Libor Mastermind Tom Hayes Deserves a Lot of Company in Prison
For anyone burning to see financial wrongdoers put behind bars, Tom Hayes might seem like an ideal white-collar villain. As a superstar derivatives trader at a series of investment banks in London and Tokyo, Hayes masterminded a conspiracy to manipulate a benchmark interest rate that underlies hundreds of trillions of dollars’ worth of loans. British prosecutors—armed with gigabytes of evidence showing Hayes caught in the act, plus his own taped confessions—put him on trial in 2015; he’s now serving an 11-year sentence. It was an epic downfall, and David Enrich, an editor at the Wall Street Journal, recounts it well in The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History (HarperCollins, $29.99). One thing readers won’t get out of this exhaustively reported tale, however, is schadenfreude.
In Enrich’s telling, Hayes is more of a pitiable figure than a master fiend. He certainly never looked the part of a smooth operator: Carelessly dressed and shabbily groomed, Hayes had difficulty interacting with people, preferring the cold logic of spreadsheets. He didn’t party or jet-set like a typical overpaid banker, opting for juice or hot chocolate on the occasions he was forced to socialize outside of work. More substantially, Hayes wasn’t a top executive, and when he acted to rig the interest rate in question—the London interbank offered rate, aka Libor—he often did so with the knowledge of his bosses. The reason Hayes is in jail and his superiors aren’t seems to have more to do with his personality, and maybe his mild case of autism, than the severity of his crimes.
Don’t get me wrong—as Enrich makes clear, those crimes were pretty severe. Libor is a set of numbers, published every business day, that reflects what London banks charge each other to borrow money. A handy barometer of risk, it’s baked into a vast range of financial instruments, including complicated derivatives contracts as well as more mundane mortgages, car loans, and credit cards. Hayes colluded to nudge Libor higher or lower to benefit his trading positions; when he did, he made ordinary people’s interest payments go up and deprived municipalities and businesses of income. What sticks in the mind after reading The Spider Network is not that Hayes doesn’t belong in jail, but that he deserves a lot of company.
Enrich opens his book with an annotated cast of 80 characters from 16 organizations. It’s overwhelming, but it’s necessary to demonstrate just how many people were involved in the Libor scheme, which went on for longer than a decade and was a more-than-open secret. Enrich describes it as a “systemic racket.” It was common for traders at banks in London and other financial capitals to give hints, if not explicit instructions, to colleagues in charge of managing Libor. The industry’s meek self-monitor, the British Bankers’ Association, ignored all signs that the benchmark was skewed on the regular. When the 2008 financial crisis hit and a few academics, journalists, and regulators at the U.S. Commodity Futures Trading Commission caught on, the banks were so obviously guilty of abusing Libor that one of them, UBS Group AG, decided the best way to wind up with a survivable penalty was to offer to the government its most prominent offender: Hayes. (He also distorted Libor at Citigroup Inc., where he worked from 2009 to 2010.)
Why was he singled out? Few people were better at reading numbers than Hayes, whom Enrich describes as “by all accounts one of the best at his craft on the planet,” but it’s hard to imagine anyone reading people much worse. Never a popular guy on the trading floor, he earned nicknames such as Rain Man and Kid Asperger—armchair diagnoses of a condition that a psychologist would confirm at Hayes’s trial. Hayes missed social cues that might have led him to temper his Libor manipulation, making it no more detectable than anyone else’s. But he was so unpleasant to deal with—he abused underlings and avoided videoconferencing software because he disliked eye contact—that he conducted most of his work over instant message, creating a damning trove of evidence.
Ultimately, Hayes botched his interactions with U.S. and U.K. regulators as they closed in. He copped to his role in the conspiracy and then entered a plea of not guilty, incapable of understanding who his allies and enemies were. Even then, the jury needed a week to deliberate Hayes’s guilt. He wasn’t the perfect banker to punish. He was just the one they were given.