Conflicts of Interest, Reputation, and the Interwar Debt Crisis: Banksters or Bad Luck?

46 Pages Posted: 1 Mar 2010

See all articles by Marc Flandreau

Marc Flandreau

Centre for Economic Policy Research (CEPR)

Norbert Gaillard

NG Consulting

Ugo Panizza

United Nations - Conference on Trade and Development (UNCTAD)

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Date Written: February 2010

Abstract

This paper builds a new dataset with detailed information on the universe of foreign government bonds issued in New York in the 1920s and uses these data to describe the behavior of the financial intermediaries which operated in the New York market during the period leading to the interwar debt crisis. The paper starts by showing that concerns over reputation played an important role in intermediariesÂ’ underwriting choices. Next, the paper checks whether banks managed to charge abnormal underwriting fees on bonds that would eventually default and finds no evidence of such practice ("banksterism"). The paper concludes by discussing some parallels between the experience of the 1920s and the current debate on the "originate and distribute" model.

Keywords: conflicts of interest, debt crises, reputation

JEL Classification: F34, G14, G15, G18

Suggested Citation

Flandreau, Marc and Gaillard, Norbert and Panizza, Ugo, Conflicts of Interest, Reputation, and the Interwar Debt Crisis: Banksters or Bad Luck? (February 2010). CEPR Discussion Paper No. DP7705, Available at SSRN: https://ssrn.com/abstract=1559661

Marc Flandreau (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Norbert Gaillard

NG Consulting ( email )

France

HOME PAGE: http://www.norbertgaillard.com/

Ugo Panizza

United Nations - Conference on Trade and Development (UNCTAD) ( email )

Palais des Nations
Geneva, 1211
United States

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