‘Tis but thy name that is my enemy;
Thou art thyself, though not a Montague.
What’s Montague? It is nor hand, nor foot,
Nor arm, nor face, nor any other part
Belonging to a man. O! be some other name:
What’s in a name? that which we call a rose
By any other name would smell as sweet;
So Romeo would, were he not Romeo call’d,
Retain that dear perfection which he owes
Without that title. Romeo, doff thy name;
And for that name which is no part of thee,
Take all myself.

– William Shakespeare (Romeo and Juliet)

As the newsreader announced the grand official opening of the world’s tallest building on Monday called the Burj Khalif (renamed from the Burj Dubai after the first name of the ruler of neighboring Abu Dhabi, which last month rescued Dubai Inc from a debt default), cue the video of a bunch of fireworks being fired off the rocket-shaped building, a whole range of thoughts populated my mind:

a. Did creditors get free tickets to watch their money burn, quite literally?
b. Will those fireworks hit Iran and spark off the next world war?
c. Do they have a small plaque at the bottom honoring all the slave labor from South Asia who actually built the dang thing in 50-degree Celsius heat?
d. Is there someone else out there who “needs to compensate even more”, that is, build a taller building anywhere in the world?
e. Did they also sell T-shirts reading “$10 billion and all I got was this lousy name”?

A number of these questions are tangential to the main one – namely, how changing the name of the building was tantamount to accepting a change of business model; from a proud wannabe to a more humble let-me-be.

In days gone by, Dubai was the brash new kid on the Arab block; one of the seven emirates in the United Arab Emirates (UAE) in a hurry to usher in a business model that eschewed the region’s traditional resource-dependency that propped up the regimes of Saudi Arabia and even neighboring emirate Abu Dhabi in favor of more sustainable revenues arising from tourism, transport, logistics and financial services.

The business model changes didn’t quite signal that the political regime had changed in any way – after all, democracy was seriously frowned upon, and as for human rights, well one only needed to ask the laborers marshaled to build the towering castles in the sky. An investigation by the United Kingdom’s the Sunday Times newspaper in 2007 revealed the following:

… But less than four miles [six kilometers] from the resort stands the bleak desert camp of Jebel Ali, a sprawl of breeze-block huts and battered trailers where about 10,000 construction workers – including many from the Palm Jumeirah – are crammed into stifling dormitories at the end of the day.

They sleep up to 15 to a room, each with a flimsy bunk bed, a thin mattress and dirty, bug-ridden sheets. They cook their paltry meals on mini-stoves and squat on the ground to eat. One resident spoke of a strike four months ago over a shortage of lavatories.

The conditions reflect the meagre wages for a working week of six and often seven days. Many of the men believed the assurances of recruiters in India, Pakistan and Bangladesh that they would make enough money to support their poverty-stricken families back home, but have since become trapped in a spiral of debt and despair … The UAE government was jolted last year by a revolt of 2,500 laborers at the Burj Dubai tower. It promised to improve conditions and fine companies for late payment of wages. Yesterday it emerged the government was considering introducing a minimum wage …

… Dissent on construction sites is swiftly stamped out. Two weeks ago 250 workers on the Dubai marina were deported after an 8,000-strong crowd demanded a 25p (40 US cents) a day rise in their monthly income of ฃ75 (US$120) – ฃ85. Some have had no pay increase since 1990. (The Sunday Times, March 25, 2007.)

Then there is the number of scandals about the actual conditions under which the laborers, many of whom were unpaid for months on end, worked. Of the many allegations that made the rounds, perhaps the most interesting was the one that the government under-reported temperatures during summer, always ensuring that daytime temperatures were recorded below 50-degrees Celsius. This was due to a quirk in Dubai’s labor laws that permitted workers to take time off when temperatures soared above the level.

