What are the chances Dubai will default?, II

Following on my post yesterday (What are the chances Dubai will default?), the Economist today has an article in the same vein:

Sheikh Muhammad bin Rashid al-Maktoum, the energetic ruler of the second largest emirate of the seven that make up the United Arab Emirates (UAE), has chosen to diversify, especially into real estate, as his way forward. Investors in Dubai property have done well in recent years, enjoying returns of roughly 80% since early last year.
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Then, over the summer, Morgan Stanley issued a note which said that Dubai property prices would fall by 10% by 2010. Quite simply, there may not be enough demand for the wave of new property coming onto the market. To a society used to easy returns, this was a shock. The report coincided with a withdrawal of deposits and investments from the UAE by speculative investors who had previously been betting that local currencies would shoot up as Gulf states let go of their dollar pegs to deal with double-digit inflation. But things did not work out like that. The dollar strengthened, so the bet failed and speculative flows went home. As a result, there was less cash sloshing around in the Gulf.

It was the wrong time, then, for a slew of corruption allegations. Since April, investigations have centred on Dubai Islamic Bank, an institution with a history of problems, and on various mortgage lenders and developers.
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In another sign that not all is well, the Dubai authorities merged two Islamic mortgage lenders, Amlak Finance and Tamweel; the latter is one of the firms involved in the investigation.
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The ructions may also strain relations between Dubai and Abu Dhabi, which still has the biggest money bags because it has most of the oil—and may no longer be willing to sit back and let Sheikh Muhammad and his men make all the running. Sheikh Muhammad seems to get on well with Sheikh Khalifa bin Zayed al-Nahyan, Abu Dhabi’s ruler. But financial arrangements between the two emirates are opaque. Sheikh Muhammad may need to be more deferential to his fellow ruler.
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Dubai is not going to go bust. The state controls the larger property developers and can alter supply and demand by releasing land when and how it wants.

Two or three questions suggest themselves. Can Dubai just open the demand tap, making it even easier for foreigners to buy, and maintain residence? Do those who are betting on Dubai assume that Abu Dhabi would bail them out; and, if so, are they right?

One trusts Dubai is no Iceland.