[Marxism] Red ink

Louis Proyect lnp3 at panix.com
Fri Nov 27 07:20:02 MST 2009

NY Times, November 28, 2009
Dubai’s Investment Troubles Leave Markets Unsteady

European markets calmed Friday after falling more than 3 percent the day 
before when investors were spooked by news that Dubai World, the 
emirate’s investment vehicle, was seeking to suspend repayments on all 
or part of its $59 billion in debt.

In late afternoon trading, the FTSE 100 in London was up 12 points, or 
0.25 percent, while the DAX in Frankfurt rose 19 points or 0.5 percent. 
In Paris, the CAC 40 was 18 points or 0.5 percent higher.

Wall Street, however, is expected to open sharply lower as investors try 
to play catch up with the Dubai report. American markets will be open 
for a half-day after being closed Thursday for Thanksgiving.

Asian markets fell sharply on Friday. The Hang Seng index in Hong Kong 
declined 4.8 percent and South Korea’s key market gauge, the Kospi, 
dropped 4.7 percent. The Nikkei 225 index in Japan and the Taiex in 
Taiwan both sagged 3.2 percent.

While declines in Asia were led by financial stocks, most of those 
shares rallied Friday in London despite some concerns about heavy 
exposure to the Dubai debt. Royal Bank of Scotland was 4.3 percent 
higher; Barclays rose 2.7 percent and HSBC 0.2 percent.

Some traders said that thought Thursday’s declines were overdone.

“The Dubai concerns are an issue but not a real shock. It’s more a 
question of timing with the lack of market participants due to the U.S. 
Thanksgiving holiday yesterday and the Muslim Eid holiday today 
exaggerating the moves,” Mic Mills, a senior trader at ETX Capital, told 

“Investors were also selling stock across the board yesterday to raise 
cash to take up Lloyds Banking Group’s record rights issue, so this also 
drained liquidity,” Mr. Mills said.

The dollar gained against the euro, and crude oil prices fell $3.68 to 
$74.28 in premarket trading in New York. Treasury prices rose.

Along with banks, construction firms were also hard hit in Asian 
markets, even as many companies issued statements declaring they had 
little or no direct exposure to the Dubai World debt.

A research note Friday from Credit Suisse said that European banks may 
be hit hardest if Dubai World cannot meet its obligations. The Swiss 
bank estimated that European banks could have a total exposure of 13 
billion euros or $19.6 billion.

The turmoil was touched off by Wednesday’s announcement from Dubai, one 
of the seven members of the United Arab Emirates, that it was asking 
banks to allow Dubai World to suspend its debt repayments for six months.

Dubai’s move — the global high-finance equivalent of a homeowner asking 
the bank to allow six months of skipped mortgage payments, presumably 
because the homeowner was out of cash — sowed fear of a contagion of 
instability that could roil markets that are only now recovering from 
the near cataclysm of the last year.

“This has sent shockwaves through the markets, even though the problems 
in Dubai have been known about for two years,” Emil Wolter, a Hong 
Kong-based strategist at the Royal Bank of Scotland, said by phone from 

“But it is not the trigger for a brand-new crisis. Yes, the magnitude of 
the situation is dramatic for Dubai. But Dubai is not America — and a 
property crisis in Dubai will not cause the same global crisis as a 
property crisis in the States.”

Some market experts noted, for instance, that while banks that have lent 
money to Dubai World could suffer significant losses if the company were 
to default on all or part of its debt, worries about the sovereign debt 
of oil-rich Middle Eastern countries were unfounded.

Paul Schulte, head of multi-strategy research at Nomura in Hong Kong 
commented in a note on Friday: “Dubai was a carbon copy of Thailand’s 
disastrous foray as an ‘international financial center’ in the 1990s. 
Happily, the U.A.E. has oil. Thailand did not.”

Still, the news had companies scrambling Friday as their stock prices 

In Hong Kong, HSBC and Standard Chartered — British banks that both have 
large operations in the Middle East — fell 7.6 percent and 8.6 percent, 
respectively. Both declined Friday to comment on what exposure they had 
to Dubai World. Standard Chartered said it would issue a statement “if 
there was anything material to disclose.”

