The political economy of credit rating agencies: American short-termist universalism, Europe’s acquiescence, and East Asia’s resistance

Sinclair’s pioneering works have inspired many studies on credit rating agencies (CRAs). This chapter draws on his argument on social foundations and market-centred approaches and discusses key agendas for American and local CRAs. The big three CRAs have not only played a critical role in global financialization and financial governance but also contributed to the Asian and global financial crises. First, by highlighting financial and technological innovations (e.g. securitization and algorithmization), we explain what transformed the American CRAs from conservative financial gatekeepers to short-term profit maximisers disseminating short-termist universalism. The American CRAs’ short-termism and financial crises have led to different reactions in Europe and East Asia. Europe has long acquiesced to the American credit rating system, despite sporadic criticism. In the early 2010s, the project of a Europe-wide CRA to defend European sovereign credit ratings failed because of the robust triopoly of the American agencies and the new key role played by the European Central Bank. In contrast, Japan, South Korea, and China established local CRAs to counter the American CRAs because East Asian elites viewed the risks of market failure as larger than those of government failure, prioritised socio-political stability, and wanted to restrict the influence of American CRAs.