Treason doth never proper. What’s the reason?
Why, if it prosper, none dare call it “treason.”

Does it strike you as strange that no big bank ever announces that it has made $2.3 billion in unauthorized trading? Somehow, “rogue” traders always wind up losing tons of money; they never seem to win.

This should be statistically impossible. Since risks are symmetric and transactions costs tiny, if there were really trading strategies that could reliably lose billions of dollars, you could make huge sums just by making the opposite bets.

This suggests to me that big banks only classify trading activity as “unauthorized” when it loses huge amounts of cash. Otherwise, they’re happy to quietly pocket the money. I’m curious how much of their reported earnings come from activity that would have resulted in the traders’ being marched off in handcuffs had the market gone the other way.

[Cross-posted at The Reality-Based Community]

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Mark Kleiman is a professor of public policy at the New York University Marron Institute.