A bad omen in Dubai

No other country built a ski resort in a desert. No other country constructed an archipelago of 300 artificial islands, complete with a man-made reef colonized by parrot fish. But even if Dubai is a gaudy outlier -- a sort of Donald Trump of a nation -- the bankruptcy of its flagship investment company, Dubai World, holds a warning for others. The nonchalance with which global financial markets have reacted is not reassuring in the least. The lack of alarm is alarming.

Start with the size of the Dubai bankruptcy. Most analysts reckon the emirate will end up defaulting on more than $30 billion. That's up from the $26 billion advertised at Dubai World but perhaps less than half of the city-state's accumulated $80 billion debt. Dubai's bust will be larger than South Korea's 1998 debt restructuring, which involved $22 billion worth of loans, and not much smaller than Russia's default that year (which affected loans worth $40 billion). The South Korean and Russian traumas spread panic around the world. Nowadays, investors yawn at losses that don't run into the hundreds of billions. This is a touch complacent.

In February, the rulers of next-door Abu Dhabi rescued Dubai with a loan of $10 billion. This time Abu Dhabi refused, so Dubai's government has told lenders not to count on their next payment.

Given these troubles, Dubai should have been a wake-up call.