has been upsetting markets worldwide. Across Asia this morning, share prices tumbled again. Gold and oil dipped, as traders asked which banks might be exposed. British banks have made significant loans to the United Arab Emirates, of which Dubai is a part. The announcement on Wednesday that a state-owned property company wished to delay the repayment of billions of dollars of debt had raised fears of a new leg to the financial crisis.
The prime minister, visiting the Commonwealth summit in the Caribbean, tried to allay fears today.
GORDON BROWN, prime minister, United Kingdom: We are satisfied the arrangements in place, the mechanisms that we have got in place can monitor what's happening, can be sure that this is something that is both containable and is localized.
The crisis appears to have arisen because Abu Dhabi is playing hardball over bailing out Dubai's companies, having bailed out the Dubai government finances.
Dubai's lavish property boom included creating tree and world-shaped artificial islands popularized by cheap deals for famous footballers, ludicrous seven-star hotels, and assorted ephemera, such as an underwater hotel and a snow dome in the desert.
Tonight, we witness the birth of an icon.
Many lenders felt they could not lose, despite the obvious commercial risks, because Dubai is allied to Abu Dhabi, the oil-rich emirate that has the biggest piggy bank in the world. If the lenders had read the small print, though, they would read that Dubai itself never promised to back loans made even to the state-owned property companies.
Specialist watchers of credit risk say there is a problem, but it's not yet proving contagious.
JAV BOSE, director, CMA DataVision: It is pretty much localized within Dubai at the moment. There was an initial panic, but then the markets calmed down and have taken comfort from the U.S. market, which is actually pretty stable today.
The real issue is whether Dubai sparks a decisive turnaround for frothy-looking stock markets. The U.S. Dow Jones bottomed out at 6,500 in March. Since then, it's raced away, hitting 10,500 by Wednesday, an incredible rise of 60 percent.