Nate Silver is a world-class statistician who started FiveThirtyEight.com and was immediately heralded as a genius during the 2008 elections. The New York Times began publishing Silver’s blog in a deal made last year.
So, for Silver to crunch some numbers and come up with statements like, “Five years ago, if you were an investor looking for guidance on which country’s debt was the safest to invest in, Standard & Poor’s ratings wouldn’t have done much to help you navigate the headwinds of the financial crisis,” and the data “suggests that S.&P. is making a lot of judgment calls about countries they have no particular knowledge about,” is rather embarrassing for Standard and Poor’s.
Silver continues, with, “Keep in mind that even when it comes to the United States, S.&P. made a $2 trillion error that reflects their lack of understanding of the way that bills are scored by the Congressional Budget Office. Are we to expect that they add value based on their perceptions of the political climate in Kazakhstan, or Cyprus, or Uganda?”
More:
“None of this would be a problem if S.&P.’s ratings had performed well. But there is little evidence that they do.”
“S.&P.’s bond ratings from five years ago would have told you almost nothing about the risk of a default today. They had no insight about the threats in European markets, nor about which countries in Europe were relatively more likely to default,” and, “they are violating their mission of providing the most earnest and accurate assessment of a country’s default risk at any given time.”
Silver ends with, “The fact that billions of dollars in wealth are tied up in the judgments of a company with such a poor record is all the proof you should require that the global financial system is in need of reform.”
Yup.