world, admitting to rigging the rate and agreeing to pay a then-record £290 million ($355 million) in fines. The British lender avoided criminal charges thanks to its extensive cooperation with the investigation, but the fallout was devastating. The scandal coincided with the eurozone debt crisis and a renewed period of seething disdain for the banking sector. News bulletins cut from riots in Athens and Occupy Wall Street protests in New York to transcripts of traders calling each other “big boy” and agreeing to defraud the public for a “bottle of Bollinger”. Within a week, Barclays's charismatic chief executive officer, Bob Diamond, had been forced to resign, and the reputation of the Bank of England, which was accused of being directly involved in the U.K. lender's behavior, was in shreds.
Barclays bore the worst of the public opprobrium, but it wasn't alone. Swiss lender UBS settled with the authorities in December, followed quickly by taxpayer-owned RBS, Dutch bank Rabobank and interdealer brokers ICAP and RP Martin. To date, about a dozen firms and more than 100 individuals have been implicated from all over the world. In an era defined by the breakdown in trust between banks and the rest of society, Libor has confirmed people's worst suspicions about the financial system: That behind closed doors, shrouded in complexity and protected by weak and complicit regulators, armies of bankers are gleefully spending their days screwing us over.
The reality is both more complex and more shocking than that. The picture that emerges over thousands of pages of public and leaked documents and hundreds of interviews we conducted – with the traders and brokers involved in the scandal, the regulators and central bankers who failed to curb them, and the small, tenacious band of U.S. investigators who ultimately brought them to account – is of a system in which manipulation was not just possible but inevitable. Everyone must take their share of responsibility: the bank executives who fostered a culture where making money trumped all else; the authorities too weak or unwilling to ask awkward questions; and the governments, giddy on tax receipts, who ushered in a style of laissez-faire regulation whose disastrous effects are still being felt today.
At its heart, though, this is a story about a group of traders and brokers who found a flaw in the machine and exploited it for all it was worth. Despite their actions, the men who shared their stories with us are not one-dimensional hucksters unburdened by a conscience. For the most part, they are smart, likeable men – and they are all men – who love their children and cry at sad movies and who somewhere along the way convinced themselves that responsibility for their behavior lay with the system rather than themselves.
As we were putting this book together, the doping allegations against Tour de France legend Lance Armstrong were emerging. The parallels were striking. Within the closed ranks of both banking and cycling, the bounds of what constituted acceptable behavior had diverged over time from the rest of society, cleaved by a heady mix of testosterone, competition, groupthink, lax oversight and skewed incentives. Both worlds also had their antiheroes – individuals who, through sheer will and force of personality, went further than anyone else, dragging behind them an entourage of enablers and co-conspirators.
In the case of Libor, the antihero is Tom Hayes: a brilliant, obsessive, reckless, irascible math prodigy who transformed rate-rigging from a blunt instrument into a thing of intricate, terrible beauty. A socially awkward misfit in his early years, he found his calling the moment he walked onto a trading floor, where the idiosyncrasies that had dogged him his whole life became assets. They made him a fortune before they sealed his downfall. This is his journey. This is the story of Trader A.
Chapter 1
The End of the World
At the Tokyo headquarters of a Swiss bank, in the middle of a deserted trading floor, Tom Hayes sat rapt before a bank of eight computer screens. Collar askew, pale features pinched, blond hair mussed from a habit of pulling at it when he was deep in thought, the British trader was even more disheveled than usual. It was Sept. 15, 2008, and it looked, in Hayes's mind, like the end of the world.
Hayes had been awakened at dawn in his apartment by a call from his boss, telling him to get into the office immediately. In New York, Lehman Brothers was hurtling toward bankruptcy. At his desk, Hayes watched the world process the news and panic. Each market as it opened became a sea of flashing red as investors frantically dumped their holdings. In moments like this, Hayes entered an almost unconscious state, rapidly processing the tide of information before him and calculating the best escape route.
Hayes was a phenom at UBS, one of the best the bank had at trading derivatives. So far, the mounting financial crisis had actually been good for him. The chaos had let him buy cheaply from those desperate to get out and sell high to the unlucky few who still needed to trade. While most dealers closed up shop in fear, Hayes, with a seemingly limitless appetite for risk, stayed in. He was 28, and he was up more than $70 million for the year.
Now that was under threat. Not only did Hayes have to extract himself from every deal he'd done with Lehman, but he'd also made a series of enormous bets that in the coming days interest rates would remain stable. The collapse of the fourth-largest investment bank in the U.S. would surely cause those rates, which were really just barometers of risk, to spike. As Hayes examined his tradebook, one rate mattered more than any other: the London interbank offered rate, or Libor, a benchmark that influences $350 trillion of securities and loans around the world. For traders like Hayes, this number was the Holy Grail. And two years earlier, he had discovered a way to rig it.
Libor was set by a self-selected, self-policing committee of the world's largest banks. The rate measured how much it cost them to borrow from each other. Every morning, each bank submitted an estimate, an average was taken and a number was published at midday. The process was repeated in different currencies, and for various amounts of time, ranging from overnight to a year. During his time as a junior trader in London, Hayes had gotten to know several of the 16 individuals responsible for making their bank's daily submission for the Japanese yen. His flash of insight was realizing that these men mostly relied on interdealer brokers, the fast-talking middlemen involved in every trade, for guidance on what to submit each day.
Hayes saw what no one else did because he was different. His intimacy with numbers, his cold embrace of risk and his manias were more than professional tics; they were signs that he'd been wired differently since birth. Hayes would not be diagnosed with Asperger's syndrome until 2015, when he was 35, but his co-workers, many of them savvy operators from fancy schools, often reminded Hayes that he wasn't like them. They called him “Rain Man”.3 Most traders looked down on brokers as second-class citizens, too. Hayes recognized their worth. He'd been paying some of them to lie ever since.
By the time the market opened in London, Lehman's demise was official. Hayes instant-messaged one of his trusted brokers in the U.K. capital to tell him what direction he wanted Libor to move. Typically, he skipped any pleasantries. “Cash mate, really need it lower,” Hayes typed. “What's the score?” The broker sent his assurances and, over the next few hours, followed a well-worn playbook. Whenever one of the Libor-setting banks called and asked his opinion on what the benchmark would do, the broker said – incredibly, given the calamitous news – that the rate was likely to fall. Libor may have featured in hundreds of trillions of dollars of loans and derivatives, but this was how it was set: conversations among men who were, depending on the day, indifferent, optimistic or frightened. When Hayes checked the official figures later that night, he saw to his inexpressible relief that yen Libor had fallen.
Hayes was not out of danger yet. Over the next three days, he barely left the office, surviving on three hours of sleep a night. As the market convulsed, his profit and loss jumped around from minus $20 million to plus $8 million in just hours, but Hayes had another ace up his sleeve. ICAP, the world's biggest interdealer broker, sent out a “Libor prediction” e-mail each morning at around 7 a.m. to the individuals at the banks responsible for submitting Libor. Hayes messaged an insider at the firm and instructed him to skew the predictions lower. Amid the bedlam, Libor was the one thing Hayes believed he had some control over. He cranked his network to the max, offering his brokers extra payments for their cooperation and calling in favors at banks around the world. By Thursday, Sept. 18, Hayes was exhausted. This was the moment he'd been working toward all week. If Libor jumped today, his puppeteering would have been for naught. Libor moves in increments called basis