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