We present a model in which issuers of structured bonds choose coarse and opaque ratings to enhance the liquidity of their primary market, at the cost of reducing secondary market liquidity or even causing it to freeze. The degree of transparency is inefficiently low if the social value of secondary market liquidity exceeds its private value. We analyze various types of public intervention -- requiring transparency for rating agencies, providing liquidity to distressed banks or supporting secondary market prices -- and find that their welfare implications are quite different. Finally, transparency is greater if issuers restrain the issue size, or tranche it so as to sell the more information-sensitive tranche to sophisticated investors only.
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