Is Dubai World too big to fail?

Dubai is not too big to fail. That seems to be the message of the surprise 6 month debt standstill at Dubai World, the most indebted offshoot of the UAE's most indebted emirate.

I love a contrarian argument, and once upon a time I enjoyed Wall Street bonuses, so you can imagine my delight to receive in my inbox a link to a video from MinuteMBA[1] titled “In Defense of the Wall Street Bonus” yesterday. The video is also a great example of the difference between being smart and being wise.  That difference comes down to “Can you ask the right questions?”

By Simon Johnson The Dodd-Frank financial reform legislation of 2010 created a Financial Stability Oversight Council (FSOC), with the task of taking an integrated view of risks in and around the U.S. financial sector.  The FSOC is comprised of all leading regulators and other responsible officials, chaired by the Treasury Secretary.  So far, it has done little – fitting with the predominant official view being that in the post-crisis recovery phase, financial risks in the U.S. were generally receding rather than building up.

By The PolyCapitalist: Below is the Financial Stability Board's list (by host country) of systemically important financial institutions (SIFIs), alternatively known as the 29 banks which are simply Too Big to Fail. Twelve different countries are home to these 29 banks. Half of those countries host just one Too Big to Fail institution, and the other half host anywhere from two (Germany and Switzerland) to the U.S.'s eight.

This guest post was submitted by David Moss, professor at Harvard Business School, author of When All Else Fails: Government As The Ultimate Risk Manager, and founder of the Tobin Project.

A US House of Representatives committee has approved key regulatory legislation intended to curb the harmful economic effects of financial services institutions deemed "too big to fail."The bill, which is meant to keep the collapse of large institutions from provoking system-wide crises, passed in the Financial Services Committee by 31 votes to 27 on Wednesday.The Financial Stability Improvement Act is part of the vast financial regulatory reform being championed by President Barack Obama.

The smart money is still saying that Dubai is a sideshow. Fears of a "new financial meltdown" as a result of what amounts to a family feud in the United Arab Emirates look seriously overdone. Especially since it is Nakheel Construction that has asked for a standstill, not the whole of Dubai World.