Wednesday, June 18, 2014

Let's Applaud the Coming Russian-Chinese Rating Agency

One cannot just build a new monetary regime overnight. It is hard to even create an alternative to the current regime in short order. There are multiple steps along the way to be taken that reveals what was the strength of the dollar system. The US dollar system had liquid markets, a currency the world could feel confident using, a strong enforcement of rule of law, rating agencies with a shred of dignity, and a fantastic infrastructure for the marketplace of lenders and borrowers. One by one those pieces have either deteriorated or have become fun house mirror reflections of their former glory. As the BRICS keep pushing for more say in global money matters, the Anglo-Euro bank regime keeps stiff arming them. If they cannot get to the table, they will make their own table leaders like China and Russia have been officially announcing such moves. One move recently discussed was the announcement by Russia and China of an agreement for the creation of an apolitical rating agency.

Old timers with credibility from fixing the last dollar crisis like Paul Volcker are calling for a new Bretton Woods. Linked to gold again? If so, that must explain the Chinese and Russians buying at a healthy pace since Greenspan was at the helm of the FED. A new system relying on tools of the US financial infrastructure like Moodys? No. Moodys, S&P and Fitch were handmaidens to the housing madness with their AAA rubber stamping that lasted AAA until it became junk overnight. Extremely complex mathematical models or just plain old corruption? As the short Reuters blurb notes, they are also tools for the USG system. Russia was downgraded to just above junk for a sovereign rating when they annexed the Crimea. Russian government debt to GDP is 13%. For reference, the American debt to GDP hovers around 100%, and that includes recent GDP adjustments.

This is important just for neutrality and honest ratings if you look at what happened to Egan-Jones. Egan-Jones was one of the national recognized rating organizations. They have a different business model and a reputation for being tough but fair. Through 2011 and 2012, they cut their rating for US federal sovereign debt from AAA to AA+ to AA to AA- when QE3 was announced. How did the government respond? From Wikipedia:

The SEC warned Egan-Jones in October 2011 of a possible enforcement action.[9] On April 24, 2012, the SEC charged Sean Egan with numerous offenses including: making false and misleading statements in the firm's application to become a Nationally Recognized Rating Agency, violations of conflicts-of-interest and record keeping, and falsely stating that he was unaware if his paid clients were long or short specific securities that Egan-Jones rated.
The SEC charged them with misrepresenting their very application for becoming a nationally recognized rating organization, which would mean they could strip them of their rating powers. This would effectively kill them as a business. The SEC cannot jail anyone from Goldman or Citigroup for anything, but this little rating agency got the jackboot. Egan-Jones fought back and remarked how the SEC has done nothing against the agencies that goofed on the asset backed securities of the mid-'00s. In early 2013, Egan-Jones settled with the SEC. Their punishment is that they are "barred from rating government and asset-backed securities as a NRSRO for at least 18 months". In other words, nice house you have there, pity if anything happened to it.

This is the kind of corruption within the system that displays the misuse of power of our masters. The bad press from downgrades from the one agency that you could not corrupt entirely like the big boys, and you send the SEC on their tail. If this bothers American financial players, it must bother foreigners even more. This is why the Russian-Chinese idea will have appeal. The Russian-Chinese duo know they need the tools to encourage countries to possibly switch from the petrodollar system. A nation that may switch from the dollar system or reduce their use of the dollar may have an unfortunate and untimely downgrading event. If they have a positive rating from this alternative system, investors who work on autopilot and even active bond managers will not feel that heat to dump the holdings. An apolitical rating system is the kind of superficially neutral sell for countries and private entities to use rather than the big Western firms. If they provide fair and apolitical results that do not reek of corruption, they will see more customers. Even better, they will create a competitive alternative that could force the Western firms to shape up for clients. Brick by brick a new system will be built.

4 comments:

peterike said...

The Western elites really are determined to give it all away. It started with manufacturing, when they enabled China to become the power it is today. Simply NOT outsourcing everything would have kept China the weak, peasant nation it was.

Then they gave away our intellectual heritage by looking the other way at massive corporate espionage (Clinton and Gore really liked those campaign contributions. Buddhist Monks!) and by opening the floodgates to Asians in our great universities, training the next generation of scientists and engineers that have first loyalty to China or India.

And now they're even going to give away the dollar system. Well, they've been corrupting and diluting the dollar for decades, so it's got to eventually find its level as the junk currency it is.

peterike said...

OT but in line with the interests of this blog. You see how the Feds are strong-arming the owner of the Washington Redskins? And how the Patent and Trademark office cancelled their trademarks for being "disparaging"?

I mean... holy crap. Is this a first?

Son of Brock Landers said...

Completely fucking lame. Disparaging caused a trademark revocation. Wtf? Lame.

eah said...

Pretty soon they'll be editing WWII era movies where someone says Japs or Krauts.