Dubai: Wholly avoidable crisis
Few, I think, would now deny that last weeks tremors in markets - prompted by Dubai World's statement that it would not be keeping up the payments on its debts - were both overdone and avoidable.
It was no secret that of all the world's property bubbles, one of the very bubbliest had been in Dubai - or that the bubble had been pricked a year ago.
Even the International Monetary Fund (in its latest report on the prospects for the global economy) noticed that the United Arab Emirates had suffered the third-worst fall in house prices during the first three months of this year of any country (a fall of nudging 40%; only Latvia and Estonia suffered worse drops).
Dubai was not an accident waiting to happen: it had already happened, locally at least.
So the financial difficulties of one of the city state's most ambitious developers, Dubai World and its Nakheel subsidiary, were a consequence of known facts.
However, there were three big things that were not known:
• whether the putative guarantee from deep-pocketed Abu Dhabi for Dubai's state-linked businesses was real or imaginary;
• the potential size of impaired loans to Dubai interests;
• the identities of those exposed to Dubai, through loans and other financial commitments.
What shook the confidence of banks and investors more-or-less everywhere last week was that neither the United Arab Emirates nor ailing Dubai felt able to answer these questions last week when Dubai World announced its debt moratorium.
So fear and rumour took hold: equity markets dropped; there was a flight to supposedly safe assets, such as US Treasuries; and the price of insuring the debt of heavily indebted nations rose sharply, just in case Dubai was the first of a series of dominoes.
Here's the pertinent point: we had a bit worse than a dry run last year of the damage that ignorance can cause.
Think about the havoc wreaked last October by the uncertainty over financial firms' exposure to Lehman when it went down.
Remember the mess caused by the lack of clarity about whether the debt of Fannie Mae and Freddie Mac, the US mortgage institutions, were really liabilities of the US federal government.
Which is why some would say that there's absolutely no excuse for the failure of the UAE and Dubai authorities to pre-empt the panic by shining a light on the magnitude of the risks being incurred by creditors to this indebted emirate, including early and unambiguous clarification of what support would be given by Abu Dhabi and the central bank.
Others might also question why the IMF was also - seemingly - caught on the back foot.
To state the obvious, we are a long way from having the kind of global early warning and prophylactic system in place that can minimise the impact of financial shocks.
Anyway, the UAE's central bank said somewhat belatedly - yesterday morning - that it will provide emergency loans to local banks and branches of overseas ones, so that none of them falls over if anxious depositors and creditors should withdraw funds.
But, inevitably, stock markets in the UAE have tumbled very sharply this morning.
This was largely catch-up, however, since they were shut on Thursday and Friday for the Eid al-Adha holiday while London, Tokyo and New York were being bashed.
Outside of the Middle East, in Asia and Europe, investors have regained a bit of their appetite for risks: share prices have risen a little; US Treasuries are falling gently.
Or to put it another way, more by accident than by design of the Dubai or global authorities, it's become clear that contagion from Dubai is likely to be fairly limited.
That said, we cannot and should not slumber soundly: we can be pretty certain there will be other financial shocks from assorted parts of the global financial economy in the weeks and months ahead.
And if the global or local authorities lack plans for evasive action on those occasions, well that would surely be scandalous (you might say).