The (not so) funny thing is that this has been a very well known problem for... ever. I'm reading "The House Of Morgan: An American Banking Dynasty and the Rise of Modern Finance" by Ron Chernow - highly recommended - and you can find the same mechanisms and scandals (with little variances) dating back at least to the 1920s.

Mixing trading and underwriting in the same firm is bound to create enormous conflicts of interest, no matter how tall the internal "Chinese walls" between departments are. This is imho definitely a place where strong regulations and strong checks are needed.