The authors find that there was a perceived conflict between investment banks and commercial banks in originating and pricing securities leading up to the Depression. The thought was that an independent rating agency would avoid these conflicts of interest. However, we are now faced with a perception that today's rating agencies had a conflict of interest in evaluating mortgage related securities.
Flandreau and Gaillard conclude:
While some will emphasise the irony of now blaming the agencies for the very sins that caused their emergence in the first place, we suggest that there must be deep reasons for history to go in circles. And whatever they are, the lesson must be that there is no long-run, simple, and sustainable regulatory fix for our current troubles.
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