Paul Krugman: Ratings Disaster


Ratings Disaster, by Paul Krugman, in NY TimesJonathan Portes has a righteous rant about Eurocrats talking to the wrong people — namely, rating agencies:

These agencies have repeatedly been proved wrong; they have flawed and frequently conflicted business models; and their ratings have no predictive power. All this is well established. Moreover, when it comes to assessing sovereign debt “credit risk” they – and I mean this quite literally – do not know what they are talking about. By that, I mean they quite simply don’t understand what they themselves are saying.

And he directs us to a blog post making that case very effectively.

Obviously I share that view. We saw very dramatically what the rating agencies are worth when S&P downgraded America — nothing. Bond yields actually fell.

The point is that while maybe, maybe, S&P or Moody’s or Fitch know something about corporate debt, they know less than any competent macroeconomist about sovereign debt.

In other news, great results from European austerity:

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