Mr. Schulte said he believed the two banks had “insignificant exposure 
to Dubai.”

Chinese banking giants including ICBC, Bank of China and Bank of 
Communications said they had no exposure, Reuters reported, but their 
shares all dropped.

In Japan, Sumitomo Mitsui Financial Group fell 3.7 percent, Mizuho 
Financial dropped 3.9 percent and Mitsubishi UFJ 2.2 percent, though 
none would say how large their exposures were, according to Bloomberg 
News. Taiwan’s fourth-ranked Mega Financial said it had exposure to 
Dubai World loans and was trying to find out how much.

Real estate and construction firms of varying sizes were also scrambling 
to assess the impact. In India, for example, Reuters reported that the 
chairman of realty firm Omaxe said the company had an exposure of 450 
million rupees, or $9.6 million, through a joint venture with Dubai 
World’s property developer unit Nakheel, and was looking to exit the 

And the South Korean builder C&T Samsung said it had stopped work on a 
$350 million bridge in the city after a unit of Dubai World halted 
payments, according to Bloomberg News.

Like many Western consumers during the good times, Dubai gorged on debt 
and borrowed too much to finance a building boom that has gone bust in 
the downturn.

“Dubai was fairly much the worst example of overextension. It had the 
worst debt per capita in the world by far,” Christopher Davidson, an 
expert in Gulf politics at Durham University in Britain, said Thursday. 
“I would like to put it down as a really enormous white elephant that 
doesn’t have much in common with the regular economy of a regular state.”

When credit markets froze last year, Dubai, like Iceland, found itself 
overextended. But Dubai, which has little oil, was backed by its Arab 
emirate neighbors, especially oil-rich Abu Dhabi — or so investors had 

Saud Masud, head of research at UBS in Dubai, said Thursday that 
negotiators would feel pressure to reach some kind of deal to present to 
the markets before trading in the region resumes next week after the Eid 
holiday. The Dubai government’s total debt is estimated at about $80 
billion, of which, Mr. Masud estimated, about two-thirds is held by 
local investors.

Mr. Schulte of Nomura commented in his note that, in his view, “it is 
not a matter of when but at what price Abu Dhabi will bail out Dubai.”

Mr. Wolter of RBS said he too believed Abu Dhabi would have no choice 
but to ultimately come to Dubai’s rescue. Until that becomes clear, 
though, he said, markets would remain extremely nervous.


NY Times, November 27, 2009
Stalemate in Albany as State Nears Its Last Dollar

ALBANY — New York State is running out of cash.

Without a budget deal, New York will be left with just $36 million in 
the bank by the end of December, according to current projections. And 
the money will last that long, officials say, only if the state chooses 
to fully exhaust its emergency reserves by tapping several billion 
dollars’ worth of temporary loans from its rainy-day fund and short-term 

For weeks, Gov. David A. Paterson has invoked the shrinking amount of 
available cash in an effort to provoke the Legislature to deal with the 
state’s $3.2 billion budget deficit. So far, the specter of such dire 
fiscal outcomes has been greeted with what amount to legislative shrugs, 
chiefly in the recalcitrant State Senate.

The stalemate in Albany is familiar, of course, and there are many 
lawmakers and experts who predict that the Legislature will act at the 
11th hour, as it has before, to avoid the worst damage.

But with no end in sight to the negotiations, state officials are 
beginning to reckon with what could be an unprecedented cash crisis. And 
many say that even if the current deficit is closed, the state is at 
considerable risk going forward — less able, for instance, to borrow 
money because of worsening credit ratings and ill prepared for far more 
severe deficits ahead.

