Many thanks to Dubai for providing fodder to the blogosphere over a slow weekend. Much has been written (too much?) about what seems to me at least to be a minor story.

In most respects, the travails of Dubai simply represent the natural evolution of bad real estate investments. Inevitably, overly aggressive and highly leveraged commercial real estate deals of the type that the Dubai denizens seemed to specialize in come to this sad end state. What we’re seeing is mostly a preview of the movie that will soon be coming to America. Look for it to be pretty much of the sequel variety with little new content.

I did find one interesting analogy today at the WSJ Deal Journal. Writing about the Dubai situation the author noted this:

In fact, Dubai World’s endangered debt is nearly as large as American International Group’s $72 billion exposure to derivative contracts on collateralized debt obligations, or CDOs. As the CDOs declined in value, AIG had to pay out cash to the CDO owners, including investment banks. That cash drain helped prompt the U.S. government’s $120 billion bail out of AIG, which was meant to save not only the large insurer but help its trading partners that were owed cash payments.

Now I’m not quite sure what to make of that. Remember that the liabilities that AIG had amassed were thought to be of significant magnitude to bring down the world’s financial system if left unattended. Now Dubai with a similar order of magnitude of debt to the banks is drawing mostly stifled yawns. Either investors now assume that any real threat to the system will be taken care of by government or they view the exposures as manageable.

So, if the banks are able to work through this without more massive government support, which appears to be the case, then what does that tell us about the rescue of AIG. I don’t profess to have the answer but I do think it raises some intriguing questions.