Dubai or Du sell? Don't Ask Fitch...

Two days after two large Dubai companies announced they can’t afford to pay $56 billion in debt and sent global capital markets into a panic, Fitch has decided to downgrade 3 Dubai-based banks, Dubai Bank, Tamweel Bank, and Taib Bank, as well as other large Dubai-based companies.

We can all say a big thank you to Fitch.  Had they not acted so quickly we may never have known Dubai’s debt metrics were in such trouble.  Better late than never the boys at the ratings agencies always say.

This reminds me of why the ratings agencies are in many ways such a discredited and irrelevant business model.  Throughout this global financial crisis they have consistently been behind the curve, taking reactive ratings decisions rather than providing a proactive view of real underlying risks.

Dubai was the oozing pimple of the global money and credit excess of the past decade.  C’mon, admit it, you all got those emails with attached artwork and designs of Dubai, with crazy-looking futuristic buildings and hundreds of gargantuan skyscrapers etc.  And you all thought, wow, let’s go snow-skiing in the desert!

That it’s now all starting to come out in the wash can only be expected.

Thank goodness we have the trusted ratings agencies to keep us informed every step of the way…