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  • Almost two years ago,

  • I was driving in my car in Germany,

  • and I turned on the radio.

  • Europe at the time was in the middle

  • of the Euro crisis,

  • and all the headlines were about European countries

  • getting downgraded by rating agencies

  • in the United States.

  • I listened and thought to myself,

  • "What are these rating agencies,

  • and why is everybody so upset about their work?"

  • Well, if you were sitting

  • next to me in the car that day

  • and would have told me that I would devote

  • the next years to trying to reform them,

  • obviously I would have called you crazy.

  • But guess what's really crazy:

  • the way these rating agencies are run.

  • And I would like to explain to you

  • not only why it's time to change this,

  • but also how we can do it.

  • So let me tell you a little bit

  • about what rating agencies really do.

  • As you would read a car magazine

  • before purchasing a new car

  • or taking a look at a product review

  • before deciding which kind of tablet or phone to get,

  • investors are reading ratings

  • before they decide in which kind of product

  • they are investing their money.

  • A rating can range from a so-called AAA,

  • which means it's a top-performing product,

  • and it can go down to the level

  • of the so-called BBB-,

  • which means it's a fairly risky investment.

  • Rating agencies are rating companies.

  • They are rating banks.

  • They are rating even financial products

  • like the infamous mortgage-backed securities.

  • But they can also rate countries,

  • and these ratings are called sovereign ratings,

  • and I would like to focus in particular

  • on these sovereign ratings.

  • And I can tell, as you're listening to me right now,

  • you're thinking,

  • so why should I really care about this, right?

  • Be honest.

  • Well, ratings affect you.

  • They affect all of us.

  • If a rating agency rates a country,

  • it basically assesses and evaluates

  • a country's debt

  • and the ability and willingness of a country

  • to repay its debt.

  • So if a country gets downgraded by a rating agency,

  • the country has to pay more

  • in order to borrow money

  • on the international markets.

  • So it affects you as a citizen and as a taxpayer,

  • because you and your fellow countrymen

  • have to pony up more in order to borrow.

  • But what if a country can't afford to pay more

  • because it's maybe too expensive?

  • Well, then the country has less available

  • for other services, like roads, schools, healthcare.

  • And this is the reason why you should care,

  • because sovereign ratings affect everyone.

  • And that is the reason why I believe

  • they should be defined as public goods.

  • They should be transparent, accessible,

  • and available to everyone at no cost.

  • But here's the situation:

  • the rating agency market is dominated

  • by three players and three players only --

  • Standard & Poor's, Moody's, and Fitch --

  • and we know whenever there is a market concentration,

  • there is really no competition.

  • There is no incentive to improve

  • the quality of your product.

  • And let's face it, the credit rating agencies have contributed,

  • putting the global economy on the brink,

  • and yet they have to change the way they operate.

  • The second point,

  • would you really buy a car

  • just based on the advice of the dealer?

  • Obviously not, right? That would be irresponsible.

  • But that's actually what's going on

  • in the rating agency sector every single day.

  • The customers of these rating agencies,

  • like countries or companies,

  • they are paying for their own ratings,

  • and obviously this is creating

  • a conflict of interest.

  • The third point is,

  • the rating agencies are not really telling us

  • how they are coming up with their ratings,

  • but in this day and age,

  • you can't even sell a candy bar

  • without listing everything that's inside.

  • But for ratings, a crucial element of our economy,

  • we really do not know

  • what all the different ingredients are.

  • We are allowing the rating agencies

  • to be intransparent about their work,

  • and we need to change this.

  • I think there is no doubt that the sector

  • needs a complete overhaul,

  • not just a trimming at the margins.

  • I think it's time for a bold move.

  • I think it's time to upgrade the system.

  • And this is why we at the Bertelsmann Foundation

  • have invested a lot of time and effort

  • thinking about an alternative for the sector.

  • And we have developed the first model

  • for a nonprofit rating agency for sovereign risk,

  • and we call it by its acronym, INCRA.

  • INCRA would make a difference

  • to the current system

  • by adding another nonprofit player to the mix.

  • It would be based on a nonprofit model

  • that would be based on a sustainable endowment.

  • The endowment would create income

  • that would allow us to run the operation,

  • to run the rating agency,

  • and it would also allow us

  • to make our ratings publicly available.

  • But this is not enough to make a difference, right?

  • INCRA would also be based on

  • a very, very clear governance structure

  • that would avoid any conflict of interest,

  • and it would include many stakeholders from society.

  • INCRA would not only be a European

  • or an American rating agency,

  • it would be a truly international one,

  • in which, in particular, the emerging economies

  • would have an equal interest, voice and representation.

  • The second big difference that INCRA would make is

  • that would it base its sovereign risk assessment

  • on a broader set of indicators.

  • Think about it that way.

  • If we conduct a sovereign rating,

  • we basically take a look at

  • the economic soil of a country,

  • its macroeconomic fundamentals.

  • But we also have to ask the question,

  • who is cultivating the economic soil

  • of a country, right?

  • Well, a country has many gardeners,

  • and one of them is the government,

  • so we have to ask the question,

  • how is a country governed?

  • How is it managed?

  • And this is the reason why we have developed

  • what we call forward-looking indicators.

  • These are indicators that give you

  • a much better read about

  • the socioeconomic development of a country.

  • I hope you would agree it's important for you to know

  • if your government is willing to invest in renewable energy and education.

  • It's important for you to know

  • if the government of your country

  • is able to manage a crisis,

  • if the government is finally able to implement

  • the reforms that it's promised.

  • For example, if INCRA would rate

  • South Africa right now,

  • of course we would take a very, very close look

  • at the youth unemployment of the country,

  • the highest in the world.

  • If over 70 percent of a country's population

  • under the age of 35 is unemployed,

  • of course this has a huge impact on the economy

  • today and even more so in the future.

  • Well, our friends at Moody's,

  • Standard & Poor's, and Fitch will tell us

  • we would take this into account as well.

  • But guess what? We do not know

  • exactly how they will take this into account.

  • And this leads me to the third big difference

  • that INCRA would make.

  • INCRA would not only release its ratings

  • but it would also release its indicators

  • and methodology.

  • So in contrast to the current system,

  • INCRA would be fully transparent.

  • So in a nutshell,

  • INCRA would offer an alternative

  • to the current system of the big three rating agencies

  • by adding a new, nonprofit player to the mix

  • that would increase the competition,

  • it would increase the transparency of the sector,

  • and it would also increase the quality.

  • I can tell that sovereign ratings

  • may still look to you like this very small piece

  • of this very complex global financial world,

  • but I tell you it's a very important one,

  • and a very important one to fix,

  • because sovereign ratings affect all of us,

  • and they should be addressed and should be defined

  • as public goods.

  • And this is why we are testing our model right now,

  • and why we are trying to find out if it can

  • bring together a group of able and willing actors

  • to bring INCRA to life.

  • I truly believe building up INCRA

  • is in everyone's interest,

  • and that we have the unique opportunity right now

  • to turn INCRA into a cornerstone

  • of a new, more inclusive financial system.

  • Because for way too long,

  • we have left the big financial players on their own.

  • It's time to give them some company.

  • Thank you.

  • (Applause)

Almost two years ago,

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B1 US TED rating sovereign country agency nonprofit

【TED】Annette Heuser: The 3 agencies with the power to make or break economies (Annette Heuser: The 3 agencies with the power to make or break economies)

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    CUChou posted on 2015/07/02
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