However, because of information asymmetries and frictions, the “originate and distribute” model in practice gave rise to inefficient outcomes and distorted the behaviour of the various parties involved in the securitisation process: investors, rating agencies, intermediaries, and originators. 3 The main reason for this is that the goals of the parties involved differed, and in some instances may even have been in conflict.
Besides, the different categories did not fully internalise the consequences of their individual actions in the overall process, and therefore did not have the right incentives to share information efficiently. In particular, investors became over-reliant on the ratings provided by the rating agencies and often did not properly conduct their due diligence.