Market Talk

But wait, we've had a 60% stock market rally. Isn't the crisis over?

So much for a quiet Friday after Thanksgiving.

As Paul earlier noted, the Dubai debt crisis has one-upped all the Black Friday hoopla, as concerns about the credit crisis have re-appeared front and center. It’s still too early to determine what kind of impact Dubai will have on the global economy. But for now, analysts and bloggers fear that worries from last year’s crisis may return to global markets.

“We have been absolutely hammering home the fact that the ’solution’ to the credit crisis was in fact, not a solution at all,” the Pragmatic Capitalist blogger says. “There remain massive debt issues home and abroad and Dubai is only the latest example of such.”

Dubai’s standstill shouldn’t cause worldwide panic; instead it’s a stark reminder of the unhealthy state of global real estate markets, blog says. “Whether this is a minor tremor in commercial real estate…has yet to be seen, but make no doubt - we are not out of the credit crisis woods.”

A big surprise as the crisis unfolds is the lack of support from Abu Dhabi, as well as the uncertainty of which foreign banks have exposure to Dubai World, says Miller Tabak equity strategist Peter Boockvar.

Low interest rates around the globe have pushed a massive refinance wave, he notes. “What we have not seen enough of is debt write-down, extinguishment and restructurings,” he notes. “The Dubai news may highlight that cheap money cannot cure all debt ills.”

On the bright side, the Dubai debt crisis may offer “a great precedent” for other state-owned companies that may default on their debt, Reuters blogger Felix Salmon says.

“Historically investors in state-owned companies have perceived an implicit sovereign guarantee,” he says. “The result is a huge and unhelpful moral-hazard trade.”

Salmon likes the fact that Dubai World’s lenders won’t be automatically bailed out, despite the hundreds of billions of dollars the government has in its sovereign wealth fund.

He wonders if Treasury would ever follow suit with creditors of state-owned companies, like, oh, say, AIG, or even Fannie Mae (FNM) and Freddie Mac (FRE).