Prior to the 2010 Dodd-Frank Act, banks employed proprietary traders (aka Prop Traders) whose job was to invest the Bank's capital in various short-term trading strategies.Prop Traders often took large risks (using leverage) and were rewarded with yearly bonuses worth millions of dollars.Prop Trading was eventually disallowed by the 2010 Dodd-Frank Act.

Explain the moral hazard associated with such proprietary trading activity.(20 points)