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Politics : American Presidential Politics and foreign affairs
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To: DuckTapeSunroof who wrote (41554)3/1/2010 4:52:10 PM
From: TimF  Read Replies (1) of 71588
 
Proprietary trading does have the benefit of diversifying their income base. The more narrow the base, the more likely you are to have a failure.

Even risky additions (in the right proportion) can reduce risk. For example developing country bonds are riskier than American bonds, but including them in your portfolio (up to a point) decreases the overall risk of your portfolio. (No amount of diversification can eliminate the risks since different asset class can all go down together, esp. in a financial crisis, but it does reduce risk).

As long as the activities are neither to big a part of the business, nor too leveraged, there isn't a good reason to think they increase risk, the likelihood of bailouts, or the eventual size of the bailouts that do happen.
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