Wikinvest Wire

Government bailout arrives, markets soar

Monday, December 14, 2009

Like moistening saliva glands inside the mouths of Pavlov's dogs when the light went on, stock market investors around the world are now furiously buying shares on news that the Abu Dhabi government has bailed out Dubai World. This Bloomberg reports has the details:

Stocks Rise, Default Swaps, Dollar Drop Following Dubai Bailout
Stocks rose as Abu Dhabi bailed out Dubai’s Nakheel PJSC and Exxon Mobil Corp. agreed to buy XTO Energy Inc. for $31 billion. The cost to protect U.S. corporate bonds from default fell to a 12-week low, while the dollar slipped and oil and Treasuries were little changed.
...
Dubai’s bailout “puts to rest any lingering fears that might have existed about possible contagion,” Tim Condon, head of Asia credit research for ING Groep NV in Singapore, said in an interview. “It’s inevitable that we’re going to see a few more incidents of credit stress show up in both banks and corporates, but in terms of it becoming a macroeconomic issue I think Dubai World was as close as we were going to get.”

Dubai’s Nov. 25 announcement that state-owned Dubai World, the parent of Nakheel, would seek to delay debt repayments stoked concern that a default would add to the $1.7 trillion of credit losses and asset writedowns posted by global financial companies since 2007. The announcement triggered the biggest stock market slump in three months in Asia and Europe’s worst rout since April.
Clearly, after the Lehman Brothers failure late last year, the lesson learned by most governments is that you can't let big companies fail. Of course, this has led to many companies seeking to earn the badge "too big to fail" in order to secure their future - while it was touch-and-go there for a while, Dubai World has now certainly made the grade.

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