Years ago, in a fit of creativity, some journalist coined the term "rogue trader" to describe some manic soul who made a bunch of bad bets at a big bank and then hid the evidence of them in a waste basket.

Over the last few weeks another rogue lost Societe Generale $7.3 billion dealing in European stock futures. According to the FT the bank "said there had been a “serious” internal fraud committed by an “imprudent employee” working in the corporate and investment banking division." The bank added that it had improved its control procedures to prevent this from ever happening again.

The entire matter brings regulators, bank boards and management back to the issue of how one person, or relatively small groups of people make huge gambles on complex financial instruments like subprime derivative instruments. On the other side of the coin, a small group of traders at Goldman Sachs made billions of dollars last year betting that the subprime market would fall apart. Stories about the group described it as being comprised of just a few people. But, what if those decisions made by geniuses had gone the wrong way?

If hedge funds make poor bets, their investors, who are supposed to be sophisticated, lose money. At place like Citigroup (C) and Merrill Lynch (MER) shareholders get hosed as well.

A look at the Societe Generale problem and subprime losses at big banks posts a storm flag over the issue of whether large financial firms have anywhere near the adequate checks and balances required to keep them from moving quickly into the arena of complex and risky financial instruments using huge sums of money. The answer is clearly "no".

The rogue trader at the big French bank will probably go to jail. Investors at the bank will probably just go broke. The regulation of risk at big banks is still totally broken

Douglas A. McIntyre

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