Dubai World's decision to ask for more time to pay off its huge debt caused financial markets around the Middle East to tumble last week.
Dubai World has a total of $59bn (£35bn) worth of debt and wants to restructure $26bn of this.
The news led many analysts here to question not just the ability of Dubai World to pay off its debts, but also the economic model of the Emirate.
Dubai doesn't have the oil and gas wealth of its neighbours, so it expanded aggressively into tourism and real estate during the boom years, but it did so at a price - billions of dollars of debt.
And with credit now harder to come by, and investors reluctant to invest in the property market here, it has been left badly exposed by the financial crisis.
But to write off Dubai would be premature - it's a gateway to the Middle East for many international companies, and its infrastructure is years ahead of its neighbours.
The response of financial markets and the frenzy of international press coverage of Dubai World's troubles has riled Dubai's ruler, Sheikh Mohammed bin Rashid Al Maktoum. He says the Emirate is misunderstood.
And the Sheikh's defiant response was: "We are strong and persistent, it is the fruit bearing tree that becomes the target of stone-throwers or anything else in their hands."
Dubai World built up huge debts transforming the city's skyline
Nakheel is the company at the heart of Dubai World's problems and has made Dubai famous with its daring and ambitious man-made islands.
Three palm shaped islands are planned, one of which is up and running, and "The World", a cluster of islands kilometres out at sea, is in the early stages.
The company's slogan is "Where vision inspires humanity", and its projects captured the imagination of investors around the world.
Some of these investors aimed to make a quick buck "flipping" - selling off-plan properties at a profit before they were completed.
But others just wanted to live or retire in the sun.
Until recently, Sunil Gomes was development director at Nakheel. He describes the scale of the company.
"Nakheel at its peak probably had about $30bn to $50bn of real estate being developed around the world. It employed 3,800 people," he says.
"It was initially formed to build water-based projects in Dubai, and then it expanded internationally, so it invested in projects in the USA, Africa and Asia as well."
It's a vast manmade palm-shaped island, stretching kilometres out to sea, and you can only really get an idea of the scale of it from the air.
I went to the Palm Jebel Ali with one investor who has bought a villa there, but the cranes stand idol and we couldn't see any construction work going on.
She was due to move in this year, but now doesn't know when it will be ready.
The investor is part of a group of 600 homeowners who are unhappy about the delays in the delivery and registration of their properties.
Climate of fear
Nakheel's woes come after property prices in Dubai have fallen by 50% from their peak.
There is a climate of fear among property investors here - some talk of being intimidated or even threatened by developers after airing their grievances and many won't talk to the press.
The British investor I spoke to didn't want to be identified for fear of reprisals or being forced to leave the country.
"The decision for Nakheel to ask for more time to pay their debt will have an impact on us," she says.
"We thought we were coming out of recession and the market was coming back.
"But because of what has happened in the last week, people are going to start selling their investments.
"I know people who are going down to the stock market and just want to take their money out."
So what do other expats here in Dubai think about all of this?
Dubai's ruler says the Emirate is misunderstood
I went down to the English pub on Dubai's Creek to find out.
Outside there's an old red British phone box and inside is a crowd of punters, most of whom have come to watch English football on television.
"I don't think it will have much difference on people who live here," says Wayne Smith from Sheffield, who has been living in Dubai on and off for the past seven years.
"It may cause some problems on the big projects, but everything seems all right as far as we can see with the naked eye. Dubai's a great place to live."
His partner used to work for a removal company, but left the company by mutual consent earlier this year.
She remembers a few years ago when three times as many people were arriving in Dubai as were leaving, but earlier this year this trend reversed.
"People who are living here know what's happening," she says.
"There have been a lot of redundancies and there are certainly not as many people on the roads.
"Unfortunately expats are having to move to other countries or back home to find work."
But many locals or Emiratis here feel the press has been overly eager to attack Dubai.
Ashraf Abdul Hadi is a local businessman who runs the Bin Hadi Group a real estate and trading company.
"One can call it a conniving, conceiving propaganda which has targeted Dubai", he says.
"They didn't draw a line between the government of Dubai and private companies.
"When you go for debts on private companies you always go for rescheduling payments. The media takes it as an opportunity to attack Dubai."
Many investors believed that either Dubai or the federal government of Abu Dhabi would step in to pay off Dubai World's debt.
But as markets panicked and investors digested the shock news, the government of Dubai sought to distance itself from underwriting Dubai World's debt, saying that it was private and not sovereign debt - even though it's a government-backed company.
This has been a public relations disaster for Dubai on a big scale.
Dubai's ruler feels the Emirate is misunderstood and investors feel they have been mislead.