Your columnist is an eye-witness of sorts to this, having noted the in-car temperature indicator showing 53-degrees Celsius when the government announced 48-degrees Celsius; when pointed out to the dealer that the thermometer was incorrect on the car, his reply was “sorry sir, but it is the government figure which is wrong”; as evidence, he showed a certified medical thermometer that had the same reading as the car. And yes, the workers could be seen beavering away at the site of the Burj on the day this happened.

Away from the scandals of how poor South Asians were mistreated, which in any event only put Dubai on par with the rest of the Middle East in this matter, the key difference was the scale of ambition shown by the emirate, especially relative to the size of its gross domestic product (around US$80 billion). Funded with tens of billions of debt from banks, the property projects that dotted Dubai’s landscape and its coast – in the manner of gargantuan reclamations of the type that made Asian cities like Hong Kong appear positively amateurish in comparison – soon metamorphosed the city from a smugglers’ shopping haven to an Arabic version of Iceland.

The trouble with all the borrowing is that, eventually, folks want their money back. In case you haven’t, as a borrower, managed to sell enough developments to fund this repayment, trouble promptly ensues. It happened in the United States from 2007 onwards, pummeled Iceland in late 2008 and caught up with Dubai in 2009. When Dubai declared that its “implicit” guarantee on the obligations of monarch-owned companies wasn’t worth the paper they weren’t written on (don’t you love the use of double negatives in a sentence), a number of investors feigned surprise and markets promptly sold off around the world, due mainly to the US Thanksgiving holiday, which had induced a turkey-overdose stupor on all investors that forced them, for a change, to acknowledge reality.

Come the key date – December 14 – and instead of a default on the Nakheel Sukuk (Islamic bond), there was instead a reprieve, with Abu Dhabi entering the picture and promising to “assist” its brother-emirate in repaying the debts of the lenders. Crisis averted, the bonds went back to par but also created enough optimism to help global asset markets for the following two weeks that ran, conveniently, to the end of calendar 2009.

There is another truly amazing aspect to this drama, lying in the little-known details of trading in the Nakheel Sukuk maturing on December 14. Traditionally, in the few weeks before a bond matures, about 5% changes hands because very few investors want to give up money that will be made available very soon in a repayment. In the case of the above bond though, over 50% of the $3.4 billion Sukuk changed hands (some say over 75%) with the main sellers being from Abu Dhabi and Dubai, and the buyers almost overwhelmingly being London and Asia-based investment funds out to make a small profit. After the announcement of the default on the day before Thanksgiving, prices dropped quickly to around 40-45 cents on the dollar (from 110 cents on the dollar before the announcement).

However, on December 10 and 11, a record amount of bonds – close to $1 billion face value – changed hands again, this time at a price of around 50 cents; the “lucky” buyers were (reportedly) some London-based hedge funds acting on behalf of certain Middle-Eastern banks.

As the Dubai World creditors touched down for restructuring meetings that week, the competing property company (Emaar), which had built the Burj “Dubai”, announced that the grand opening ceremony for the world’s tallest building would be postponed to the beginning of January from the end of December.

Come the date, come the name change to Burj Khalifa. The ruler of Abu Dhabi, one of the world’s richest men and running a state that controls the world’s largest sovereign wealth fund now has, perhaps befittingly, the added gratification of seeing his name atop the world’s tallest building. (Sovereign wealth funds – or SWFs – are different from foreign exchange reserves, a SWF is a dedicated investment fund that is funded by such reserves; China’s SWF is around $200 billion against foreign reserves of more than $2 trillion)

In the name change, there is also a not-so-subtle hint about the future of Dubai. Its monarch, if not citizens (who all carry “UAE” rather than “Dubai” passports presumably) is now a simple supplicant in the court rather than a pretender to equality. Gone will be the proud claims of how Dubai is a “more advanced” economy than anywhere else in the UAE; as too the pretensions of wealth associated with the ruler of Dubai in the past – be it the famous losses on race horses (around $200 million annually according to an estimate).

More importantly, the name change could also signify the death of an alternate, non-resource-based model of economic development in the Arab world.

