Interestingly, though implicit and Fanniesque guarantees by Abu Dhabi have always colored the pricing of Dubai's debt (along with the image, apparently exaggerated both in will and ability, of the virtually unlimited backing of Abu Dhabi's "$600 billion" sovereign wealth fund) most stories covering the Reuters disclosure this morning focus on the (so far ethereal) assistance Abu Dhabi will be giving Dubai, and not that which it will not.
"We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts," the official told Reuters by telephone.
The government official declined to be identified because he is not authorised to speak to the media.
"Some of Dubai's entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist," he said.[fn]Stanley Carvalho, "Abu Dhabi to Aid Dubai "Case by Case'," Reuters, November 28, 2009.[/fn]
Are we the only ones beginning to wonder if the illusion of boundless prosperity so successfully marketed by Dubai to the likes of Tiger Woods, Roger Federer, and the balance of DeBeer's top quartile client list extends to debt-laden Abu Dhabi as well? Is there anything about this region that is not muddled by the miasma of official opacity and the always underestimated power of investor self-denial?
Let us wonder aloud:
Question: If you are Abu Dhabi, why permit a newsbreaking stand-still request and pop your own cost of capital along with the rest of the region? Surely, you saw this coming long ago?
Question: If you are Abu Dhabi, how might you have hedged your exposure to Dubai? (And who is your counterparty exactly)?
Question: If you are Abu Dhabi, and Dubai had already done all the dirty work of recruiting and deploying slave labor to build the modern version of the Hanging Gardens of Semiramis, mightn't you be quietly buying up distressed Dubai debt just now?
The information asymmetries are huge in this case. Particularly in the Middle East that's usually a hint that foreign investors are going to get their lunch money lifted, find themselves framed for the crime by local authorities when they complain, imprisoned by the uncle-of-the-thief (who also happens to be a judge) immediately before being repeatedly raped while in custody, caned and then deported "accidentally" to Azerbaijan.
It occurs to us that, in this respect, and in an admittedly perverse (but deliciously ironic) interpretation, Abu Dhabi is the Anti-Fed/Anti-Treasury that some Americans have been lusting for in the wake of AIG funnel payments to the likes of SocGen: Crushing moral hazard (and bond prices), a dozen foreign investors at a time (and perhaps making money for taxpayers on the bailout in the very short term via careful use of quiet acquisitions of distressed debt and the aggressive use of default protection).
Or maybe the message is simply that sovereigns of all stripes should just stay the fuck out of finance.