SEC disciplines a credit ratings firm
The Securities and Exchange Commission said Tuesday that Egan-Jones, the upstart credit ratings firm run by Sean Egan, was barred for 18 months from issuing certain government-recognized ratings after the firm made misstatements on an application with the government.
The SEC said the firm had exaggerated its record when it applied for a government designation in July 2008. The firm said then that it had performed 150 ratings of asset-backed securities and 50 ratings of governments, when it actually had performed none at that time, according to the agency.
The SEC said that Egan-Jones had also violated provisions preventing conflicts of interest, because two analysts helped to rate entities whose securities they also owned.
Under the terms of the penalty, Egan-Jones is barred from rating asset-backed and government securities issuers as a so-called nationally recognized statistical rating organization. The firm can still issue its ratings of such securities — just not with the government blessing that confers special authority on its opinions. The firm will also pay a $30,000 penalty as part of the settlement.
—William Alden, The New York Times
Japan’s bond-buying plan quickly meets criticism
Another central bank, another round of unconventional monetary policy.
Following the lead of their counterparts in the United States, Japan’s central bankers announced Tuesday what they called a groundbreaking effort to reinvigorate the country’s long-moribund economy and defeat deflation.
With no more room left to cut interest rates and previous steps unsuccessful, the Bank of Japan is taking a page from the Federal Reserve’s playbook and will pump trillions more yen into the economy by directly buying government bonds and other assets. It also doubled the country’s official inflation target to two
But as in the United States, there are doubts about just how much of an effect the move will have in Japan. Three rounds of asset purchases since the onset of the financial crisis have successfully headed off deflation in the U.S. economy but failed to generate the kind of growth necessary to return employment to prerecession levels.
Japan’s move is also likely to further devalue the yen in the long term — causing some to worry about a possible round of competitive devaluations as countries weaken their currencies to bolster growth in exports. On Tuesday, however, the yen actually rose against the dollar and the euro amid disappointment that the Bank of Japan’s efforts had not gone far enough.
Given the scale of the efforts in the United States and Europe, many experts were disappointed by the Bank of Japan’s action because the expanded asset purchases will not begin until 2014. They complained that was a waste of valuable time in turning around an economy whose descent into deflation has become a test case of the effects of doing too little in the face of an economic slowdown.
To make matters worse, the Bank of Japan’s new plan to purchase 10 trillion yen, or $112 billion, in assets each month sounds more aggressive than it actually will be, said Gustavo Reis, senior international economist at Bank of America Merrill Lynch. That is because many of the securities the Bank of Japan will be purchasing are in the form of short-term debt that will quickly mature, so the additional purchases will equal about $112 billion a year — not a month — beginning in 2014.
By contrast, he said, the Fed’s balance sheet is expected to expand by a trillion dollars in 2013.
—Nelson D. Schwartz and Hiroko Tabuchi, The New York Times
Nebraska governor approves Keystone pipeline route
WASHINGTON — The governor of Nebraska on Tuesday approved a revised route through the state for the Keystone XL pipeline through Nebraska, setting up a decision for President Barack Obama that pipeline opponents say will be a crucial test of his intentions on climate change.
Gov. Dave Heineman, reversing an earlier position and brushing aside vocal opposition from some citizen groups, said the pipeline could be built and operated safely and would bring thousands of jobs and hundreds of millions of dollars in new revenue to Nebraska.
The decision came a day after Obama made an assertive pledge in his inaugural address to tackle climate change in his second term. Opponents of the pipeline, which would carry heavy crude oil from tar sands formations in Alberta to refineries on the Gulf Coast, say that the extraction and consumption of the oil would significantly worsen global warming and perpetuate the nation’s dependence on dirty fossil fuels.
Heineman, a Republican, said in a letter to Obama and Secretary of State Hillary Rodham Clinton that his state’s review found that the new route avoided sensitive lands and aquifers. Obama rejected the previous route last January on the grounds that construction of the pipeline threatened Nebraska’s Sand Hills region and that a spill could contaminate the critical Ogallala Aquifer.
Heineman said that the pipeline’s operator, TransCanada, had assured him and state environmental officials that the chances of a spill would be minimized and that the company would assume all responsibility for a cleanup in case of an accident.
The State Department, which must review the 1,700-mile pipeline because it crosses an international border, is in the final stages of preparing an environmental-impact statement on the project. An earlier version found that the project would have minimal adverse effects along its route. TransCanada’s chief executive, Russell K. Girling, said Washington should now follow Nebraska’s lead.
“Keystone XL is the most studied cross-border pipeline ever proposed,” Girling said in a statement, “and it remains in America’s national interests to approve a pipeline that will have a minimal impact on the environment.”
—John M. Broder, The New York Times