After the collapse of the Wall Street investment banks in 2008, the weaknesses of the capitalist system are being routinely unearthed by independent analysts and researchers. The latest to get exposed and come under fire is the trustworthiness of America's elite global credit rating agencies such as Moody's and Standard & Poor's. Until recently, no one would dare question the integrity of Moody's and S&P's. The two also offer sovereign ratings or country rating, which act as an international lenders' bible. Even the World Bank and the International Monetary Fund (IMF) won't question these ratings. But, not any longer. Their dominance is being challenged by public investigation agencies in the US. Their independence and accuracy are being openly questioned. Corporate America, it seems, has never faced such a crisis of confidence.

Even the Berkshire Hathaway boss, octogenarian Warren Buffet, the world's richest man and the shrewdest investor, feels that Moody's model is no longer bulletproof. He has been reducing stake in Moody's Corporation for many months. Both Moody's and S&P's are now facing investigation by the US Financial Crisis Inquiry Commission (USFCIC) with regard to their role in contributing to the collapse of housing mortgage. The credit rating agencies had assigned top grades to many of the mortgage-related securities, which had subsequently lost their glean. According to the USFCIC chairman, Phil Angelides, Moody's ratings were bordering on fraudulence and had little use to the marketplace. Both Moody's and S&P's had reportedly benefitted in the process as the borrowers had no choice but to go to them for credit ratings and investors could hardly doubt about the trustworthiness of such ratings.

Every time a revelation of this nature comes in, the investor confidence in corporate numbers receives a new set-back. The down-turn of the domestic automobile industry, a US growth engine, the slow recovery of the banking and housing infrastructure sectors coupled with the huge government borrowing and the high rate of unemployment have already been a major public concern. Every 10th American is unemployed today. On top of it, the regular stories about corporate fraud have shaken the morale of retail investors who depend heavily on the performance of the Wall Street and Nasdaq. Stock indices and net asset value (NAV) of mutual funds are very important in American life. They concern all, from Buffets and Bill Gates to those poor wage earners living in Brooklyn and Bronx. Naturally, there is a growing public demand for state intervention and stronger regulatory control. The recent events in Europe, the economic collapse of Greece under public debt burden, and weakness in several other economies such as Hungary, which has already gone bankrupt, Spain, Portugal, Venezuela, Mexico, Colombia and Chile are further strengthening the demand for a greater role of the American state to arrest corporate fraud.

Incidentally, hands of investing agencies of key corporate regulatory bodies such as the Securities & Exchange Commission (SEC) are full. Investigations are slowing down as the number of cases and complaints are piling up. The slow progress of the investigation into the $65-billion Ponzi fraud case is demoralizing the complainants. The SEC, which is investigating into the Ponzi case, is now contemplating to sue Moody's for filing false and misleading descriptions of its credit rating policies. Free and fair competition, trust in corporate financial statements and auditors' report in bank and corporate balance sheets are essential ingredients to the success of the capitalist system. Paradoxically, these capitalist values are increasingly falling victim to greed of Wall Street firms in corporate America. Last May, the US Senate approved a plan to allow regulators, instead of bond issuers, to choose credit rating agencies for asset-backed securities.

Ironically, both Moody's and S&P's have a vice-like grip over India's fast growing credit rating services market. Thanks to the country's economic reform, the US giants, which entered the Indian market as small minority partners of IDBI-promoted ICRA and ICICI-promoted Crisil only to gobble them up later, control about 90 per cent of the credit rating business in India. Their integrity has never been questioned despite the fact several of their clients with high credit ratings did not live up to investors' expectations. Are their credit ratings or equity-gradings and valuations influenced by the amounts of fees the clients agree to pay for the services? Few outside the concerned contracting parties would for sure know this.

Yet, the good thing about the American society is it is active, conscious and constructively critical about its own system. It is constantly correcting itself for the well-being of at least the American people. The fraud is condemned and rigorously punished in the US. The legal system treats all fraudsters - the richy-rich or the poor — with equal contempt. More corporate CEOs get jailed in America than those in other parts of the world. Non-executive chairmen are not spared for corporate fraud. It is although another matter that no amount of punishment and legal reform has been able to contain corporate fraud, which continues to be on the rise in the US. Also, the American lession has not turned the US originated multinational companies any wiser when it comes to their doing business in other parts of the world. Many of these US MNCs are notorious for practicing different standards for different host countries and even get away with blue murder as it happened in the case of Union Carbide's deadly EOU in Bhopal, over a quarter of a century ago. While the global US company's chairman, Warren Anderson, had gone scot free ever since, the then non-executive chairman of Union Carbide India, a business tycoon and one of Mumbai's most respected citizens, too is living with only a semblance of punishment. (IPA Service)