It’s not just there

The fascination for changing names didn’t start or end with the Burj Khalifa. Over in Europe, finance ministers of the UK and France imposed in December a punitive tax on bankers’ bonuses – arguing in essence that a system that had been rescued by taxpayers couldn’t pay a “bonus” to employees for “performance”. Germany voiced its approval, but didn’t follow suit. While the Americans demurred (surely no one wants to turn off the funding taps before a mid-term election), the Swiss were ecstatic from all accounts, waiting for bankers to move their base from London and Paris to Geneva and Zurich.

The trigger for the special tax on bonuses is to be derived from the names, that is, include the word “bank” anywhere – including in your mission statement – and the government gets to hit you with a stinging tax on bonuses paid to employees. Some banks have decided to increase base salaries to circumvent the new taxes, but this creates a new problem in the world of declining leverage, ie that banks are increasingly exposed to negative operating cash flows (more on that subject in a future article).

Even earlier in the financial crisis, the traditional “investment” banks renamed themselves as “bank holding companies” to avail special benefits offered by the US Federal Reserve such as refinancing and enhanced liquidity. This name change was far from semantic, as it unlocked – particularly egregiously in the case of Goldman Sachs – the keys to the gold mine of borrowing cheap and lending dear using publicly traded securities.

Iceland and Ireland, two countries separated by just one well-placed (or misplaced) letter, saw very different fates from the excesses of the leverage cycle; while the former had to shutter all its banks and essentially enter into a voluntary workout situation, the latter was able to leverage its membership of the European Union to eke out a better deal. Even so, Ireland showed the “total” cost of the membership of the EU in the form of drastic spending cuts in its budget last month.

Still, prompted by the example of Ireland emerging virtually unscathed from its bravura indebtedness, and seeing the support being shown for countries such as Greece within the EU, the list of applicants to secure the EU “name” has only increased, with Iceland being among the countries hoping to secure an entry. Then again, there are doubts internally, with the president of Iceland turning down a recent deal passed narrowly by the country’s parliament to repay the UK and the Netherlands for bailing out depositors of failed Icelandic banks operating in those countries; the refusal puts paid to any notion of a quick entry into the EU for Iceland.

Perhaps the Icelanders are realizing that the actual costs associated with the EU “name” will become more apparent in the next few quarters, when failing exports and higher social costs, combined with increasing gaps in the performance of various countries, all come to roost on the unwieldy structure that it has now become. Much as they are in a frying pan, the Icelanders may be seeing the EU name as the veritable fire into which they are now being asked to jump.

All that is in the past. Perhaps more interesting for some readers is the notion of what happens in the future, when other creditors decide to take up naming rights in much the same way that Abu Dhabi exercised in the case of the Burj Khalifa. A few suggestions follow, all tongue-in-cheek:
a. General Motors to be renamed Government Motors – which in all fairness is what the company is being called on the Internet.
b. Various bailed out banks in the US and Europe to be renamed for prominent taxpayers in those countries, or simply as “Taxpayers Bank of …”; so for example, the Royal Bank of Scotland (RBS) would be renamed the “People’s Bank of Britain” and so on.
c. Given the volume of bonds issued by US agencies in Asia, perhaps the Federal National Mortgage Association (Fannie Mae) could be renamed “Chinese Grants to Bankrupt American Citizens” and the Federal Home Loan Mortgage Corporation (Freddie Mac) could be renamed “Asian Donations to Bankrupt American Citizens”
d. Given that its very survival in debt markets was assured by support from Germany at the right moment in December, the Hellenic Republic, aka Greece, could be renamed the “German Tourist Board”.

Then there is the vexing question of what to call the various American states that are technically bankrupt and in need of tender mercies from their creditors. Perhaps if California and Florida could change their names respectively to Xinjiang (West) and Fujian (West), they could come to some arrangement to prevent an actual default from occurring; just a thought of course.