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U.S. Credit Firms Tell Clients Not To Use Their Ratings?
By Dian L. Chu, Economic Forecasts & Opinions
In an article dated July 12, I first reported that Dagong International Credit Rating Co., the largest credit rating agency of China, stripped the the U.S. and some other western nations of the AAA ratings given by its big three Western counterparts. Dagong also accused its Western rivals of not properly disclosing the repayment risk and causing the global financial crisis and current debt crisis in Europe.
This week, Guan Jianzhong, chairman of Dagong, made some more followed-up comments. In an interview with Financial Times, Guan further criticized the three dominant global credit firms--Moody's, Standard & Poor's and Fitch—had become politicized, “too close to the clients”, and highly ideological thus losing their objectivity.
As if to confirm the Chinese slam (not their intentions, I'm sure), WSJ reported today the U.S.-based big three have made an urgent new request of their clients: Do not use our names on bond issues.
Why? Because the new Dodd-Frank financial reform law makes the agencies liable for their ratings effective immediately. So, instead of defending and standing behind their work, Moody's, S&P and Fitch essentially telegraphed this message to the world--"China is right - Do Not Trust Us."
The big three credit firms have been highly criticized in the aftermath of the global financial crisis. However, due to the lack of competition, their upgrades and downgrades still impact the markets considerably. Furthermore, in what appears to be a joint effort to remain relevant, the big three seem to have got into a habit of issuing downgrades right in the middle of trading hours, distressing the markets and investors.
Feeling victimized by the big three, the European Union (EU) had announced that it would set up its own ratings agency. A recent Xinhua editorial also noted
“To reform the West-dominated international financial order, more credit ratings agencies should be set up in non-Western countries to break Western monopoly over the global credit ratings”
China, the largest sovereign debt holders of the world, with a record 2.454 trillion dollars at the end of June, undoubtedly would like to have a bigger say as to the risk and reward Beijing deems appropriate for its investment. In that regard, we pretty much know Beijing's thoughts judging from the sovereign credit ranking issued by Dagong, which in many ways contradict the big three.
With China's growing influence on the global stage, credit ratings coming out of China should be expected to win greater recognition over time. The new “revelation” from the big three most likely will only help this evolution along. The ongoing financial crisis has prompted some seismic shift in almost every industry. The credit rating services, somehow seems to have escaped unscathed, is definitely long overdue for a major shake-up or two.
Dian L. Chu, July 22, 2010
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I would give an oz of gold (ok maybe silver) if these Chinese agencies rape, I mean rate Moodswing, Bitch, & Standardly Poor.
Because China has always been known for trustworthy statistical analysis. Last I checked, Dagong only uses one letter in its ratings, A:
http://www.dagongcredit.com/dagongweb/english/cra/index.php
Which is not to say the US deserves a AAA rating; it doesn't. But just as S&P downgraded Moody's, this is a bit rich for me. The idea that nothing, nothing, in China—much less the entire system of perpetually selling land to leverage CRE buildout—is a potential landmine makes them just as conflicted as the rest, and their views no less tinged by nationalism than the US rating agencies'.
One thing is certain, a Chinese rating agency is beyond manipulation.
As long as you don't consider a gratuity a bribe...
I posted this in another discussion but I welcome comments here as well./
The war drums are beating. We have China, Russia, Most of the Middle East, Most of Middle and South America and Most of Africa on one side. On the other: USA, UK, Europe, India, Israel, Canada, Japan. The first group is itching for payback. I won't go into the historical details. On the other, mercantile nations plundering the former group using modern finance i.e., debt. Read "Confessions of an Economic Hit Man" for a good introduction to the mo-dis operandi.
Now, the roles are getting reversed and North America, Europe et al. are want to change the rules e.g., mark-to-fantasy and the other GAAP etc... to avoid the political backlash of diminished standards of living eg. 200 weeks of unemployment benefits and counting.
I suspect China told the USA that devaluing the US dollar to inflate its debt away would be a declaration of WAR! hence Bernanke's pale face after meeting with your president after his trip to China a month or two ago.
Where are we now then: Well this is what I see.
1. SUPER Extended unemployment benefits (forever at the rate of employment creation) This takes care of the lower classes so they won't pick up guns.
2. Manipulated stock exchanges to keep the middle class subdued.
3. War in Afghanistan and Iraq to control oil reserves, access to them and their transport via pipelines. Hence Afghanistan's strategic location between Iran and China.
