Did We Just Export the Global Credit Rating Industry to China Too?

What happens when sovereign wealth funds have little if any transparency, or when companies can game the rating agencies, or when various financial vehicles get the proverbial “Triple-A” rating and stamp of approval? Well, I’ll tell you what happens; Freddie and Fannie, Enron, Lehman Brothers, Bernie Madoff, Is A Payday Loan Secured Or Unsecured Dubai, and every other financial catastrophe in the past. Irrational Exuberance always has its cheerleaders while until the music stops, and there are not enough chairs left for all the rest – yes, we live in turbulent times – and I’d say “Interesting Times” too – to borrow an ancient famous Chinese quote.
There was a troubling piece in Bloomberg recently, which was titled; “China May Establish Credit-Rating Companies,” which appeared on December 24, 2011. The article was reporting on a simple announcement made by the Chinese Government, nothing too alarming on the surface, but it really bothers me, let me explain. The article stated;
“China should reduce its reliance on overseas rating companies by encouraging large financial institutions to strengthen their research and make their own judgments,” stated the central bank. The nation is also considering establishing credit-rating companies backed by the government. China desires to seek alternatives to the top 3 global rating companies amid skepticism among officials about the firms’ independence. China set up its first rating company that makes investors rather than borrowers pay, called China Credit Rating Co. last year.”
Okay so, you ask, why would this worry me? Well, let me explain. You see, back in mid-2011 S and P downgraded US Treasuries, and they did so right at a time, curiously enough and with plenty of plausible deniability, when China was in a verbal global media spat over the charges of currency manipulation and while China was dealing with significant downgrades in real estate companies, Chinese banks, and accusations of corporate accounting malfeasance.
At that time also the Chinese credit rating agency, which is tied to the Chinese Government and central bank downgraded US Debt also, and S and P was trying to break into the Chinese market, lots of potential there for one of the Big 3 global financial credit rating agencies. Today, it seems as if China wishes to control the conversation of its fiscal responsibility, modify the reality of financial stability, and put forth their version of the truth, as they see fit. Makes sense, after all, China also enjoys controlling the media, micro-bloggers, and the Internet with stiff fines, penalties, and imprisonment for those who question their authority.
Should we be surprised at this latest move? No, I am not, but I do worry about the financial integrity of China’s real estate Valuation Meaning market, financial sector, and reliance on exports as the global economy, right now mostly due to the EU crisis slows down.

READ  How to Save on Your Mortgage Costs