Emanuel Derman, a physicist who spent 17 years at Goldman Sachs beginning in 1985, has some interesting thoughts in an interview with Edge.org:
It's interesting in this regard that the three biggest banks recently announced their quarterly results and not only day in the last quarter did they lose money. That is totally astonishing. It's really a reflection of what the administration has done. They've made interest rates very low so it's cheap for the banks to borrow money. They have eliminated a lot of the players, so there is much less competition for taking on risky trades and you can do them at a price that is much more preferable to the person who is in control. This is a risk profile that is a result of regulation and administrative policies rather than of genuine market conditions.
In terms of styles of regulation, I'm very disillusioned by what's happened in terms of the bailout. I don't know what is the right thing to do but one of the worst things for society's ethical sense is to see other people having the upside of risky positions and not suffering the downside. It makes me feel very uncomfortable.
...Everybody who makes money out of something to do with trading tends to say, oh, we're got to do this because it makes the market more efficient. But a lot of the people who provide this so-called liquidity and efficiency are not there when you really need it. It's only liquidity when the world is running smoothly. When the world is running roughly, they can withdraw their liquidity.
..Economics is a strange field. One of the things I noticed on Wall Street was that firms use the economists to talk to clients but their trading desks don't necessarily pay attention to what the economists are saying.
Thanks to reader-participant-content co-creator-community member-partner R. for sending the link.