Saturday, 06 February 2016 / TRUTH-OUT.ORG
  • Why Ted Cruz Won Iowa

    While the attention of political pundits has already moved on to next week's New Hampshire primary, the outcome in Iowa provides an interesting preview of the road ahead. Cruz's win provides a clearer picture of GOP voters.

  • Who's Afraid of the Big Bad Roosh?

    Kelly Hayes of Truthout: "I am not afraid of Roosh Valizadeh. Because to me, he is not the face of rape. I am afraid because most of the women I know who have survived assault have not been abused by blustering creeps like Roosh."

NEVER MISS ANOTHER STORY

Truthout can deliver investigative journalism to your inbox every day, with no ads or sponsored content - ever.

Keep up to date by subscribing to our daily newsletter!

Optional Member Code

S&P Ratings Destroy Information

Wednesday, 10 August 2011 06:32 By James Kwak, The Baseline Scenario | Op-Ed

A lot of the theory of securities markets revolves around information: securities prices respond to changes in available information, you want to provide incentives for people to produce information, some kinds of information should be equally available to everyone, other kinds of information you should be able to trade on, etc. In the conventional model, rating agencies are information providers: they produce information that is useful to market participants, and thereby improve the functioning of the markets.

Well, forget all that. Nate Silver has the best article I've seen yet on S&P's sovereign debt ratings, and the summary is that it isn't pretty. Some of the things Silver finds, using some publicly available data and Stata, are:

  • Debt-to-GDP ratio alone is a better predictor of default risk than an S&P rating (meaning that the rating subtracts information provided by the debt-to-GDP ratio).
  • S&P ratings have almost no correlation with future default risk.
  • S&P rates European countries higher than other countries, all other things being equal—and look where that got us.
  • S&P ratings are serially correlated, which means they incorporate new information especially slowly.
Hopefully this will be one more nail in the coffin of regulations that incorporate NRSRO ratings.

Hide Comments

blog comments powered by Disqus
GET DAILY TRUTHOUT UPDATES
Optional Member Code

FOLLOW togtorsstottofb


S&P Ratings Destroy Information

Wednesday, 10 August 2011 06:32 By James Kwak, The Baseline Scenario | Op-Ed

A lot of the theory of securities markets revolves around information: securities prices respond to changes in available information, you want to provide incentives for people to produce information, some kinds of information should be equally available to everyone, other kinds of information you should be able to trade on, etc. In the conventional model, rating agencies are information providers: they produce information that is useful to market participants, and thereby improve the functioning of the markets.

Well, forget all that. Nate Silver has the best article I've seen yet on S&P's sovereign debt ratings, and the summary is that it isn't pretty. Some of the things Silver finds, using some publicly available data and Stata, are:

  • Debt-to-GDP ratio alone is a better predictor of default risk than an S&P rating (meaning that the rating subtracts information provided by the debt-to-GDP ratio).
  • S&P ratings have almost no correlation with future default risk.
  • S&P rates European countries higher than other countries, all other things being equal—and look where that got us.
  • S&P ratings are serially correlated, which means they incorporate new information especially slowly.
Hopefully this will be one more nail in the coffin of regulations that incorporate NRSRO ratings.

Hide Comments

blog comments powered by Disqus