Last year many Wall Street luminaries visited Dubai. Among them was Richard Fuld, who gave a brief audience to the local media, ahead of the official opening of the Lehman Brothers office here.
During a 45-minute question-and-answer session, Fuld spoke about the fast-expanding liquidity pools in the emerging markets, including GCC, that would keep the global economy in a state of perpetual boom. After the meeting, he declared that the views expressed were strictly private and nothing should be reported.
Half a dozen of us from the local media, who had battled the morning traffic to get a few precious soundbytes from this financial great, were left high and dry. As consolation we were offered breakfast. In the elevator we cribbed about his absolute arrogance.
Last week saw the collapse of Lehman, the 158-year old banking colossus, the responsibility for which now lies at the door of its chief executive Fuld. Although in May last year, "subprime" and "credit crisis" were alien subjects, with hindsight now I can see why Fuld did not want us to write about his theory of everlasting economic boom.
Fuld's aggressive approach to banking is legendary, which now many analysts blame as one of the key reasons for Lehman's failure to find a buyer. With the bank's demise, he is now just another name in the pantheon of fallen Wall Street stars such as Charles Prince, former chief executive of Citigroup, Jimmy Cayne, former chief executive of Bear Stearns, and Peter Wuffli, the former UBS chief executive.
It would be grossly unfair to put the entire blame on Fuld or any other CEO for all the woes of the US financial system. Of course, at the heart of the problem lies Wall Street's greed, that found support in Federal Reserve's decade-long expansionary monetary policy, which virtually debt-trapped America.
Falling prey
The mandarins of the Fed and Treasury, who bailed out mortgage giants Freddie and Fannie and insurance behemoth AIG, are seemingly falling prey to their own trap. Having effectively played the role of cheerleaders, as Wall Street's financial wizards engineered complicated investments linked to mortgages, they are now struggling to nationalise these troubled firms.
Economists like Professor Nouriel Roubini of New York University say that if the government is to take the troubled assets of Wall Street onto its own balance sheet, it will be socialising losses, whereas profits were private.
Adam Smith had referred to wealth in The Wealth of Nations as tangible means of production. Monetarist extremists and Wall Street bankers have misinterpreted it as the balance-sheet financial claims on this wealth, in the form of stocks, bonds, property-related certificates and derivatives linked to them.
Thankfully, in the UAE, the financial system is largely free from the maze of derivatives which Warren Buffett once termed "financial weapons of mass destruction".
But what we need to learn from the current crisis is that nearly all real estate experts here are in agreement: that for the next year or two, property prices in the UAE are set for a correction, although they differ on the degree. Thus the way forward for both banks and borrowers is prudence.
Adam Smith had referred to wealth in The Wealth of Nations as tangible means of production. Monetary extremists have misinterpreted it as the balance-sheet financial claims on this wealth, in the form of stocks, bonds, property certificates and derivatives.
