If there remained any adherents to the efficient market hypothesis, the recent events surrounding Dubai World should finally kill off such dated views. It can hardly be considered surprising that an entity that has in excess of US$26 billion of debt — much of it real estate–related — would eventually face some form of distress.

That being the case, the panic (albeit not on a Lehman Bros. scale) that affected the global markets as a result of Dubai World’s request for delaying its debt payments highlighted the inability of the markets to realistically price in the likelihood of such defaults occurring and their effects. This inability was highlighted further when the Dubai government confirmed that there would be no state guarantees of either Dubai World or any of its subsidiaries’ liabilities. An earth-shattering message to a world that expected, if not actively demanded, that such mega entities be given almost unlimited backing.

The panic, of course, has now