Last week, the Chinese credit rating agency, Dagong Global, stole the spotlight by announcing an embarrassing rating score for western superpower sovereigns. previously perceived as triple A counterparties [UK, France (AA-) and Belgium, Spain, Italy (A- )]. Noticeably, Dagong ranked US (AA with negative outlook) below China, Canada, Australia and Saudi Arabia (AA+). With 10years Treasuries yielding around 3%, this is the first time that US loose its safe haven trademark.
This is the first time that someone is trying to officially dispute the credibility of the big three (S&P, Moody’s, Fitch) and comes amid complaints by Chinese officials that Western credit agencies artificially boost China’s borrowing costs by not properly measuring country’s growth perspectives. Note that the announcement took place at the headquarters of the Xinhua News Agency, which is controlled by Communist Party. The international news agencies taunt Dagong’s report, emphasizing the fact that those ratings had no impact on the real markets. A new kind of economic war is emerging and this time the conflicts of interest are more than apparent.
There is no doubt that diversity of opinion is more than welcomed but transparency is of paramount importance as well. Lack of transparency will have as a results weak links like Greece to continue facing speculative attacks. An open source approach may be a solution on the right direction, but crowd sourcing is not always the panacea. Bond analytics is a highly intellectual discipline and delegating sovereign analysis to the masses may not be successful. Recall that contrary to “click as you go” websites (Foursquare, IMBD, Yelp), none of the sophisticated open source projects (Wikipedia, Joomla etc) are 100% open to the masses. Those models apply an intellectual filtering to identify those users/ inputs that will add some real value to the project. In order to be successful, an open source initiative should find the compensation model that will attract this intellectual elite. Professional fame (ideally a must have for your CV?) and moral satisfaction (defending your home country’s reputation) may be 2 possible candidates.
I am of the opinion that the Greek government should address to the aforementioned talent pool by an open source initiative in order to find those allies that will defend Greece’s reputation in the new economic war. Giving all the necessary data (opengov statistics) is definitely a first step but creating the right framework (through academia, forums etc) is also necessary. Last but not least, independence is another essential ingredient otherwise such an initiative will have the same outcome of Dagong Global: indifference.
Lacking control of influential news and credit agencies, Greece should address to charismatic masses to improve its reputation. Improving its statistics is not sufficient.
ps I wonder whether there will be a day when analysts will use Chinese yields as a proxy of risk free rate.
