I don’t see what the big deal is...If you earn a risk premium during good times, you should not moan when the borrower defaults from time to time when the going gets tough.
The debt of the Dubai World Group and of Nakheel was not Dubai sovereign debt or sovereign-guaranteed debt. The only way a bail out by the Dubai sovereign of the debt holders of Dubai World and Nakheel would enhance the sovereign’s reputation would be by enhancing its reputation as a sucker.
Fortunately, property companies don’t fall into the systemically important category. Their collapse is painful for their shareholders, creditors and, if the local labour markets are weak, their employees. They are not, however, systemically important. There collapse will not threaten the delicate fabric of financial intermediation. They are fit to fail. Creditors beware.
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http://krugman.blogs.nytimes.com/2009/11/27/rashomon-in-the-desert/?src=twt&twt=NytimesKrugman
Far be it for me to disagree with the great Krugman, but I go more with Gillian Tett. I see many a sovereign crisis hoving into view. Even Buiter cited Greece as likely. And being a UK taxpayer, I can't help but think that the UK in 2012 is going to be precarious.....
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