Hidden Agenda of the SEC

I recently watched an interview where the guest said, “Don’t pay attention to what the Chinese are saying and pay attention to what they are doing”. The Chinese credit rating agency, Dagong, is an action not actually posturing. The Chinese have been trying to leverage themselves into a dominant global currency for some time now, unlike western countries; the Chinese are very patient (http://dennishodgson.blogspot.com/search/label/china).


The Dagong rating agency is being purposely kept under wraps. The SEC is a government agency that regulates publically traded companies for the US and the world. Since the US is where everyone wants to do business, we have a lot of foreign investors in the US, so in essence we regulate the world. In 2006 congress passed a reform bill because of the scandals on Wall Street with the collapse of the US housing market. If anyone has ever had to comply with any government regulation in the last few years, you would realize the amount of red tape and paper work required to comply.

I recently worked for a publicly traded company in the IT department. I spent 1 week of every month just putting together all the necessary paperwork required to be compliant with the Sarbanes Oxley act. This act strips all companies of their independence and also puts the government in a position to where if they were to do a hostile takeover, with the compliance regulations of SOX, they could run your company without anyone even noticing. Also, the SEC has the ability to seize assets of companies just for suspicion of wrong doing, put the assets in a Swiss bank account, and when your name is cleared give everything back to you after 5 years of investigation while keeping the interest gained over the 5 years. So, you can see my hostility towards the SEC, but I can also be unbiased to an extent.

If you were to ask the SEC about why they turned down the Dagong credit rating agency, they will tell you that “…because the agency said it couldn’t reliably ensure that the Beijing company would comply with U.S. reporting rules.” What measure did they use to determine this? I think this could be major politicizing because of the threat that Dagong poses to the big 3 ratings agencies and the US. The Dagong Company threatens to change the way things are done in the US and in the Bond Market.

If you ask the Dagong company why they were denied they would tell you that China’s regulatory agencies are willing to resolve any cross border dispute the US has because China’s regulatory agencies do not see this as a violation of national sovereignty, The US has never tried to resolve any cross border regulatory dispute, and that they were willing to follow SEC regulations. Dagong has also cited that the US has asked to enter the Chinese market, which they were allowed to, and have occupied 2/3 of the Chinese market.

I see both sides politicizing this issue to its fullest extent. The US would have to admit fault in their rating system if they let the Dagong Company in and China is whining, with some good reason, about not being able to receive equal treatment in their eyes.

So, what’s really going on here? China is making an action to reform the way the globe does its ratings of countries. What does this mean for the US? We would lose our AAA credit rating, this would force us to be responsible, and this could give emerging countries a hand up on the US. Currently the big 3 S&P, Flitch, and Moody’s are the dominant ratings agencies in the world. The way they rate countries is on borrowing ability. With the US having the largest economy in the world we would have to have a major recession worse than the great depression in order to be downgraded. On the other hand the Dagong Company wants to change the game by rating countries based upon income to debt along with other factors, but income to debt is the main change here. With the US reaching now 94% debt to GDP this would slow down our borrowing ability and possibly shut down the government. In other words we would have a hard time paying our bills without the Fed doing QE1 and QE2 type of lending. This would force us to monetize our debt and possibly collapse our system. This isn’t all doom and gloom though. With an A+ rating we’re still in decent shape, but we’d be paying a higher interest rate on loans which would cause us not to borrow as much which would cause us to start becoming more fiscally responsible. On the other hand if we don’t heed these warning by our credit rating dropping then we’ll continue on our destructive path and eventually the gravy train will be over.

The likelihood of the Dagong company becoming globally recognized is close to nil. As far as our credit rating, we have nothing to worry about. What about the long term effects though? If the big 3 refuse to hold the US accountable or change the way they rate countries we’re definitely heading down the road to self-destruction. A friend I’ve been talking to said that China has a completely untapped market inside their country. If the Chinese decide to pull out of the global market as much as possible and just develop within their country, this could be bad for business here in the US. China could very well become the biggest economy in the world due to the sheer population, but this would take at least one generation to do. There’s really no telling what could happen except that US consumers would be competing with Chinese consumers to be able to sustain the lifestyle we currently have.

In conclusion, I would say the SEC made a big mistake in refusing the Chinese Dagong credit rating agency. Either the SEC is a bunch of elitist government officials or they did the right thing, but we may never know for sure. I will say that although China is a Communist country, they have a good idea and would possibly reduce the risk of global catastrophe. Right now the US is heading down a bad path and could very well end up on its head because those agencies entrusted to keep us safe and secure are actually causing the problem. This is just another thing to think about and say, maybe we should really look at this. It is always in China’s best interest for the US to remain the global exchange currency and to have a strong dollar because they reap the benefits of jobs and an export surplus, so don’t always think that they are our enemy, they are acting in their best interest which at this point happens to be our best interest as well.