4. Food Crisis in China. China lacks arable land. Hence it's been buying up land in Argentina, Africa and just about anywhere else it can. Soon you'll see an international Chinese agricultureal corporation birthed to bring the food home.
5. Energy crisis in the USA. It's harder to find oil these days (except in the gulf coast - God bless you all for your patience. I would have started taking BP officials out by now I think). The return on energy investment and access to energy PERIOD is stinking hard. It's doubly hard now that the USA has to compete with China for it. Think conflict!
6. China has time on its side. the USA does not because it's a democracy; at least we think so. Dam elections. Think November.
7. We have Iran. Speaking of, who is kidding who. With digital technology I am sure the blueprints for all the advanced designs were emailed from North Korea. Besides they can call each other. At least one Phone must work in Iran and North Korea. So overcoming technological and design limitations for a nuclear bomb is ZERO. I suspect Iran has a few nukes already or else the USA would have kicked its ass already. It has not. Why? think BOOM!!!
8. If and when China significantly boosts the value of its currency, it will buy up USA corporation like 3M, Intel, GM, IBM etc... on the cheap with it's increased purchasing power.
9. When the public find out their politicians and financiers sold them down the road a civil war will erupt. Actually, I think the USA is probably about a year away from the beginnings of just such a war if President Obama continues on his current policy choices.
10. Public awareness of the shift in geopoliticalal and economic power to China et al (CNBC, FOX Will shout it from the roof tops)
10. Alternative ending....WAR!!!!!!!!!!!! Unless the USA cleans up its act or graciously hands the mantle of power to China.
My enemy's enemy is my friend (at least for now).
you know you have found the twilight zone when the lying chicoms display more virtue than the lying usacoms but i will take truth from wherever it comes and the chinese are correct to lambast the corrupt west for its deceitful fraudulent financial system.
moodys, fitch, and s&p are satan's little children and should be swept away for the riftraft that they are.
This is the real problem, that no one has touched on. The link below is an example of State government legislation that prohibits state governments from investing in anything that isn't AAA. All states and many cities have these types of statutes.
AUTHORIZED INVESTMENTS FOR GOVERNMENTAL ENTITIES
http://www.statutes.legis.state.tx.us/Docs/GV/htm/GV.2256.htm
It's not just cities, lots of other trust type entities follow the same restrictions.
True, but my point is that many of the current Government investments at the city, state and federal level are now illegal and subject to lawsuits.
If the Big 3 are saying don't mention us, does that mean that they no longer do rating? What use is a rating if the rating agency won't back it up? Are they saying they are no longer in business?
That is exactly what they are saying. Pass the crackpipe...
So dats what chu tink? and of course they NEVER do anything like this in China.
Oh, golly, I was in Hong Kong '97 when all their banks were covered with plywood. Musta been a typhoon or some unanticipated natural disaster like a plague of loans all going bad at once. Typhoon Default. Wonder how that happened?
So,The GREAT DRAGON, scares honesty out of the Big 3?.
I Likeeee a lot..................
Too Politicized, (called in BED with the Admin).................LOL
Yeah, I TINK so.;>)
The problem is not the rating agencies themselves so much as the absurd respect given to their ratings.
The Basel accords, with capital requirements ridiculously geared to ratings so obviously vulnerable to being gamed, have not received the criticism they deserve.
Just set a maximum leverage (including embedded leverage) of ten times, twelve times whatever. Let banks invest in whatever they like. If a bank buys silly stuff and blows up let it die, fairly easy to clear up that much mess.
I still wonder what the unintended consequences of this will be. Will sovereign ratings change? Can the European Stability Fund get the Ponzi-worthy AAA rating? What will happen to corporate spreads?
i went to basketball camp as a kid one summer and the coach kept telling us to yell, "deny, deny, deny!" when we were on defense. i wonder if the chinese, saudi and russian coaches taught the same thing?
but srsly, we all knew these ratings agencies were suspect....it's business as usual.
Shuh, like they can become honest now? We all know the truth and the Ponzi/fraud scam has now taken on a life of it's own. A lie perpetuated into reality (their reality). They can't turn back now, not one of them. I would love to see some sort of integrity or transparency or real reform, but you and I both know that we're way beyond that at this point no matter what the evidence shows. Thanks for posting and hopefully we do get some sort of result with the push from Big Red. (LOL, we used to laugh at the numbers coming from China, look who's laughing now. simply astounding the levels we have sunk to.)
Big justice is coming for us from the 9 men in the room...