LONDON — The Libor manipulation scandal, which hit four years after the 2008 financial crisis, risked breaking all trust in London’s ability to function as a financial centre.
Libor, an benchmark underpinning more than $US300 trillion in loans and derivatives, was set by a panel of banks that submitted short-term borrowing rates to the British Bankers’ Association at the time of the scandal.
Regulators found that traders and rate-setters had colluded to shift the rate, benefitting the traders’ positions.
While senior figures such as former Barclays CEO Bob Diamond lost their jobs, and banks were fined billions of pounds, only one man, Tom Hayes, was sent to prison.
Hayes — who was initially jailed for 14 years, but had his sentence reduced to 11 years on appeal — was a trader making millions in bonuses as the scandal came to light and became one of the most recognisable faces of the affair.
With his book, The Spider Network, the Wall Street Journal’s David Enrich tells the detailed, behind-the-scenes story of Hayes and his strange circle of traders and bankers caught up in the scandal.
Business Insider caught up with Enrich to talk about financial misconduct, Hayes and transitioning from reporting to book-writing:
Business Insider: What attracted you to the Libor scandal and Tom Hayes as subjects for a book?
David Enrich: At first what attracted me was the idea of digging into the full scope of this massive financial scam, which had the potential to affect anyone with a mortgage or who lived in a city or worked for a company that borrowed money. But that was kind of dull.
Then I got to know Tom Hayes. He is such a fascinating guy. He’s one of the smartest people I’ve ever met and, at the same time, one of the stupidest — he managed to elevate Libor manipulation into an art form, but was doing it all in writing! Not smart. Those contradictions, and his wacky personality, make him a great character to base a book around.
Plus, I was given exclusive access to an entire hard drive’s worth of evidence, including recorded phone calls and emails and chat transcripts, which gave an intimate human look at all the other characters involved in this scandal. I felt like I was really getting a sense of who these guys were on a personal level.
BI: There’s a lot of fantastic personal detail in the book gleaned from long conversations with the people involved, such as references to Tom Hayes’s wife “prodigious drinking” at home before the trial.
Was it tough to balance building deep relationships with staying objective and writing what you wanted?
DE: It was so hard. I’m honestly not sure I succeeded in maintaining my objectivity. I spent so much time with Tom and his family, especially his wife Sarah, that there was no way that I could remain fully detached on an emotional level. When the verdict against Hayes was announced, and when he was sentenced to 14 years in prison, it felt like someone had punched me in the stomach.
Ultimately, my editors and I decided that rather than trying to maintain the pretense of objectivity, the simpler and more honest thing to do would be to disclose that I had developed a real sense of empathy for Hayes and his family.
BI: You paint a picture of a laxly-regulated financial system, with lots of incentives for fraud and few disincentives. Since then, policy has changed and yet scandals, such as FX manipulation and money laundering, keep happening.
To what extent do you think bad behaviour is hard-wired into banking? Are there any truly effective deterrents at an institutional level?
DE: Bad behaviour isn’t necessarily hard-wired into banking, but in my opinion, the true deterrents to such behaviour haven’t been exercised. I think regulators and prosecutors missed an enormous opportunity to build criminal cases against some bank CEOs, or at least some high-ranking bank executives. As things currently stand, top executives have at worst lost their jobs. They still walk away rich. What would really scare them and change future behaviour is if they felt like their freedom was on the line.
Prosecutors were afraid of losing high-profile cases, and that fear led them to only focus on slam-dunk cases. Incidentally, the fact that no top banking executives have even been charged with crimes (much less sent to jail) has fuelled the perception that “financial elites” got away with murder during the crisis and its aftermath, and that “little guys” — folks like Tom Hayes — paid the price. That perception might not be entirely accurate or fair, but it is powerful and deeply damaging.
BI: It’s often said the seeds of the next crisis are in the response to the past one. Is there anything out there at the moment that makes you worry for the soundness of the system?
DE: I have no idea what will cause the next financial crisis or scandal, but I think that when it inevitably happens, people will look back on this moment of history and say this is when the seeds were planted. At least in the US, the government is loosening the regulatory reins on the banks and signalling in very clear fashion that law-enforcement cases will not be pursued as aggressively as they were in the past. It’s not hard to guess how that will influence behaviour.
BI: How did you fit the writing and researching The Spider Network around your family and work schedule?
DE: I took off about three months from work at the end of 2015 to devote exclusively to the book. Luckily, I had already done a ton of the reporting in the course of my job at the Wall Street Journal, so this was mostly time for me to write. After returning to work, I spent basically all my spare time — nights, weekends and while my kids were napping — writing, revising, fact-checking, etc.
BI: How difficult was it to adapt to book-length writing from news journalism?
DE: I really struggled, especially at first. It wasn’t the length that was difficult for me, but getting the right tone. I’d spent my entire career trying to keep my personal voice and opinions out of my writing. Now my editor at HarperCollins was pushing me to do the exact opposite. I had to learn to slow down my writing to capture scenes and descriptions better. As a book lover, I always knew that people read books much differently than they read news articles, but adapting my writing to this new format was harder than I expected.
BI: Another book on Libor, The Fix, has also been published recently. Did knowing there was direct competition affect the writing process at all?
DE: Not really. I knew Liam and Gavin — both of whom I have great respect for and consider to be my friends — had been working on their book for a while and were likely to beat me to the punch. But I also knew that our books would be pretty different. While we were writing about the same scandal with the same guy at the center of it, we had come away from our reporting with different views about Hayes’s ultimate culpability for this whole mess. I think they would agree that I have a more sympathetic, or at least empathetic, perspective.
BI: Could you see yourself writing another book? Has anything caught your eye as potential subject matter?
DE: I would love to write another book. The process was so much fun, so invigorating and stimulating. What haunts me now is that I have no idea what my next big thing will be and when or even whether I’ll ever find it.
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