Investment bankers and hedge fund managers don’t usually risk their own money, they bet with other people’s money. They aren’t stupid and they know risk is better taken by someone else. It’s a win-win system for them. When they make returns they charge fees and when they lose, it’s someone else’s business. Many of these investment bankers aggressively sell their services to the average person through financail advisers who get kickbacks to sell these services and then granny becomes a major contributor to the investment bankers questionable monetary strategies.
Waiting in the emergency room of a hospital recently I met an investment banker. He had been hit in the eye by a tennis ball that had ricoched off his racket and was sporting a decent looking black eye. We somehow got from small talk into a discussion about the economic crisis in Europe. I found out he was a investment banker and I asked him if was short-selling the euro. He was and he told me it was a non-issue. I asked him if he thought it was beneficial and he responds that it was because the the devaluation would increase their exports, increasing their ability to fight off debt. I thought this was reasonable argument I left it.
That’s when he got into his crazy investment banker plots. This guy is a foreign exchange trader who makes his money by moving other people’s money around. He works with banks, especially in South America and his secret to keeping his customers is to party with them. He has a firm with a couple other guys, they take home millions each for trading paper. The foreign currency exchange market is a tricky place to make money, he admitted this. But he also admitted money makes money and with enough money you could buy a currency to create a big upswing in the price of that currency on the market, then he would sell off the currency and collect the profits. In stocks this would be illegal, in foreign exchange which is impossible to regulate, I’d imagine this is fairly common.