OFF INTO THE WILD WET YONDER How does this...
Imagine for a moment there existed a handful of companies (an oligopoly) whose sole intent was to calculate, judge, and rate you. Your likes, your appearance, everything you’ve posted on your social media accounts, hell everything you’ve ever posted online (in addition to various “non-disclosed” means)… all would be fair game.
And once the tallying was done, your “rating” would be available to everyone. Neighbors, friends, potential lovers, employers, banks, bars, restaurants, gyms, etc., all basing their judgement on you via a rating the whole world could see. Imagine how incredibly different your dating life would be walking around with A, AA, BBB-, or CCC- plastered across your chest.
Don’t agree with your final rating? Too bad. The criteria used isn’t explained, and transparency is non-existent.
How different would your life be?
Consider the amount of authority that would be wielded by these companies… and just how much control they would have over everyday lives. More specifically, your everyday life. And what of the inevitable… that at some point (an unusually slow fiscal quarter perhaps) someone will have the genius idea to allow people to “buy their way” to better ratings. A Middle Ages selling of the indulgences, as it were. Certainly no conflict of interest there, right?
Well, you can stop imagining, as that scenario is pretty close to now.
There are three credit rating agencies based in the United States that use their power, influence, and obscure ratings to make it easy or difficult for a country to achieve success. By rating the sovereign nation that you live in, they can benefit or hinder your country’s ability to borrow money on the international market, thereby helping to make your community either a vibrant place to live or a hellhole.
Millions of people in emerging and frontier markets are affected by this each day where they have little access to clean drinking water, their sky is corroded, and their infrastructure is a century old—and yes, many of these things usually need to be funded via international capital markets, so countries need a fair rating not a shakedown.
I shouldn’t have to explain to anyone how utterly irresponsible it is for our global societies to allow only three for-profit corporations to have this much control when it comes to assessing whether sovereign nations should sink or swim. Moreover, especially for-profit corporations with a track record of complete failure. If these companies were to fairly judge themselves, they would sink.
The good thing about markets, freedom, and liberty, though, is that ideas are allowed to flourish and hopefully bring about positive change. Some come in the form of new businesses, others come in the form of goodwill, but both provide welcomed non-governmental solutions.
Annette Heuser is executive director and founder of the Washington, D.C. office of the Bertelsmann Foundation, a private, non-partisan operational foundation, where she has created a blueprint for an international non-profit credit rating agency, INCRA, which would conduct unsolicited foreign risk assessments and redefine sovereign ratings as public goods. According to Ms. Heuser, this would ensure transparency in the rating process and eliminate potential conflicts of interest.
It sounds like real “change we can believe in” and wish them all the best. We also hope that at some point they dive into the dark, murky world of investment vehicles and derivatives before the next financial crisis rips the global economy apart again. While this might sound a bit harsh, when you continue to swim with sharks (even after they’ve torn into you), expecting anything other than similar results is, well, insane.
For more on this subject and INCRA, give Ms. Heuser 10 minutes of your time.