From London to Dubai and back - the boomerang of their crisis

1 December 2009

Financial troubles in Dubai, a tiny princely spot in the Persian Gulf, were enough to cause jitters on the financial markets. Once again the economic "recovery" hailed by politicians across the political spectrum was exposed for what it really is - a fraud designed to mislead the working class.

This new storm did not come out of the blue, though. For nearly a year, Dubai's ability to service its debt had been in question. Many of the principality's real estate projects had been stopped. Tens of thousands of immigrant workers had been brutally sent back to India, Pakistan, etc..

Still the banks - many of them British - which had lent vast sums of money to the collapsing princely state kept quiet about their exposure to a potential collapse, preferring instead to restore the huge bonuses of their top directors.

The London housing collapse hits back

Dubai's wealth was built out of the real estate speculative bubbles of the past 2 decades in the rich countries, especially in Britain.

Its main business arm, Dubai World, owned the Turnberry Resort in Scotland (the golf course that hosted this year's Open Championship), prestigious buildings in Whitehall Place, Trafalgar Square and the Strand, and regeneration projects such as Chelsea Harbour, King's Cross' Regent Quarter and the London Gateway Terminal and Shell Haven.

In the decade before the crisis, Dubai's rulers made grandiose plans to turn Dubai into a tourist hub for the ultra-rich. Thanks to its real estate portfolio, Dubai secured loans from Western banks for projects, including the world's tallest skyscraper and an airport more than twice as large as Heathrow. The Palm artificial islands were to be home to luxury hotels and properties (the likes of David Beckham rushed to be part of the new elite). Millionaires were to be able to watch the sharks from the windows of their underwater hotel rooms and enjoy the benefit of an artificial ski slope.

But when the speculative housing bubble imploded in Britain, these plans collapsed too. Dubai's assets in Britain became unsaleable - at least not without huge losses. Rent income shrank due to businesses cutting their overheads and projects for expensive housing were put on ice for lack of buyers. This landed Dubai World with a host of white elephants which were costly to maintain and brought in no significant income.

To make matters worse, Dubai World's other main source of income as the world's third-largest port operator (it owns P&O Ferries and operates the Tilbury and Southampton container ports) were severely hit by the 20% fall in world trade caused by the crisis.

What next in their uncontrollable crisis?

This was entirely predictable - as the "experts" now admit, after the event. But all of a sudden, it turns out that Britain's largest banks, including RBS and HSBC, are exposed to new losses that we, taxpayers, will be expected to make up for!

Since its very beginnings the present crisis has been all about losses concealed in the banks' coffers. In the previous period, the capitalists had been unwilling to invest in the long term in socially useful production. Instead, they made a quick buck from speculation, or and easy one, by lending in return in return for high interest - either way, the parasitism of the capitalists on society reached new heights.

At every level this turned the world economy into a gigantic speculative bubble. Enormous projects - and, often, nonsensical ones, like in Dubai - were funded on credit, regardless of whether they would ever have any use at all. The consumption of the working population, and therefore a large part of the productive economy, was kept afloat, not by increasing the population's standard of living, but by increasing the availability of credit - with no questions asked.

Today, not only is there no "recovery" in sight, despite the politicians' lies, but there are still mountains of losses hidden in a system which is completely out of control. Not only are the Browns and the Darlings of this world lying about what they know about the real situation, but there is, in fact, a lot that they do not actually know. This is a what capitalism is about, a blind system, which inevitably hits obstacles at every twist and turn of its hectic operation, but which every time presents the bill for its "recovery" to the working class.

Workers can no longer afford such a hazardous system!