Debt crisis loosens top agencies' grip over credit ratings (3)

10:50, June 02, 2010      

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All fee-payers should enjoy corresponding consumers' rights and interests, and the rating process and the quality of the product provided by the rating agencies should be supervised. Meanwhile, the social and legal responsibilities of the rating agencies should be made clear. It should be noted that the prompt downgrades made by rating agencies not only showed their poor risk-prediction skills but also their lack of social responsibilities.

Since the outbreak of Greece's debt crisis, the debt credits of the euro zone countries were downgraded successively and triggered the depreciation of euro. Europe suddenly discovered that they had no say so in the area of rating. The credit rating set a price for credit capital and rating results determined the allocation of resources on the market.

The credit rating is not just a simple intermediary service, but the right of speech and ideally should allow representatives from various circles of society to participate in resources allocation and the pricing of credit capital. Nowadays, credit ratings are applied to many areas, such as the bond market, the credit market and business negotiations.

The one who controls credit ratings is the one who has say in the allocation of resources in these areas. In a market where credit ratings determine the allocation of resources, if the rating is monopolistic, those agencies that control the ratings industry have the last word.

Credit capital has become one of the most important conditions in the world economy and resource allocation. Having a voice in credit ratings is, in some ways, more important than the credit capital itself.

Different cultures and social customs means different forms of credit transactions, different credit value and different credit ratings. If credit rating agencies are established in Europe, it would trigger a "domino effect." It means that more and more European credit rating agencies would be established, and the U.S. stranglehold on the world debt market would be broken. Therefore, resource allocation would be more balanced and rational.

By People's Daily Online
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