
Was Tom Hayes Running the Biggest Financial Conspiracy in History? - chollida1
http://www.bloomberg.com/news/articles/2015-09-14/was-tom-hayes-running-the-biggest-financial-conspiracy-in-history-
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georgeecollins
I think there is a huge double standard with white collar crime where we worry
if we are prosecuting the "right" people. Was this person the ring leader or
just a foot soldier? Clearly what he did was wrong. If he were a poor drug
dealer there would be little sympathy for the arguement that he was being
overcharged. But with an upper class person who we can relate to, we worry the
system is unfair.

How about having a system that is tough on white collar criminals, but
imprefect? No one seems to mind a system like that for other crimes.

~~~
rce
Just because we overcharge some doesn't mean we should expand that and
overcharge even more. Overcharging, mandatory minimums, sentencing guidelines,
etc. are the reason the US prison population dwarfs that of other nations. We
need to focus on rehabilitation and prevention for crimes like the drug dealer
you mentioned not expand our prison population further by excessively charging
in more and more crimes.

~~~
samstave
Penalties for crimes that affect such large groups or even populations should
be very harsh. Penalties for public services (police/politician corruption or
actions) should be super harsh.

Police, institutional execs (bankers/doctors) and politicians should have a
penalty structure that incentivizes appropriate behavior.

Just as they impose such rules downstream they should be subject to very harsh
penalties when they exploit their positions.

------
lordnacho
I most likely traded with this guy in my days on an interest rate desk. I am
now not in the least in doubt that price-fixing behaviour occurred in the
market at the time, and possibly still does (investigations must have spooked
people).

Back in those days, I was working at a fund that held positions in rates,
equity index options, and currency derivatives. These are all instruments that
depend on some sort of fix to determine a payout. I spent a LOT of time
staring at Bloomberg charts when the fix was due. And over that time, I never
shook the suspicion that people were systematically rigging these fixings. It
was a time of very low volatility before the financial crisis, and yet you
would see all these strange spikes on the third Friday of each month (equity
index expiry) and often at 1600 (WM/Reuters Currency fix). It coincided with
brokers saying such-and-such had a big position. Without being privy to the
actual manipulation, there was always the plausible idea that the big player
was hedging his risk, but it happened so often you tended to think it was a
setup. With LIBOR, it was a bit different because we didn't have a line into
the fixing desks.

I wonder how this will play out. Hayes is right that he is an unlikely fall
guy. There can be no doubt his bosses understood how this was done. His boss
would have been either a trader or a broker. He would have understood
precisely why you would want to move the rate. They can also see the PnL
statements and positions, so they know the dv01 (value of a basis point) of
the fix. For the record, a million bucks per bp is not a huge amount. I know
it sounds like a lot, but there are guys out there swinging 20M a day on
average, and quite a lot more.

I'm also not shocked that Hayes says it's normal. Anyone who's ever sat on a
trading desk has realised that if you could move the market at fixing time,
you could make money. The article talks a lot about his Asperger's, and I
guess you're meant to speculate that he didn't quite get that he was doing
explicitly what other people would do with a wink and a nudge. It's not the
first time I've heard rumours involving brokers and brown envelopes.

In any case, I hope the recent fixing scandals have lessened the temptation
for people. It ruins the market when everyone suspects foul play.

~~~
cm2187
It reminds me of Fabrice Tourre. They blamed the whole originate and
distribute scandal on a 28yo VP. Blame the Frenchman!

It doesn't excuse the behaviour but I find hard to believe the desk heads knew
nothing about it.

[Update]: that being said he probably paid for adding stupidity to his
criminal behaviour by documenting his crimes on recorded chatrooms.

------
chollida1
Interesting discussion on Tom Hayes, the man who was convicted of manipulating
LIBOR( One of the more important borrowing rates).

The article seems to play up Hayes' Asperger’s as almost an excuse as to why
he could do what he did with little emotion.

Just like breaking into a computer system, he used human engineering rather
than hacking to rig LIBOR in his favor. He litterally became friends with the
people who helped set LIBOR and asked them to help set LIBOR in the direction
he wanted.

> For Hayes, it was a light-bulb moment. He knew that banks had always
> tailored their Libor submissions to benefit their own positions, but the
> system resisted tampering: no single institution could have much impact on
> the overall rate when 15 other banks were doing the same thing. But Hayes
> had worked at enough banks and befriended so many brokers that he realized
> he could sway several submitters at once. He could pull their strings
> without them even knowing it. And Hayes was on better terms with his brokers
> than most. They had in Hayes a kindred spirit—a state school Londoner with a
> cockney accent.

