Will U.S. taxpayers be left holding the Dubag?

Andrew Sorkin:

Just as the United States stood behind its banks, in part, to avoid losing the confidence of foreign investors, Abu Dhabi might have to do the same.

That had to be what Citigroup, with its firsthand expertise with bailouts, must have been thinking when it lent $8 billion to Dubai last year. Oh, and here’s an interesting fact: Citigroup made the loan to Dubai on Dec. 14, 2008. Take a look at the calendar — that’s after it received tens of billions in TARP funds. Citigroup’s chairman, Win Bischoff, said at the time, “This is in line with our commitment to the U.A.E. market in general, and reflects our positive outlook on Dubai in particular.” Good call.

Why does Abu Dhabi have to do the same? The U.S. bailed out Citigroup and other banks because of the harm it would do to the U.S. economy if it hadn't. It's by no means clear that there is a parallel in the U.A.E. case. It may be a small price to pay to make sure Dubai bears not the upside, but also the downside of its investment decisions. Also, the potential for real harm may be primarily external to the country. Even there Dubai's default does not appear to be systemically important.

So if Citigroup needs a bailout, it could be the U.S. taxpayer footing the bill. Again. That's what Sorkin seems to be saying. And Tyler Cowen underscores.

Yes, Citigroup is exposed to the tune of $8 billion -- I did a post on this a year ago. But doesn't Abu Dhabi have a big stake in Citigroup? It did the last I read.