The chairman of India-based outsourcing giant Satyam, which has done work for a third of Fortune 500 companies, has confessed to a massive accounting fraud. He wrote that he had overreported profits and underreported liabilities until the fraud became “unmanageable.” So why is this bad for us?

The problem is that US-based PricewaterhouseCoopers was Satyam’s auditor, and “there is no indication that [the fraud] was detected by [PwC’s auditors,” the Journal reported today. “It’s kind of hard to miss $1 billion of cash,” former Financial Accounting Standards Board head told the paper.

Satyam probably hired PwC because it figured that a big-name American auditor would give it credibility with western investors. But as with much else to do with the western world of finance lately, it’s hard to see what the expensive westerners and their local affiliates contributed in value.

So as India and other “developing” nations inevitably recover from the current global financial crisis, they may be even more likely to use their own and formerly expat talent to build up their own domestic markets and support services like auditors and the like — further decreasing the chances of New York and London to recover their primacy at the top of the capital-markets world.