Today's announcement that UBS AG (NYSE: UBS) will take a $10 billion write-down of its risky "super senior debt" and collateralized debt obligations (CDOs) -- is just the latest in a string of announcements where the false prosperity of borrowing comes face to face with the true prosperity of Asia and the Middle East, which have been enriched by high oil prices and Chinese commodity demand.
Just as Citigroup Inc. (NYSE: C) received a $7.5 billion capital infusion from Abu Dhabi Investment Authority a few weeks ago, UBS got $11.5 billion from the Singapore Investment Corporation (GIC) and a Middle East investor believed to be the government of Oman.
With our $9 trillion in government debt, hundreds of billions in government deficits, $2.4 trillion in consumer installment debt, and $1.3 trillion in subprime mortgages, it's been easy to create the illusion of prosperity. But when it comes time to pay off that debt, those whose prosperity results from charging more for a product than it costs them to make it, rather than borrowing, end up in the driver's seat.
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