Asian Ratings Agencies Suggested

Asian financial writers are challenging the new rating agency regulations being proposed by the Chairman of the Senate Banking Committee, Christopher Dodd (D-CT) and similar moves by European regulators. The writers argue that nothing is being done to address the fundamental conflict of interest inherent in the agencies’ business model.  The issuers of the bonds being rated also hire and pay the agencies.

They also note a second conflict of interest. The U.S. and other heavily indebted governments do not want to reform the credit rating agencies because of their own borrowing needs. They could be exposed to potentially expensive downgrades if “true” credit ratings become the industry standard.

Instead, given the vast U.S. and European government debt that is held by Japan, China, South Korea, India and other Asian countries, they argue that it is time that Asians created their own assessment of the true creditworthiness of Western nations.

This agency or agencies would effectively replace the existing three major American agencies.

The Asian countries have another worse option: Stop buying our bonds.

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