The Economist has a good take on how Dubai's creditors were taken in and fooled.

The Economist writes: "Dubai’s debts are heavy, amounting to about $80 billion including the government and the conglomerates it controls. Investors had half-expected Dubai World to seek forbearance from its bankers, asking them to extend their loans. But they felt sure the emirate would make good on publicly traded instruments, and in particular Nakheel’s sukuk, rather than suffer further damage to its financial reputation. The dismay of investors was quickly apparent in the market for credit-default swaps and in the equally active market for gossip. 'Normally we know what’s going on,' says one sheikh in Sharjah, another member of the United Arab Emirates. 'Now we haven’t a clue. This smacks of a complete lack of control.' "

Writing in the Financial Times, Professor of European Political Economy at the London School of Economics, Willem Buiter, says investors have only themselves to blame. "I don’t see what the big deal is. Dubai has experienced for most of this decade the craziest construction boom seen in the Middle East since the construction of the Great Pyramids. That boom turned to bust - as booms invariably do. Property developers tend to be highly geared and very procyclical in their revenue flows and access to the capital markets. During construction slumps they drop like flies. Because the property sector is risky (ask Donald Trump), its creditors tend to get better interest rates than the sovereign rate. Dubai is no exception to this rule. If you earn a risk premium during good times, you should not moan when the borrower defaults from time to time when the going gets tough."

Dubai's creditors are furious about the 60 billion debt it's sinking under. "They won't be able to raise a penny again from the international investment community," one hedge fund manager told The Guardian.

This is likely to end up in the courts. Most of the foreign bondholders include big banks and hedge funds, including Citigroup and HSBC. Over the next few days, they are expected to appoint legal advisers to help their cause, possibly seeking redress through the British courts.

That means one thing: it might take a long time to sort out Dubai and investors are likely to lose their shirts. And Dubai will struggle to raise any more money.