The Spider Network summary

While working at the Royal Bank of Scotland, Hayes was introduced to the complicated business of Libor, a common benchmark that stands for London Interbank Offered Rate and is used around the world to determine interest rates.

Libor is determined by having certain banks around London regularly submit the average rate of what it costs for them to borrow money. This rate essentially reflects how much other banks are charging them to take out a loan. Once these numbers are submitted, they’re averaged out, and this figure becomes the current Libor, which is used as a benchmark for a variety of purposes, such as mortgages.

Tom Hayes quickly became a success in finance. It was like his brain was perfectly wired for this kind of work. So, in 2006, after making millions for the Royal Bank of Scotland, he accepted an offer to work for UBS, but this time for their branch in Japan.

Hayes continued to prove how well his math skills could be put to work in the complex world of derivatives and fluctuating interest rates. He became so adept at navigating the Japanese market that his name was soon recognized as a powerful force in that part of the financial world.

So how did Hayes compensate the brokers for going along with his scheme? One of his go-to rewards was a switch trade.

This involves two traders, Trader A and Trader B, using a broker to set up a million-dollar trade. First, the trade would go in one direction, from A to B, and then a short while later the same exact trade would be made in the other direction, from B to A.

At this point of the story, it’s important to keep Hayes’s personality in mind and remember that, ever since he was a kid, he’d had a hard time making friends.

This problem continued into his adult life, and you could even say it grew worse in the banks’ aggressively macho work environment, where people casually curse up a storm and enjoy coming up with offensive nicknames for each other.

Just before Hayes turned 30, Britain’s Barclays bank responded to the CFTC’s request for information with direct evidence of their Libor tampering. Hoping for leniency by being as cooperative as possible, Barclays even included a recording of two Barclays employees talking about receiving executive orders to manipulate Libor.

It was now becoming clear that the banking industry was home to a new kind of rampant, systemic wrongdoing. And, as more evidence came in, Hayes found himself being singled out as the one “bad apple” behind it all.

The truth is, it took a lot of cooperative and coordinated effort for Libor rates to be adjusted so that Hayes and others could benefit from them. While Tom Hayes may have been a difficult person to work with, the Libor scandal happened because the financial system taught brokers and traders to make money however they could.

Nevertheless, when it came time for a verdict, Hayes was the only one to be convicted, and it wasn’t a mere slap on the wrist: he was sentenced to 14 years in prison.