Because so many big-time investors poured money into Dubai World, it naturally became too big to fail. The Dubai panic is for now eased, but it could return at any moment because its cause – the same socialized risk that our own politicians refuse to recognize here – remains. Dubai’s state-owned investment company suffered massive losses in the global financial meltdown. Investors panicked when the firm announced last week that it needed to postpone debt payments for six months. The panic was understandable: Before last week, Dubai World looked like a sure thing because everyone figured it wouldrecoup losses with a bailout from the Dubai government, or that of nearby oil-rich Abu Dhabi. Such thinking allowed the company to take on $60 billion in debt (a low estimate, according to some economists). Dubai World’s failure could have become the biggest emerging-market default since 2001 in Argentina (where tanks rolled in the streets at one point).

Markets only started to stabilize once the Middle Eastern firm announced it only needed to postpone payment on half of its debt and theUnited Arab Emirates’ central bank provided new liquidity. Another economic crisis was thus averted, for now, but Dubai World 2009 was a close relative of the American housing market disaster of 2008. Here, the U.S. government encouraged lenders to loosen lending standards to provide mortgages to unqualified borrowers, with implicit guarantees of government bailouts in the event of difficulties. When the inevitable crisis came, the U.S. economy virtually ground to a halt and continues to struggle even today.