DUBAI, United Arab Emirates – You can hear the bubbles bursting in the Arabian stock and real estate markets.

A few days ago, newspapers carried photos of Kuwaiti investors staging a protest as they watched a meltdown of their paper profits on LCD screens in a trading room here.

The Saudi minister of education issued a warning to teachers to stop day trading at schools and go to work.

And King Abdullah bin Abdelaziz of Saudi Arabia instructed his ministers to enact new legislation helping investors wiped out in the domestic stock market crash.

Real estate is not faring better. Thousands of 40-floor luxury towers and stupendously luxurious villas bordering lakes filled with desalinated water are sitting empty, their speculator-owners trying to figure out how to unload them while missing out on their due payments to builders. That clock is ticking too.

Anyone who has watched the spectacular NASDAQ crash of 2000 would get a sense of deja vu out here nowadays.

Since February 25 the Saudi stock market alone fell 31% – the equivalent of $300 billion in market capitalization.

It all began with the higher oil prices starting in 1998. Since,OPEC members, of whom the biggest are Arab oil producers Saudi Arabia, the UAE, Kuwait, Qatar, and Libya, earned around $1.3 trillion in petrodollars, according to the Bank for International Settlements.

Unlike the first petrodollar boom of the 1970s and 1980s, this time around the bulk of the money stayed here, putting an awful lot of cash in the hands of ordinary people of little sophistication, access to transparent information, or reliable market analysis.

As the price of oil climbed into the $60-a-barrel neighborhood, cash mountains grew higher. Deposits in the Gulf region commercial banks increased by over 60% since 2000, according to Credit Suisse. As a result interest free, or near free, loans were a dime a dozen. Money left the banks to land in the tight overheated stocks and construction producing phenomenal returns on equities with little real underlying value.

To make matters worse, virtually all the Gulf governments began to privatize their public sectors, using the money they raised to repay loans from the social security funds they bled in lean years.

Even more liquid money was produced with nowhere to go as there are virtually no industry or agricultural opportunities to speak of on the beaches and deserts of Arabia, except, once more, those real estate and inflated stocks.

Since January 2002, the Dubai and Saudi stock markets are up respectively by more than 630% and 600%. Bahrain, Kuwait and Qatar had similar experiences.

Very little of that reflected a rise in the real value of companies traded. Indeed more than half of those companies were almost fictitious, producing nothing or just starting out. Only four years ago, gulf companies were priced at around twice book value. Today they trade more than eight times book value. Gulf banks are valued at more than nine times book.

In the past couple of years, it was not unknown for stocks to climb 500% on the first day’s trading. Ordinary citizens could hardly resist the temptation. Increasing numbers stepped in – solely on the strength of word of mouth – into markets dominated by insider trading and practiced manipulation.

A familiar tale? Indeed, and one with a familiar ending, hence the sounds of bubbles bursting.

Then Gulf Arabs awoke, rudely, from their speculative dreams, realizing that Dubai’s stock market had fallen nearly 40% from its November peak, and the Saudi market is down by around 12% in the past few days alone, so much so that King Abdullah bin Abdelaziz ordered his finance and economy ministers to enact immediate legislation to save Saudis who have seen their paper profits collapse by 60% in one day.

The Gulf rulers’ solution, to invite foreign residents, who number 8 million in Saudi Arabia, doing all the work Saudis will not do, and 4.5 million out of the total of 6 million inhabitants of the UAE, to partake in the stock market speculation, does not seem to be the answer.

“It is difficult to see how they can do it,” Nomura’s market analyst in Bahrain, Tarek Fadlallah said in an interview. “Most of these are poor immigrant workers from Asia who do not have that kind of cash surplus. They are sending their wages to their families at home.”

The real money is in world markets held by American, Asian, and European titan funds. Should these be invited to come in, they would demand a level of scrutiny that may blow Arab stock markets out of the water.

Financial ruin does not sit well with humans. The right to realize instant profits is as sacred out here as Americans’ belief in cheap gasoline as a birth-right.

Arab rulers saw the speculative boom as a way of diluting pressure from Islamic fundamentalists demanding an end to nepotism, family rule, corruption, and real jobs for the nearly 50% of youths unemployed. None of this has happened.

Can the day be too far when today’s day traders become those burning embassies and palaces or joining Al Qaeda as recruits? Watch this space.