On Wednesday, November 25th there was an announcement by Nakheel, the Dubai World property development arm, of a planned default on a $3.5 billion payment due on December 14, 2009. Nakheel proposed a 6-month extension of the payment. Stock and bond markets around the world declined in response to this, led down by shares in banks.
To put this in some perspective, the entire public debt of Dubai is estimated to be $80 billion (about the same size as their GDP), with about $60 billion of that issued by Nakheel and other Dubai World affiliates (much of it for property development). For comparison, the US government has over $100 billion invested in Citibank alone.
Everyone knows property development in Dubai has been hugely overdone (they are presently working to finish world's tallest skyscraper) and they made questionable investments near the peak of the bubble in other worldwide real estate investments (i.e. ill fated CityCenter in Las Vegas http://tiny.cc/HnAdc ).
The size of this upcoming $3.5 billion default and even the size of all of Dubai's debt itself is not material. Instead this is important only as a reminder that there are still problems out there. Banks worldwide are thought to still be short of needed capital, and any possible losses such as Dubai just brings this back to mind.
Sometimes it is good to be reminded that investments offer both risk and return. Maybe that way we can avoid immediately going back to the bubbles that helped to cause the economic crisis in the first place.