Another black swan?

The Dubai government's announcement that it would postpone debt repayments in its holding company sent markets roiling across the globe, triggering a sharp spike in the cost of insuring debt from a growing number of emerging and even non emerging markets including the likes of Brazil, Turkey, Hungary and Greece. The crisis, which began in the second half of 2007 with the collapse of the subprime mortgage market (as delinquencies soared), spread like wildfire into the highly leveraged banking sector, triggering a severe credit crunch which in turn prompted governments across the developed markets to instigate an unprecedented scale of intervention with an immediate aim of assuaging markets that were on the verge of complete collapse.

Until Dubai disclosed its problems, the general belief was that emerging markets had "emerged" out of the crisis relatively unscathed mainly, it was thought, as a result of the limited exposure they had to the subprime toxic waste. What pundits (once again) apparently failed to heed attention to were the implications of tighter credit standards to debt laden countries in the wake of the crisis. It basically meant that the "unscathed" emerging markets were having increasing difficulty in servicing the huge amount of sovereign debt that had been accumulated during the booming years preceding the crisis. It is difficult at this stage to asses exactly how serious the problem is, markets were certainly not expecting such a gloomy announcement from Dubai. If there is any certainty, however, it is that the crisis is still with us and probably for some time to come.