The Spider Network Book Summary - The Spider Network Book explained in key points

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The Spider Network summary

Name: The Spider Network
Rating: 4.3 (73 reviews)
Author: David Enrich

David Enrich

The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History

4.3 (73 ratings)

18 mins

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Biographies Investments

Table of Contents

The Spider Network
Summary of 7 key ideas

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Key idea 1 of 7

What’s in it for me? See behind the scenes of a corrupt and broken banking system.

After the 2008 financial crisis, people were eager to see rich bankers get locked away for their careless toying with the financial system. But when things come crashing down, is it fair to blame the individuals who work in finance, or should we rather look at how the banking system is set up?

These blinks try to answer this question by telling the story of Tom Hayes, the infamous math wiz who ended up taking the fall for the banking industry’s reckless habit of manipulating interest rates. From the innocent lunch-money deals he made as a teenager to him being designated the criminal mastermind of the “Spider Network,” Hayes’s story is laid out in full. You’ll learn how the most common benchmark interest rate index in the world – Libor – was manipulated, and what happens when traders, brokers and bank executives are left to operate without oversight.

You’ll also learn

how Hayes’s mild Asperger’s got him in trouble;
that Hayes managed to make $10 million in just one day;
why Hayes was the only banker to be convicted.

Tom Hayes was always good with numbers, but he had trouble making friends.

Even as a child, Tom Hayes had a knack for numbers and knew how to cut a favorable deal.

In 1995, when he was just 15 years old and living in Winchester, England, Hayes lent his lunch money to a friend with a 50-percent interest rate. This way, for every five pounds he loaned out, Hayes would earn himself a nice profit of £2.50.

Around this time, he also became fascinated with the slot machines that could be found at local pubs. Hayes would watch one intently, figure out its pattern and always jump in at the right time to win a payout.

Unfortunately, Hayes’s mathematical ingenuity seemed to come at a cost, as he was always bad at socializing and making friends.

During his days at school, Hayes was bullied for his tendency to dress quite neatly, with a sharp blazer.

Lacking a positive male role model didn’t help matters, either. After cheating on his mom, Hayes’s father left the picture quite early on.

But the reason Hayes struggled with relationships was likely a mild and undiagnosed form of Asperger's.

All the symptoms were there: He could focus intensely on complex mathematical problems, he always avoided making eye contact and when he was upset, he could snap into a fit of rage.

What comforted Hayes was the reliable logic of math, and that’s what drew him toward the stock market.

In 1999, while at the University of Nottingham, he interned at UBS, an international Swiss bank, and learned some of the basics of trading stocks and bonds. From there, Hayes became hooked on the intricate world of finance and, in the fall of 2001, landed a permanent job at the Royal Bank of Scotland.

Libor is a confusing but important interest rate that is closely tied to the derivatives market.

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.

Hayes became part of a large international group that manipulated Libor rates to benefit the holdings of their banks.

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.

Complicit banks enabled Libor manipulation for years, earning Hayes and UBS millions.

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.

After Hayes left the toxic environment of UBS, people began to notice Libor’s strange behavior.

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.

Tom Hayes, confused and angry, was betrayed by his former colleagues as the Libor investigation came to a close.

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.

Tom Hayes was a scapegoat for a corrupt and broken banking system.

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.

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What is The Spider Network about?

The Spider Network (2017) tells the fascinating story of Tom Hayes, the man who took the fall for the banking industry’s secret habit of manipulating interest rates. It’s a tale of what happens when traders, brokers and bank executives are allowed to operate without oversight.

Best quote from The Spider Network

[Hayes] reminded a colleague of the Neo character in the Matrix trilogy: He could just see the numbers.

—David Enrich

Who should read The Spider Network?

Traders, brokers and anyone interested in the stock market
Investors hoping to avoid getting fleeced
Fans of a good corporate crime story

About the Author

David Enrich is the Financial Enterprise Editor for the Wall Street Journal, where he leads a team of investigative journalists. His reporting has won a number of awards, including the 2016 Gerald Loeb Award for his work on the Libor scandal, which he expanded into his book, The Spider Network.

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Money & Investments Biography & Memoir

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