So what are Wall Street firms really up to with their prop traders? Bloomberg Columnist Michael Lewis raises an interesting point about the proprietary trading drama now unfolding.

Recall that industry lobbyists fought hard to blunt the push to ban proprietary trading outright, an idea that was originally on the table. Lobbyists succeeded in pushing though a rule that allows firms to invest up to 3 percent of capital in internal hedge funds. It was seen as way for firms to hang on to prop traders by employing them in such funds, and many speculated that's exactly what would happen. But it clearly was not an easy decision.

JPMorgan (NYSE: JPM) has apparently decided to go the house-them-in-an-alternative investment route. Many thought, given an earlier fiasco with a massive commodities loss, JPMorgan might instead go the Goldman Sachs (NYSE: GS) route. Recall the gilded bank decided to get rid of its Principal Strategies Group all together.

All in all, there seems to be a lot of dithering about whether prop trading is past its prime. The efficiencies in today's markets--especially stocks--are such that long-term success is difficult to come by. The risks may be too high, at the financial and regulatory levels. Alpha is really generate year after year after year. Speed is an advantage but everyone is fast these days; many high frequency traders are ailing. Lots of hedge are too. Perhaps an era is passing.

For more:
- here's the column

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