Reporters weave Libor intrigue into a narrative
• Intermittent headlines about interest rate manipulation become a pacy story with a fascinating main character
If anyone had pitched a mainstream book about the London interbank offered rate (Libor) a decade ago, publishers would have rebuffed the idea out of hand.
That was before the scandal led to the sacking of a CEO (Bob Diamond of Barclays), deep embarrassment for a central banker (Paul Tucker, then deputy governor of the Bank of England) and multibillion-dollar fines for banks and leading brokerage houses.
How a network of investment bank traders and brokers manipulated this obscure financial benchmark for years before finally being found out in 2012 is the subject of Liam Vaughan and Gavin Finch’s The Fix.
As prosecutors published lurid accounts of rate-rigging, it seemed that ordinary people were finally getting a glimpse into a world that was as corrupt as they had always suspected.
Chicanery was possible because of the relatively primitive way the Libor rate was calculated — by averaging different banks’ estimates of how much they thought they would have to pay for funding.
More than $300-trillion of mortgages, loans and derivatives are pegged to the rate. For many, manipulation of Libor effectively meant manipulation of their mortgage rate.
In the end, only one person was imprisoned: Tom Hayes, convicted of conspiring with other bankers and brokers to manipulate Libor, was sentenced to 14 years, reduced on appeal to 11 years.
The Fix is the compelling story of the Libor scandal told through Hayes, an antihero who combined technical skill with a bullying personality to turn into a star trader.
As befits an account penned by investigative reporters at the Bloomberg newswire, The Fix opens with a secret hotel-bar meeting with a shady source. The scenario, in which the source identifies Hayes as the linchpin of Libor manipulation months before he is publicly exposed, sets this short book up effectively as a gripping thriller.
At times the style is so filmic — zooming into the life of Hayes and back out to the investigating authorities — that the reader might feel the publisher is pitching for the film rights. At others, descriptive passages can feel clunky. Characters of interest are often introduced with formulaic descriptions. One figure is “tall and gawky with bulging eyes”; a second is “tall, ramrod straight … with neatly trimmed dark hair and thin lips”.
A final quibble — an almost inevitable one, given the highly technical backdrop to the events — is that passages sometimes drift into obscure jargon.
Thinly explained references to “liquidity”, “quants” or “overthe-counter derivatives” may leave unschooled readers baffled. But if some passages grate, the account as a whole hangs together well and rarely lacks pace. (I read it in three sittings.)
Crafting that kind of narrative is not easy given the subject matter. It helps to have a fascinating central character.
Hayes was an obsessive high-risk trader with a bravado typical of the bankers who prospered before the financial crisis. But he was a long way from a one-dimensional wide boy.
Belatedly diagnosed as on the autistic spectrum, he had to force himself to cultivate his peers and excelled at identifying market anomalies. Manipulating Libor gave his trading an extra boost, by edging down the interest rates he was exposed to or edging up those that counterparties would pay him.
He did it through a combination of bending the rules, strongarming his network and offering financial inducements — until the entire edifice collapsed.
Some of the most arresting passages are the accounts of the absurd kickbacks that flow between traders and brokers when they give each other business. The authors tell of a broker who spent £21,000 in a year entertaining one trader. When Hayes took his then girlfriend on a romantic holiday to Thailand, his broker picked up the $5,000 tab.
Much of that granular detail comes from information revealed during the trials of Hayes and others. But Vaughan and Finch have also done a lot of further digging.
Among the most engaging interviewees cited in the book is Minos Zombanakis, the Greek banker who invented Libor in 1969. “Back then the market was small and run by a few gentlemen,” Zombanakis says.
“We took it for granted that gentlemen wouldn’t try to manipulate things like that. But … banking now is like a prostitution racket run by pimps.”
The authors do a similarly good job at getting inside the US regulator that led the charge on the Libor probe, and point an accusatory finger at the likes of the Bank of England, the Financial Services Authority and the British Bankers’ Association, all of which were either slow to respond to the emerging scandal or actively obstructive.
City types may feel they have read much of this before. They probably have. Vaughan and Finch were closely involved in reporting the scandal and a good chunk of the information has been published already on the Bloomberg wire service.
The Fix is essentially a patchwork of their reporting, supplemented with their own further research alongside thoroughly footnoted reporting taken from other media organisations.
Chief among those is the Wall Street Journal, whose Libor investigator, David Enrich, will have his own book out in a few months’ time.
Enrich’s advantage is that he had long-term access to Hayes and his wife and can tell the tale with insights that Vaughan and Finch can only guess at.
That is not to criticise The Fix. City obsessives could well feel inclined to read both. /©
WE TOOK IT FOR GRANTED THAT GENTLEMEN WOULDN’T TRY TO MANIPULATE THINGS LIKE THAT