"Much of the world’s financial standards, procedures and so on were set by the City of London during the heyday of the British Empire. More than anything else, what distinguished the British Empire from the other imperiums was the efficiency of its capital markets. This rules-making power was passed on to the US after the world wars.
With the world beginning another power shift, countries like China want to get into the rules-making business. In fact, Chinese officials like to say that the ultimate measure of national power is when a country becomes a rules-maker for the rest of the world.
While the US doesn’t own or control the rating agencies, they have arisen and function in a New York financial milieu. The Europeans, until now, left the agencies’ regulation to the US’s Securities and Exchange Commission. But Europe’s actions are really evidence of declining power. Acts of frustration rather than influence.
The more interesting development has been the establishment of China’s own rating agencies. Three of them are affiliated to the big three US firms, but the fourth one, Dagong, is all-Chinese. Dagong got into the sovereign debt rating business only recently – and it isn’t taken too seriously. But it has symbolically been downgrading US government debt to the point that not merely Chinese government sovereign ratings are higher, but so are some Chinese local governments (though how the present revelations of oceans of red ink hidden in local Chinese government account books has changed this is unknown). Laughable perhaps. But think: if the West gets roiled again, the US economy goes in to free fall, Dagong will look prophetic. And that is how reputations are first established"...............READ MORE
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