Standards are Poor: On Competence and Professional Integrity at the Leading Rating Agency

Competence behind the rating of sovereign countries is crucial, given that the market for government bonds may be vulnerable to multiple equilibria and self-fulfilling prophecies. With this in mind, this paper reviews and scrutinizes an official Standard and Poor’s (S&P) publication that addresses key issues surrounding the market for government bonds and the role of sovereign ratings. It encounters: a low level of competence, revealed in an inability to engage in logical discourse and an inadequate grasp of crucial concepts such as multiple equilibria and self-fulfilling prophecy; obliviousness to S&P’s own rating methodology; and a nonchalant treatment of facts that casts a poor light on its professional integrity.