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Titanic Blunder for Royal Caribbean


Purchase of largest cruise ship ever is mind-bogglingly misguided.

Think its tough to get a mortgage these days? Try financing the biggest cruise ship ever built.

Royal Caribbean (RCL), the second largest cruise-ship operator in the world, is currently scrounging up money to purchase the Oasis of the Seas, a 5,400-passenger, 16-deck, $1.2 billion monstrosity under construction by STX Europe's Finnish shipyards. In normal times, the company would have no trouble assembling a team of lenders to finance the purchase. But now, with credit markets frozen solid, loans are more difficult to navigate than an ocean strewn with icebergs.

According to Bloomberg, Royal Caribbean is petitioning the Finnish government for help. Already, state-owned Finnerva has agreed to guarantee 80% of the loans needed to buy the Oasis and its sister ship, Allure of the Seas. The Finnish government says its given out larger guarantees in the past, but isn't terribly keen on this one unless circumstances are "exceptional."

Meanwhile, Royal Caribbean and rival Carnival Cruise Lines (CCL), are reeling from the economic slump and the worldwide decline in tourism. And with the likes of Citigroup (C) and Bank of America (BAC) becoming increasingly reliant on government funds for survival, extravagances like the biggest cruise ship ever built will be increasingly hard to justify.

The Finnish government's dilemma underscores a growing dilemma for countries all over the world: Prop up industries begging for federal assistance, or preserve funds and maintain the integrity of the sovereign balance sheet? Volatility in the foreign exchange markets (the yen's recent tumble, for example), is evidence that investors are becoming increasingly worried that government is getting out over its skis.

With tax revenues falling, trade grinding a halt, and social-program obligations ballooning, lawmakers are opting to take a more active role in economic governance. Many, in fact, are moving toward central economic planning.

This is an unwelcome shift, but one we're being told is necessary to stave off some unnamable economic catastrophe.

The similarities between the Titanic's moniker -- "unsinkable" -- and the belief that certain banks are too big to fail would be ironic, if it weren't so sad. Given that ill-fated vessel, we should be wary of the notion that anything is invincible - especially when the path through the icebergs is growing increasingly difficult to find.
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