A sign of the times. Dubai, the UAE in general, isn't isolated from the economic problems of the world.
I'm sure we won't be hit as badly as many other countries. In fact to me the world seems to be dividing into two...countries such as the US, UK, the Euro zone into deep recession while others such as China, India, UAE, even perhaps Australia, will see a slowdown but their economies will still grow.
I'm sure the recession hit areas will have a long deep recession and the massive government borrowing to fund their injections of capital will take a long long time to pay off. They'll be affected for many years to come, in fact may never be the same again.
It makes you wonder why in the decades - hundreds of years in many cases - they were the world's economic powerhouses they didn't create sovereign wealth funds.
Only a few months ago they were ranting about SWFs, how they were A Bad Thing, how they had to be controlled, dangerous foreigners buying up their assets. Now they're pleading for handouts from them, and I bet they're wishing they had their own to call on.
What an astonishing lack of good business and good government over the decades. All that wealth generated, from the Industrial Revolution to the European empires plundering wealth from so many colonies and on into the post colonial era when they were still the big economic powers, and they didn't save a cent. Didn't think to establish a Sovereign Wealth Fund.
I find it quite amazing that governments such as the US and UK actually don't have any money. They don't have the trillions of dollars they're throwing into their economies, they're having to borrow it. To be repaid by future taxpayers of course.
We're very much part of the global economy so naturally we're being affected here. Money's tight, jobs are disappearing, projects are being delayed and I'm sure some will be cancelled. The talk is all about real estate jobs and projects but it's much wider than that. Jobs will disappear in all kinds of businesses because a recession affects the entire economy across the board. In fact I'm hearing about job losses in all kinds of companies already.
There's always a ripple effect from any action and economic problems are no different. People in Europe are losing their jobs, they buy less goods so manufacturing is hit in China. They travel less so airlines, hotels and tour operators in the UAE are hit. Hotels have less guests which means they buy less food, have less laundry to be done, and that hits small local businesses.
But if you think it's bad here just check out the situation 'back home' and you'll realise we're actually not too badly off.
In fact as I said in a recent post, I think it's a blessing in disguise for Dubai. A slowdown, a chance to stop and think, a chance to plan properly, a chance for infrastructure and laws to catch up with what's already happened.
It's also an opportunity to get back to sensible buiness practices. And that applies not only to Dubai but to the world in general.
People here are complaining that banks have introduced new lending criteria, such as a minimum salary of Dh20,000 a month and giving mortgages of only 50% or 60% of the purchase price. In fact that's good, sensible business. We wouldn't be in the mess we're now in had basic good business rules been followed over the last fifteen or twenty years.
Remember the dot.com bubble burst? It was inevitable. We were putting a share portfiolio together then and we wouldn't touch dot.com companies with a bargepole. The supersmart new kids on the block were ridiculing the 'old world' saying this was a whole new world we didn't understand, the old rules simply didn't apply.
They did. They always do and they always will.
Stupid people believed the hype, poured billions into companies with no assets, no turnover, no profit. The companies spent a lot of the money running multi-million dollar advertising campaigns which said nothing whatsoever. I kept looking at them and asking what they were selling. The answer was of course nohing, because they had nothing to sell. The rest of the investors' money they used to buy other dot.com companies which also had no assets, no turnover, no profit.
One day it all just disappeared. The great dot.com bubble burst because the basic rules of business were ignored.
More than a few of us were predicting the implosion of the world financial system five or six years ago. It was unsustainable and was obviously so. We were in a spiral of ever increasing debt, personal and government, that one day would have to be paid. In Australia we had motor dealers offering new cars at no deposit, no interest and nothing to pay for two years. White goods retailers had similar offers.
Money was being thrown at people by the banks, with very little checking on the creditworthiness of the borrowers. Salesmen on commission for granting loans or giving out credit cards were earning fortunes.
The government of John Howard was buying votes by giving regular handouts from the budget surplus to voters, instead of investing in much-needed infrastructure - or even setting up a Sovereign Wealth Fund.
The trouble was that no-one was thinking about the day when the bills would have to be paid.
So this crisis is also hopefully the end of unfettered capitalism of the style of the American right, with no government regulation or oversight and total reliance on self-regulation.
It's as extreme as communism and can only end in the same way.
Neither extreme takes into account human nature, so neither can work in the long term.
It started as far as I'm concerned with Thatchernomics and Reaganomics. Give the markets complete freedom, remove oversight, sell off essential services such as water and power generation to private enterprise. Trust 'the markets', which means people, to do the right thing.
Astonishing naivete. People do not do the right thing. People don't think ahead. People do what is good for them in the short term.
Alan Greenspan, who is as responsible as anyone for the disaster we now have, admitted at a Senate hearing that he hadn't taken human nature into account when he formulated his disastrous policies.
He believed that people in the financial markets, in business, would do the right thing, the honest thing. They'd think about the long term viability of their companies, run things in a professional businesslike way.
What they actually did was think only of their own immediate future. That was entirely predictable because it's what people do. They gave no thought to the long-term health of their companies but simply created short term profits and share price increases - often by creating worthless 'assets' - so that they could pay themselves vast bonuses. Wall Street bonuses amounted to, literally, billions of dollars a year, and other financial centres such as London, and even Sydney, paid multi-million dollar bonuses.
The thinking is still with us unfortunately. Almost weekly we're getting stories of huge bonuses being paid or having been promised by banks, including those already bailed out with taxpayers' money.
We had the Big 3 car company bosses flying to Washington to plead for money in their private jets. That's another example of bad business - badly managed companies with overpaid greedy workers, overpaid greedy management, producing badly designed products which are poorly made. They had to hit the wall sooner or later.
But the dinosaurs will have to change because surely the world has changed. After two or three decades of reducing regulation, reducing oversight, governments surely cannot afford to continue with the experiment. It's costing trillions of dollars already and who knows how much more is to come. Those trillions are a debt which has to be paid by future generations.
I'm sure that not only do we have to have a completely new model for the world financial system, the power of the players will change too. A report a few weeks ago said that the G7, who set themselves up as the all-important financial arbiters, actually have only 20% of the world's currency reserves. BRIC countries, Brazil, Russia, India, China, have 40%. The Middle East can no longer be ignored either.
So there's another change coming, surely. The west is asking countries such as Saudi Arabia and the UAE to put more money from their SWFs into organisations such as the World Bank and the IMF. But they were set up by and run for the benefit of the western countries. Surely no-one expects developing countries to simply hand over money without being offered a say in how it's used, without being offered a seat at the table.
BRIC and ME countries will be expecting involvement in all the world organisations I'm sure. Not only the financial institutions but the UN Security Council will be on the agenda, and long overdue in my opinion.
So we're living in momentous times. There will have to be huge changes to the way our world works and to the relative influence of the players.
And it was caused by the excesses of the last twenty or thirty years. The USSR tried extreme left wing politics and that collapsed. The west has tried extreme right wing capitalism and that's collapsed.
In just about anything I can think of the middle road is the one that works. A mixture of freedom and regulation. We accept it as necessary in many aspects of our daily life and areas such as business or the financial markets also need it.
We have, because we need them, road rules, speed limits, consumer protection laws, criminal laws. We need them because of human nature. Remove regulation and oversight and you have anarchy.
Ignore human nature and you create a disaster. We did and we have.
