​But how were those trading desks making money? Perhaps they were exploiting information gathered

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But how were those trading desks making money? Perhaps they were exploiting

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information gathered by the rest of the group, a tactic that, if not illegal, put them in

conflict with their clients. Or they were taking advantage of an artificially low cost of

capital. With commercial banks, that cost was low because of the implicit public

subsidy provided by deposit guarantees. Without such guarantees, savers would have

wanted higher interest rates from banks with trading arms to reflect the risk of a market-

related loss. In the good years, when they randomly beat the market, the traders earned

bonuses. In the bad years, the taxpayers have picked up the bill.

And that raises a fundamental question. If regulators thought markets were too efficient

to interfere with, how come they allowed banks to get involved in an activity

which, after bonuses, was a game they collectively could not win? [Emphases added


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