A sovereign wealth fund is a fancier way of referring to a government-owned and government-controlled investment mechanism.

In financial terms, a sovereign wealth fund takes cash accumulated from domestic and trade surpluses (especially those generated from oil sales), foreign currency trading and other cash-generating ventures (such as the privatization of state-owned enterprises) and invests it in stocks, bonds, real estate, commodities and other investment venues.

In simpler terms, government wealth funds are the play money of mostly nouveau-riche nations such as Middle Eastern oil exporters and the Asian Tigers of the Pacific Rim. The funds are rarely transparent.

On Wednesday, Dubai World announced that it could no longer make payments on its debt for at least the next six months. The news sent European and Asian markets into a swoon on Thursday. American markets followed today, though at this writing it looks like the 2% drop of the Dow in early trading is now closer to 1.3%.

Las Vegas City Centre Project of MGM & Dubai World

Dubai was a carbon copy of Thailand’s disastrous foray as an ‘international financial center’ in the 1990s. Happily, the U.A.E. has oil. Thailand did not.”

The UAE has oil, yes. That is, Abu Dhabi does (92 billion barrels worth of reserves). Dubai does not. It barely has 4 billion. Oil production in Dubai has been plummeting. It relies on Abu Dhabi to bankroll its spending (the way the United States rely on China, Japan and the Social Security Trust Fund).

For most of this decade Dubai has been the Victoria Beckham of the Arab world–the biggest, glitziest, most heedless spender. It’s been the sort of place that invests $7.6 billion subway system few of its 1.6 million people are likely to use, the sort of place that builds artificial islands in the shape of palm trees, the sort of place that builds the world’s tallest skyscraper, the sort of place that sells designer seat-belts to encourage drivers to be safer in the very cars it wants them to trade in for a subway ride, and the sort of place where office buildings have been the Gulf’s most copious crop of the decade.

Dubai hasn’t limited its excesses to its corner of the United Arab Emirates. Through Dubai World, the Emirate’s investment arm, it partnered with MGM Mirage and invested in such projects as Las Vegas’ CityCenter, a 67-acre development that includes a 4,004-room hotel-casino, 2,400 high-rise residential condos, dining and entertainment venues and its own retail district. At $8.5 billion, it’s the most expensive privately financed construction project in the United States.

The Dubai subway has been running since September, albeit to empty quarters. A quarter of Dubai’s office space is vacant. Workers have taken salary cuts of up to 30%. The Emirati government is in debt to the tune of $80 billion to $120 billion. CityCenter? It’s “worth about half of what it cost MGM Mirage and Dubai World to build the massive Strip development,” the Las Vegas Review-Journal reported in October. lost half its value. MGM Mirage took a $1 billion write-down already, Dubai World ate a $348 million loss (so far).

“Investors have long expected (and will probably expect further) write-downs of the carrying value of its residential towers at CityCenter, especially after it reduced unit pricing by 30 percent or so,” the paper quoted BMO Capital Markets analyst Jeffrey Logsdon as saying in a note to clients. “We do not expect investors to have a negative reaction to this step.”