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

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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 intermediaries‘ 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.

Suggested Citation

  • Marc Flandreau & Norbert Gaillard & Ugo Panizza, 2009. "Conflicts of Interest, Reputation and the Interwar Debt Crisis: Banksters or Bad Luck?," IHEID Working Papers 02-2010, Economics Section, The Graduate Institute of International Studies, revised Feb 2010.
    • Handle: RePEc:gii:giihei:heidwp02-2010
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    Cited by:

    1. Penet, Pierre, 2018. "Rethinking odious debt in the age of predatory lending: Old ideas for new problems," Working Papers unige:102988, University of Geneva, Paul Bairoch Institute of Economic History.
    2. Marc Flandreau, 2013. "Sovereign states, bondholders committees, and the London Stock Exchange in the nineteenth century (1827–68): new facts and old fictions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 29(4), pages 668-696, WINTER.
    3. Mitchener, Kris & Trebesch, Christoph, 2021. "Sovereign Debt in the 21st Century: Looking Backward, Looking Forward," CEPR Discussion Papers 15935, C.E.P.R. Discussion Papers.
    4. Bradley, Michael & De Lira Salvatierra, Irving & Gulati, Mitu, 2014. "Lawyers: Gatekeepers of the sovereign debt market?," International Review of Law and Economics, Elsevier, vol. 38(S), pages 150-168.
    5. Marc Flandreau & Juan Flores & Norbert Gaillard & Sebastian Nieto-Parra, 2011. "The Changing Role of Global Financial Brands in the Underwriting of Foreign Government Debt (1815-2010)," IHEID Working Papers 15-2011, Economics Section, The Graduate Institute of International Studies.
    6. Flores Zendejas, Juan & Nodari, Gianandrea, 2021. "Latin American Experiments in Central Banking at the Onset of the Great Depression," Working Papers unige:152742, University of Geneva, Paul Bairoch Institute of Economic History.
    7. Flandreau, Marc, 2017. "Reputation, Regulation and the Collapse of International Capital Markets, 1920-1935," CEPR Discussion Papers 11747, C.E.P.R. Discussion Papers.
    8. Papadia, Andrea, 2017. "Sovereign defaults during the Great Depression: the role of fiscal fragility," Economic History Working Papers 68943, London School of Economics and Political Science, Department of Economic History.
    9. Marc Flandreau, 2013. "Collective Action Clauses before they had Airplanes: Bondholder Committees and the London Stock Exchange in the 19th Century (1827-1868)," IHEID Working Papers 01-2013, Economics Section, The Graduate Institute of International Studies.

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    More about this item

    Keywords

    conflicts of interest; debt crises and reputation;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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