Dubai. Dad's army or Smiley's people?

The Financial Times mantains the line that there was amateurishness and incompetence in the way Dubai handled the recent events and it follows by recommending  Abu Dhabi to clean up the mess.
This reading of the events is plausible. Let's call it the Dad's army hypothesis.

Under this view, Dubai's autocratic rulers would not have access to professional, market savvy bankers and consultants, or if they do they would have overridden their advice. That is not impossible: the FT itself reminds us that Deutsche Bank has fled, leaving only Rothschild to advise Dubai World, one of the main entities of Dubai Inc.

This scenario though raises fears and doubts, if you are prepared to entertain the feelings of deja vu: normally when incompetence is on this scale, the worst follows soon after.
Remember Parmalat? You could tell the writing was definitely on the wall from the moment that the famous letter appeared, written in terrible English. Incompetence and amateurishness were a clear signal of the scale of the fraud to be soon revealed.
If this turns out to be the case, we should expect worse news to come out of Dubai over the next few days.
It is most  likely that a REAL panic would ensue, not the test run we saw on Thursday. All bets would be off, especially with liquidity so dire.

The other scenario, for which we have a sentimental preference (see our previous blog below or to the side) paints the Dubai operators as canny and uber-professional,  not unworthy of Smiley's best.
In this narrative, the announcement was indeed meant to feel botched, and intentionally released at the worst possible time, on the eve of Thanksgiving, during Eid, with the aim of provoking the foreign investors to rush and sell the Nakheel bond at very low levels (the excellent macroman writes they are trading below 50), in order to scoop them up on the cheap, saving a billion or so. Domestic investors would be less prone to panic, would accept the deferral till May, and be made good then.
This of course would destroy the reputation of Dubai and its ability to access international bond markets again, and would signal the retrenchment of its aspirations, as well as a likely shift of power towards Abu Dhabi, where it should be anyway.
In the Smiley's scenario, the whole thing wraps up without too much more damage and fuss. The rest of Dubai's bonds get downgraded (and are also scooped up on the cheap... hooray! a few more billions saved), but there is no further contagion, no further body hits to western banks, just a few more billions losses.

Despite our haruspicial skills, it would be foolish to wager on how it is going to play out, and it is probably too late to hedge with far-out-of-the-money options, for those who do not have them already.

One could go on, excoriating the foolishness of building towers on the sands, and to water golfcourses with expensively desalinated seawater (not to mention the real snow). Or maybe more appropriately castigating the foolishness of investors prepared to lend money for it.
But it would be like shooting at domestically raised pheasants straight out of the cage, so we stop here, and invite for comments and flames from any reader that might have some. Just type them in the box below.

And good luck to us all. Let's hope Smiley's on next week.