Why S.&P.’s Ratings Are Substandard and Porous

By NATE SILVER
NYT

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.

Investors now think that Ireland has more than a 40 percent chance of a default or debt restructuring at some point in the next five years. The country is penalized with double-digit interest rates when it wants to borrow money. But in 2006, Standard & Poor’s had Ireland’s debt rated with its top-of-the-line, AAA rating. It didn’t downgrade Ireland until March 30, 2009, long after its financial problems had become obvious, and the price to buy insurance on its debt had increased tenfold from a year earlier.

Spain, which markets now posit has about a three-in-ten chance of default or restructuring, also had a AAA rating, which it maintained until January 2009. Today it still has a AA rating, one notch higher than Japan’s.

(More here.)