Even casinos lose sometimes—so why do investment banks always win?

Goldman Sachs traders made money every day last quarter. On not a single one of the 63 trading days did they suffer a net loss. A spokesman said this “shows the strength of our customer franchise and risk management.” But before you respond that this only proves the Goldman boys (and girls) are brilliant, note that Bank of America and JP Morgan’s trading floor share the same remarkable record.

Even casinos occasionally lose money. If every trade has a winner and a loser, what does it tell us that Bank of America made over $25 million on nine out of ten trading days last quarter? I’ve been leafing through various articles and none so far explain the secret. The more conspiracy-minded corners of the blogosphere blame “frontloading”: the ability of large trading houses to push their own transactions nanoseconds before those they execute for clients. Greater knowledge of markets probably also plays a part. Neither of these explanations make you think that Goldman Sachs puts the interest of their clients first.

But I suspect the biggest reason for unseemly investment bank profits is their unusually low cost of capital. They can access government funds at infinitesimal interest rates.The  banks, after all, don’t trade with their own money. They keep the asset side of their balance sheet healthy with borrowing. In essence, they are executing what's known as a "carry trade"—the practice of borrowing money at low interest rates to lend it at high—between short-term government loans (at 0.5%) and long-term government bonds (at 4.5%), capturing a 4% spread. In other words, their profits are due to an unspoken government subsidy.

What else do you think explains the spectacular and one-way performance of the big investment banks' trading floors this quarter?