II. The Current International Credit Rating
System Is the Source of the Global Credit
Crisis
The immanent link among credit
rating, credit relationship and the world economy is that the capital
combination morphology as the representation form of credit relationship is
established through credit rating information as a medium; this new capital is
involved in the social reproduction and plays the dominant role. The movement
status of the three elements decides the trend of the world economy. The world
economy in recent 60 years is a history that credit is compliant with the
production development; the pro-cyclical economic prosperity is driven by the
accumulation of credit bubbles and ultimately at the cost of correcting the
mistake of excessive consumption credit through the way of crisis. During this
course of history, the international credit rating system failed to reveal that
credit expansion kept exceeding the capacity of material wealth creation is the
ultimate cause of the pro-cyclical development of the world economy and of the
accumulation of credit risks, it also failed to prevent the pro-cyclical risks
by using the status of credit rating; on the contrary, they indulged themselves
in pursuing their private gains by abusing the public rights of credit rating.
Thus it became the source of the credit crisis.
(I)
The global credit system is highly reliant on the international credit rating
system.
The global credit system is the sum total of credit relationships
composed of creditors and debtors, it is the world economic foundation; this
system is constructed by the socialization of credit relationships promoted by
credit rating information as a medium with the global expansion of capital as
the motive power. It is impossible to match the establishment of credit
relationship through the independent judgment of debtors’ risks by creditors
with the speed of capital expansion in the industrialization era; the broadness
and depth of capital development not only requires the establishment of a fast
forming mechanism for credit relationship adaptable with the speed of capital
expansion, but also requires that the international credit rating system is able
to undertake the rating responsibilities for the world. As creditors and debtors
are separated in both time and space, besides the underlying factors of debtors’
credit risks are increasingly socialized; these make the judgment of credit
risks a complicated process of study, so complicated that neither creditors nor
debtors are able to conduct sustainable studies. The establishment and
maintenance of every credit-debt relationship is directly or indirectly
dependent on credit rating information. When such a mechanism became an integral
component of the society, credit rating seemingly became the dominator of modern
credit economy; the Moody’s, Standard and Poor and Fitch could shake the entire
world with their voices. The global financial crisis (should be called “global
credit crisis” if defined essentially) broken out in the United States in 2008
is the severe damage to the international credit relationship triggered by the
wrong credit rating information continuously provided to the market by the three
US-based credit rating agencies.
(II) The major
problems with the existing international credit rating system. They include such
aspects as follows:
1. The clear position of
protecting the interests of the largest debtor has deprived this rating system
of the due independence.
2. The credit risks of the
global economies are measured against the seriously political and ideological
American rating criteria, the ratings provided to the world are biased and
distorted.
3. The international community does not have
regulatory power and the host government also fails to perform managerial
responsibility on the international rating system that is responsible for
security of the world’s credit system and dominated by a sovereign rating
agency. Lack of supervision enables the international rating system with wrong
morality and criteria to have super forces and to cause consequences that the
world has to assume.
4. The competition mechanism
encourages the rating system to trade rating grades as commodities in order to
maximize their own interests, thus making the existing international rating
system completely unable to assume the public responsibility for the
world.
5. The biggest debtor country in the world takes
advantages of the say in the international credit rating sector, over-estimates
the creditworthiness of those countries in the international debt system but
under-estimates the creditworthiness of those countries in the international
credit system, transferring the interests of creditor countries to debtor
countries, which resulted in the unbalance of the world economic
development.
In 2007 before the global credit crisis broke
out, the ratings assigned to the top 15 debtor countries in the world – the USA,
UK, Germany, France, the Netherlands, Italy, Spain, Ireland, Japan, Belgium,
Swiss, Canada, Australia, Austria, and Denmark are AAA for 12 countries and AA
for the remaining 3 countries. Based on the high credit grades, they occupied
over 90% of the international credit resources (the total amount of global
foreign debts). The average foreign debt to GDP ratio of these countries was
146.06% in 2007, Ireland and the UK are the top two countries with the foreign
debt to GDP ratio as 870.97% and 400.44% respectively; their debts were well
beyond their real wealth creation capabilities, indicating that they could never
repay their debts by their self-created value in the very long term. 9 of these
countries are deeply stuck in the debt crisis and dragging behind the world
economic development. In the first five years of the crisis, the contribution
rate of these 15 countries to the world economic growth is 35.41%; the credit
ratings assigned to the emerging creditor countries have by no means reflected
their wealth creation capabilities and their creditor’s status; for instance,
China is assigned A+, South Africa BBB+, Russia BBB, India BBB- and Brazil BB+;
in the first five years of the crisis, the contribution rate of these 5
countries to the world economic growth is nearly 50%. The great majority of the
foreign exchange revenues of the creditor countries has been lent to the
advanced economies; it is the credit assets of the developing countries that
have maintained the economic prosperity of the advanced countries and that
stability of the world credit-debt system.
The
current international credit rating system shaped with historical reasons has
degenerated into a tool of the world’s biggest debtor interest bloc; they have
taken advantage of the high reliance on credit rating information in the process
of credit globalization as well as their privilege of say in the rating sector,
and transferred the interests of the creditor system to the debtor system, thus
making them the source of damaging the international credit relationship and
triggering the world economic imbalance.
(III)
Humankind has no way to enable the current international credit rating system to
assume the responsibility for the world simply by
rehabilitation.
The unprecedented global credit
crisis fully exposed the selfishness, utility and decadence of the 100-year
credit rating system, its so-called “authority” and “fairness” are widely
castigated and thorough challenged; the international community is
contemplating, awakening, and strenuously exploring the theory and approach to
resolve the crisis. Meanwhile, the fact that the world economy has to continue
to rely on the old rating system once again reveals the immanent link between
the world economy and the credit rating system; the reality manifests to us that
impartial credit rating is needed more desperately that ever before for human
credit economic activities. One option is to rehabilitate the current
rating system to make it fair; the other option is to establish a brand new
international credit rating system. Studies indicate that it is simply
impractical to think that the current international credit rating system can be
transformed into a positive force to perform the international public
responsibilities by attempting to amend it; the key rationale is as
follows:
1. It is difficult for the external influence to
be effective. The current international credit rating system is first of all an
important component of the U. S. economic regime, so its rise and decline
concerns the core interests of the U.S.; the international community can by no
means influence a sovereign system of the
state.
2. There lacks internal motivation as
the U. S. government would never take initiative in reforming the current rating
system.
3. It is impossible to surmount the
cognitive obstacles. Even if the three credit rating agencies do wish to reshape
their market reputation, yet their perceptional approach is too deeply-rooted to
change due to their position; no valuable reform results can be
expected.
The global credit crisis is a historical
turning point in the great practice of mankind-developed credit economy; it is
also the starting point for human beings to perceive the development laws of the
credit economic society. The law governing the credit rating and the secure
development of human society gives out a historical call that the international
community should take actions together to create a new international credit
rating system that manifests the essential requirements of the credit economy
and credit rating development.