Proprietary trading by Wall Street banks precipitated the 2008 financial crisis that resulted in a near 13 trillion dollar bailout by American taxpayers of Too Big To Fail financial institutions. As early as 2007, Morgan Stanley lost $9 billion dollars due to bullish bets on complex derivatives related to mortgages and in 2008 American International Group famously lost billions of dollars betting on complex derivatives. Similarly, toward the end of 2008, Merrill Lynch lost nearly $16 billion and Deutsche Bank lost nearly $2 billion due to complex bets on risky securities. Additionally, JPMorgan‟s $9 billion loss on a giant derivatives trade made by its London trading desk known colloquially as the London Whale is a stark reminder that proprietary trading by Too Big To Fail financial institutions poses an acute risk to U.S. financial markets and exposes U.S. taxpayers to the risk of future bank bailouts.
The whole rationale for what ultimately became known as the "Dodd-Frank" bill... (More)