New York, which has a roughly $130 billion budget, the second-largest 
behind California, is certainly not suffering alone. The 50 states have 
faced cumulative deficits of more than $250 billion over their last two 
budget cycles, according to data compiled by the National Conference of 
State Legislatures. In New York, the weight of the recession has been 
coupled with the struggles of Wall Street, the state’s main financial 

But New York is by no means California, which has become the national 
measuring stick of statewide financial ruin. The state is not sending 
out i.o.u.’s to creditors, students at state schools are not holding 
sit-ins in dormitories, and Albany, unlike Sacramento, has not had to 
grapple with relocating a tent city for the homeless. Further, revenue 
typically picks up in January, when Wall Street bonuses, however 
diminished from previous levels, start coming in.

But the situation in New York is not good, either.

In modern times, the state’s general fund has never had a negative 
balance, according to the state comptroller’s office. If New York does 
in fact run out of cash, it will have to delay paying some of its 
biggest bills. Chief among the bills the state will face in December are 
$1.6 billion in aid the state is supposed to pay school districts, $2.5 
billion in property tax relief to individual homeowners, and $500 
million in general aid meant to go to local governments.

“If you put any of that off, at some point people are not getting the 
money they are expecting,” said the state comptroller, Thomas P. 
DiNapoli, a Democrat. “That could affect local governments, school 
districts, nonprofits, hospitals.”

The governor and his staff have raised the threat of layoffs and 
furloughs if the impasse drags on, and there is the potential for a 
partial shutdown of some government services.

“Unless we act, New York will run out of money, even after we delay 
payments to schools and local governments,” the governor said Tuesday in 
a brief address via Web cast. “This is an unprecedented fiscal emergency.”

The state’s credit rating is below average and at some risk of a further 
downgrade. The Paterson administration has already squeezed the budgets 
of state agencies, an action it can take unilaterally. And this year’s 
skirmish is considered a prelude to a fierce budget fight in 2010, when 
the deficit is far larger in what is an election year for the entire 

There have already been any number of ways that the strain on the budget 
has been felt across the state. Billions of dollars worth of scheduled 
increases in school aid, enacted by Gov. Eliot Spitzer to settle a 
long-running lawsuit over the distribution of school aid, will be 
stretched out over seven years instead of four. Taxes on the wealthy 
have been raised, and fees of all kinds have been increased.

For the first time in decades, the state Police Academy probably will 
not have a new class for either the fall or the spring. The state has 
closed three upstate minimum-security prison camps and six facilities 
operated by the Office of Children and Family Services. Hours have been 
limited and facilities closed at parks including Jones Beach, and parks 
across the state are mowing fewer lawns to save money. The state ice 
rink was closed last winter.

Budget watchdogs say far steeper cuts are needed to reckon with deficits 
that will escalate sharply in 2011 as federal stimulus money runs out 
and the new wealth tax expires.

But negotiations have been fundamentally stalled — and even irrational 
at times. Senate Democrats, who have thus far refused to hold a vote to 
legalize same-sex marriage, have nonetheless floated the theory in 
negotiations that the state could expect to take in more than $50 
million a year in new revenue from the legalization of same-sex 
marriage, from a combination of marriage license and tourism revenue.

They are also proposing to raid the treasuries of public authorities, to 
force Native American tribes to collect cigarette taxes, and to 
restructure the state’s tobacco bonds.

And Mr. Paterson remains politically weak, with a dismal standing in the 
polls and an inability to provide forceful leadership, critics say.

The impasse involves a fundamental disagreement. The Paterson 
administration argues that the state must begin to reckon with severe 
future deficits, and this view appears to have the support of Assembly 
Speaker Sheldon Silver. Senators prefer to take temporary measures and 
push off the day of reckoning as long as possible.

Budget experts are paying close attention. They say how the deficit is 
closed is as important as closing it. Not only will the negotiations 
affect the state’s enormous future deficits — out-year gaps, in budget 
parlance — but bond rating agencies are scrutinizing the process.

“The next three months will be critical to the state’s credit rating,” 
Moody’s Investor Service said last week, in an analytical note that 
rattled the capital.

“The announcement of out-year gaps is not in and of itself an issue,” 
Emily Raimes, an analyst at Moody’s, said in an interview. “What we look 
at is how they solve them. If they solve them with one-time measures, 
that’s going to increase the gaps in future years, and at some point 
they get so large it becomes difficult to solve them.”

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