Sources:

http://blogs.wsj.com/marketbeat/2010/11/11/chinese-rater-us-downgrade-us-as-creditworthy-as-costco/

http://www.youtube.com/watch?v=UDRZRSZ7GX4

http://dailyreckoning.com/chinas-dagong-credit-rating-agency-steamed-over-nrsro-delay/

http://finance.fortune.cnn.com/2010/07/28/chinas-dagong-says-u-s-rejects-it/

http://www.dagongcredit.com/dagongweb/english/pr/show.php?id=78&table=web_e_zxzx  http://en.wikipedia.org/wiki/Nationally_Recognized_Statistical_Rating_Organization#Credit_Rating_Agency_Reform_Act_of_2006

http://www.sec.gov/rules/final/2007/34-55857.pdf

http://www.zerohedge.com/article/sec-denies-chinas-dagong-market-entry-after-us-debt-downgrade

http://www.sec.gov/litigation/opinions/2010/34-62968.pdf

The shot never heard 'round the world

I think we have a new shot heard around the world, but it’s being silenced so that everyone will keep confidence. There’s a story that has been pushed to the back page and bottom of the pile. You would have to really search or like I did stumble upon it. In my article “Federal Reserve Bankrupting America” you will see the beginning. In 1997 China created its own global credit rating agency called the Dagong. Since China is an emerging power and smart investor, they needed a system that would put their views to the world out in the open.


On July 13th of this year Reuters reported that the Chinese Dagong credit rating agency downgraded the US credit rating from AAA to AA. Since the Dagong is not globally recognized as a credit rating agency this was pushed to the back of the news. No one in the news reported this or even made mention of this. Not even Wall Street has paid attention to this.

In September of this year the Chinese Dagong credit rating agency applied to the SEC to become a globally recognized credit rating agency. The SEC due to regulation created as soon as the Democrats came into power in 2007, the Dagong was denied entry. This is where I start to smell a rat. The big 3 credit rating agencies still give the US dollar an AAA rating although the Chinese and the rest of the world are starting to lose confidence, especially after we’ve spent almost $6 trillion in the last 4 years under the Pelosi Speakership. The rest of the world has been warning us for some time that our debt is undermining the value of the US Dollar. The biggest red flag for me is that the big 3 credit rating agencies Moody’s, S&P, and Fitch still keep the US credit rating at AAA. Is there a reason for this, and what are the regulations that are preventing a major and emerging global lender from having any real input in the world market as far as credit ratings?

On November 9th of this year the Chinese Dagong credit rating agency lowered the US credit rating again from AA to A+. Have we heard anything about this, the answer is no. Will we hear about this, the answer is still no. Is the rest of the world paying attention, probably not. This rating change could be seen as political in nature considering the US has been devaluing the dollar to force revaluation of the Chinese Yuen. This could also be the signal to the US that we need to start paying off our debt and really acting like a responsible adult instead of a spoiled kid with an endless credit card.

As long as the Dagong credit rating agency is being kept under wraps we’re just heading towards another bubble. Could this bubble be the straw that breaks the camel’s back? Although the big 3 are telling the rest of the world that the US dollar is strong, this could be disastrous. China’s Dagong may actually be a fair credit rating agency, although it is being controlled somewhat by the state. The Chinese are a different culture than the rest of the world, so we just don’t understand that Chinese investors are more likely to listen to the Dagong credit rating agency before they listen to any US based credit rating agency. This could very well be what Glenn Beck was talking about when he said “China may stop buying US Bonds” on his November 5th show on FNC. If the Chinese investor decides to follow the Dagong credit ratings instead of the big 3 given to us by a US government agency the SEC, this could very well get ugly soon. If the US does not heed these warnings we are at the peak of a very ugly road.

My final thoughts will be short and simple. There’s a rat, I can smell it. Why does the Federal government get to use double standards on everything? We complain about the Chinese undervaluing their currency, but then we do something like QE2? Why do we get to choose who we recognize to rate our credit and use a government agency to prop up a failing dollar, but we refuse to acknowledge the truth. This is just the tip of the iceberg. I will be researching the rest of the weekend and come out with an expose on these regulations that favor the US and could possibly be our demise and I also want to know why the Degong has lowered the US credit ratings to see what other motives there are. I personally think that they’re right on target, but there could be more to it. Please tune in on Monday and I will have even more information to this big puzzle while we watch our dollar collapse.



Sources:

http://online.wsj.com/article/SB10001424052748704082104575515470951666514.html

http://ftalphaville.ft.com/blog/2010/09/27/353781/dagong-fires-back/

http://seekingalpha.com/instablog/679135-sun-kai/84377-china-s-new-credit-rating-agency-trouble-for-the-big-three

http://www.bloomberg.com/news/2010-11-09/china-s-dagong-downgrades-u-s-to-a-on-quantitative-easing-xinhua-says.html