I have taken out this article from the special section called Student's Coner from the Daily newspaper of South Korea : The times of Korea.
The global economic crisis caused by the European debt crisis is sweeping through the world. Some economists say that this year’s economic crisis is even more serious than the Great Depression which hit the United States 70 years ago.
In the center of the latest financial crisis was a huge force that dominated the global economy; credit assessment firms.
Moody’s, S&P and Fitch, the so-called “three major credit rating firms,” have wielded strong power by rating the credit level of firms and governments since the 1950s.
Then, why do we call them the “beneficiaries of the crisis?” This is because it is the best situation for them to strengthen their power.
During the economic crisis, anxiety dominates investors’ minds and makes them depend on “comparatively reliable” information. Of course, they think the most reliable source of information comes from credit assessment firms.
Thus, the poor credit level rated by credit assessment firms leads to a lower preference of investors and increases bond premiums of companies and governments.
However, the problem is that many economists, companies and governments insist credit assessment firms are “abusing” their power.
For example, the U.S. experienced a conflict with S&P because of its degraded credit level and the government there insisted that S&P provided wrong information based on false data to investors.
Warren Buffett said that nobody gave the right to assess the credit levels of countries to credit assessment firms. For this reason, many countries are trying to escape from the range of power of these firms.
The EU is planning to establish its own credit rating institution to prevent their credit level being rated by rating firms on Wall Street. Major countries in the eurozone agreed to refuse to be assessed by American firms. China is also planning to found its own national credit assessment firm.
Some economists claim that Korea should also establish its own credit rating firm to make its economy more stable and free from the strong influence of the U.S. credit assessment companies.
But to be honest, the financial market in Korea is still small in scale.
Although Korea can found its own rating company, it will be hard to be free from the influence of Wall Street due to its smaller scale and weaker power.
Korea needs different solutions. To keep its economy stable and independent from other countries, it has to be free from the strong influence of Wall Street.
Though it’s hard to find a perfect answer for this problem, I’d like to suggest one solution, which is to establish a credit assessment firm in East Asia which consists of China, Korea and Japan.
If they create a credit assessment company, it will have a greater power; meaning that it will be much more competitive than credit assessment firms created by each country.
The Korean government plans to support establishing and running its first hedge fund as part of moves to promote the sovereign power of the Korean economy by making financial firms here as competitive as investment banks in the U.S.
But I think, the most important thing to do to promote the sovereign power of the Korean economy is to be able to assess our own credit level fairly; and of course one of the best ways of doing this is to establish a credit assessment firm for East Asia.