Dubai: Just a sideshow?
The smart money is still saying that Dubai is a sideshow. Fears of a "new financial meltdown" as a result of what amounts to a family feud in the United Arab Emirates look seriously overdone.
Especially since it may only be the subsidiary, Nakheel Construction, that is affected by the standstill, not the whole of Dubai World.
But as Argentina, LTCM and Hong Kong all learned after Russia defaulted on its debt in 1998 - and we all relearned with subprime - the global financial system has a rear view mirror quality to it. Events can turn out to be closer than they appear.
If the Asian markets are anything to go by, we're in for another nervy day. As I said on the Ten O'Clock news last night, that's partly due to worries about particular institutions' exposure to Dubai. But the Dubai saga is also a reminder of two unpleasant realities, that investors have lately seemed to forget.
The first is that there is still plenty of bad news still to come - including for the major banks. And Dubai is not, by any stretch, going to be the worst we get.
The sheer range of estimates out there for European banks' exposure to Dubai shows how little anyone really knows.
On the basis of some fairly sketchy assumptions, Credit Suisse has suggested that European banks may have $40bn exposure to Dubai debt.
They say a 50% loss on that - who knows how much it could turn out to be - would be equivalent to a 5% rise in provisions in 2010, or a hit of about 5 bn euros after tax.
That's not nothing, but - assuming the losses are fairly broadly spread - it's a rounding error on the losses of the past two years.
Certain London-based hedge funds who had bet on Dubai World being bailed out could have an uncomfortable few weeks ahead.
And big banks like HSBC and Standard Chartered will face some irritating losses if all the Dubai debt ends up being restructured.
But this isn't an Iceland. Let alone a Lehmans. And that's if the restructuring extends to most or all of Dubai's debt. It's very hard to believe that Abu Dhabi and Dubai will not, eventually, do a deal.
We don't know for sure what is happening in the ongoing negotiations between the two. But one usually reliable source tells me that they have been running into the night over the past few days - and fraught, as you would expect.
As this source put it:
"[B]oth sides have a bargaining chip. For Abu Dhabi it's 'we will bail you out'. For Dubai it's 'if you take us down, you take down the UAE' - just look at the rising cost of borrowing in places like Saudi, Kuwait and Bahrain."
It's also worth noting that Abu Dhabi itself owns a large chunk of Dubai World bonds.
They will surely do a deal. The question will be how many "flagship" assets Dubai might have to give up in the process, and how much it is forced to change its usp. (Its tolerant relations with Iran are especially resented by the Abu Dhabi. Not to mention the US.)
In the meantime, the markets will have been reminded of that second unpleasant fact they'd rather not think about in the lead-up to Christmas.
All of the money borrowed by governments in the past two years will eventually have to be paid back. And not just in Dubai. That could make for an interesting few weeks.
Thanks to Dubai, the likes of Latvia and Greece are now paying more for their borrowing. And they may have rather less chance of getting bailed out.