No Need To Idolize Moody’s Ratings

Moody’s, a renowned international credit rating agency, announced it was leaving the Russian market on March 9. Just five days earlier, Moody’s placed Russia’s Ba1 rating on review for downgrade. Moody’s departure will only further isolate Russia.

Moody’s has been very vocal for a while in the international financial market. Recently, Moody’s ranked Chinese government bonds at Aa3, while changing its outlook from stable to negative, creating great controversy. The other two global rating agencies, Fitch and Standard & Poor’s, kept their ratings the same. This author believes that Moody’s attacks on China and Russia have only exposed the unspoken rules of international credit markets.

One: A high degree of monopoly. The three agencies, including Moody’s, have monopolized 96 percent of global financial ratings so other rating agencies cannot effectively counterbalance their influence. The three big agencies use their ratings to praise or denigrate other countries and economic bodies, creating a man-made capital funding difference and causing some organizations to privately benefit.

Two: Unpredictability. In 1998, during the Asian financial crisis, to everyone’s surprise Moody’s lowered South Korea’s rating by more than 10 levels, further exacerbating South Korea’s crisis.

Three: A double standard. When America was in a bubble economy with the “Internet of Things,”* although Moody’s and the other agencies knew, they did not alert people to Enron and other fraudulent American companies. The different standards that Moody’s and other rating agencies have used in recent years have earned them the criticism of holding double standards and being unfair.

Four: Forced buying and selling. Moody’s once bullied a German insurance giant, Hannover Re, by offering free rating services and seeking future paid services. When Hannover Re refused, Moody’s rated the company anyway and kept the rating very low for two years in a row. And Hannover Re continued refusing to pay. In 2003, Moody’s suddenly downgraded Hannover Re to the lowest rating, causing a massive stock dump and forcing the company to sign a contract with Moody’s and accept its rating services.

Moody’s has made its ratings system into an ideology lacking in fairness, and has imposed its undesirable influence on some countries. Fortunately, people have realized the agency’s true character. Plato once said, “And all knowledge, when separated from justice and virtue, is seen to be cunning and not wisdom.” After all, the world does not belong to a few people, it belongs to everyone.

The author is a senior researcher at the Chongyang Institute for Financial Studies at Renmin University of China.

*Editor’s note: The “Internet of Things” refers to a network of physical objects embedded with electronics, software, sensors and network connectivity that enables these objects to collect and exchange data.