Who Chooses the World’s Economic Winners and Losers?

A late January 2020 report by Transparency International was released, grading national corruption across the globe. The report more than rankled a few feathers despite being overshadowed by the coverage of the Wuhan Flu which hit Asia earlier this year. Nigeria was among those nations whose rankings had slipped, even under the aggressive anti-corruption policies of the Buhari regime. But The Transparency International report is one of many compilations released by self-appointed ranking institutions grading governments, economies and populations around the world.

But how well can we trust those reports and the institutions which undergird them? Are ranking, and watchdog NGOs and companies influenced by the countries and constituencies from which they are based (much like the U.S. Has suggested with China owned tech companies?). In an ever increasing age of information, once again, we are compelled as business owners, entrepreneurs, careerists and professionals to delve deeper into the state of affairs of the world’s top ranking and watchdog institutions. Transparency International, which released the corruption ranking is based in Berlin, Germany, a NATO and European Union member state.

During the aftermath of the 2008 financial Crisis, ranking institutions came under scrutiny during the Obama administration. In August of 2011, New York based, Standard & Poor’s downgraded the United State’s AAA credit rating to AA+ in the world. The move was unprecedented. The downgrade came in the wake of the 2011 U.S. Congressional budget contest to raise the federal budget ceiling (a practice done almost annually) to ensure domestic and international financial obligations are met. The move was criticized on a bipartisan level, and in February of 2013 the U.S. Justice Department launched and investigation and filed and won a civil lawsuit against Standard and Poor, regarding its stamp of approval on bad mortgage loan instruments leading to 2018 financial crisis.

The according to the official 2011 release from the U.S. Department of Justice , it levied the “lawsuit against the credit rating agency Standard & Poor’s Ratings Services alleging that S&P engaged in a scheme to defraud investors in structured financial products known as Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations (CDOs). The lawsuit alleges that investors, many of them federally insured financial institutions, lost billions of dollars on CDOs for which S&P issued inflated ratings that misrepresented the securities’ true credit risks. The complaint also alleges that S&P falsely represented that its ratings were objective, independent, and uninfluenced by S&P’s relationships with investment banks when, in actuality, S&P’s desire for increased revenue and market share led it to favor the interests of these banks over investors.”

At the time, lawmakers and pundits alleged that the Standard and Poor’s U.S. downgrade was politically motivated by the internal mechanizations of its parent company, Mc Graw Hill. Regardless, the downgrade and subsequent lawsuit brought greater attention to the processes and people running the world’s credit ranking institutions. They often assign grades and rankings to sovereign debt which impact the creditworthiness of nations around the world. Understanding how and why credit agencies rate nations, people and businesses and whether those decisions are actually accurate are of great importance to world business.

Even on the domestic level, Americans are levied with financial rankings by companies that collect sensitive personal data as well. There is then the question of not only legitimacy but legality for unauthorized private/public corporations assessing and collecting individual data. Businesses and companies around the world must be adequately aware of how these assessments affect them. The current foreign exchange also reflects similar issues with currency valuation, making the growth of some nations impossible. Could current situations be remedied with more expansive valuation institutions based and sourced from diverse regions, nations and perspectives.

As businesses, nations and individuals being judged by such institutions, it is imperative to understand the methods, processes and origins of ranking institutions and their initial mission. It is imperative to dissect the information and understand the executive and board structures to determine whether to accept or reject the ranking. The U.S. Federal government is a principle example of a nation rejecting the findings of an established organization.

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