~~~
youngtaff
I think the harsh reality is he was a foot soldier, and the people who
encouraged him got away (so far)

~~~
marcusgarvey
You guessed it. Hayes actually submitted as evidence a UBS instruction manual
on rigging the rate. [http://www.bloomberg.com/news/articles/2015-06-18/ubs-
gave-o...](http://www.bloomberg.com/news/articles/2015-06-18/ubs-gave-out-
instruction-manual-on-fixing-libor-hayes-said)

~~~
WillPostForFood
That's conflating two issues - UBS was setting their own number in their own
interest. Hayes was bribing people at other banks to manipulate the rate. Both
are bad, but Hayes was in another class of bad.

~~~
marcusgarvey
I disagree. Was Hayes acting solely on his own behalf, or on theirs as well?
Were these or other attempts to manipulate Libor sanctioned by UBS? From
another article:

"The document [that Hayes points to] instructs Libor submitters to clear their
judgements on the rate with certain named traders. Defence lawyer Neil Hawes
last week suggested the traders held derivatives positions dependent on
Libor."

[http://www.risk.net/operational-risk-and-
regulation/news/241...](http://www.risk.net/operational-risk-and-
regulation/news/2417331/hayes-ubs-libor-guide-proves-bank-threw-him-under-the-
bus)

------
apalmer
The article if anything makes him seem like more of a patsy than a ringleader.
He made everyone above and below him who was in contact with him exactly aware
of what he was doing. Those above him new exactly what was going on and all
they had to say to stop it was 'no'.

~~~
lotharbot
I wouldn't call him either a patsy or a ringleader. He seems like something in
between -- a linchpin. LIBOR manipulation was already happening, those above
him wanted it to happen, which means he wasn't the ringleader. But he was the
guy who made the connections to make it happen more effectively, not a mere
footsoldier, but a critical piece of the apparatus.

~~~
dsmithatx
If manipulation was already happening how could he suddenly be the linchpin?
Wouldn't it make more sense that he was one of many who paid to manipulate the
rate and profit? I think he just found an opportunity others had already been
exploiting. I'd call him the scapegoat who ended taking up most of the blame.

~~~
gnoway
In the same way anyone who comes into a situation where they are more
competent than the people they replace become a linchpin. If you come in and
make a thing a lot better than anyone else in your organization is capable of
making it, you become the go-to person for that thing.

------
arca_vorago
You want know what my biggest gripe about the LIBOR scandal is? The fact that
the fed chose the LIBOR as the market rate in the first place, effectively
ceding a huge amount of monetary control to a set of private bankers, but not
only that, ceding that control to the private bankers _of another country_ ,
and not only that, but they knew the rate was being manipulated no later than
2007, and stuck with it and said nothing anyway!

I think the fed needs to be audited and the Federal Reserve Act should be
gotten rid of and the power they have should rest with congress _as the
constitution states it should!_.

Also, I think this is the most important part of this article: "who in turn
were acting on instructions from the Bank of England." So the two top guys in
the bank are secretly being prosecuted, and we don't know their names, but
what about the Bank of England? Any prosecution against anyone there?

------
matt_morgan
So I read the whole thing. Are the only people being prosecuted the ones that
influenced the bankers to lie about the borrowing rates? Why would you
prosecute the ones who made the request, but not the ones who fabricated the
rates?

~~~
asdfologist
"The SFO says privately it plans to charge further co-conspirators in the
months ahead."

------
rayiner
Bringing his Asberger's into the story? Really? Spending pages talking about
Hayes' superhero bed sheet is offensive to him and demeaning to the real story
here: LIBOR is decided by a bunch of banks calling up brokers at random?!

Journalism, especially long-form journalism, is just a spectacularly bad
medium for talking about systems problems.

~~~
0898
>the real story here: LIBOR is decided by a bunch of banks calling up brokers
at random

This. Am I missing something, or is it bizarre that LIBOR came to play such a
significant role in the financial markets, given it's so hackable?

A facetious comparison would be how every year people bet on what colour hat
the Queen will wear on Ladies Day at Royal Ascot. If suddenly trillions were
being staked on this market, could you prosecute a courtier for handing her a
strawberry bonnet?

~~~
tedunangst
It makes sense that the banks started setting LIBOR. It's the rate they lend
to each other. Sometime they borrow, sometimes they lend. In theory, everybody
voting on a fair rate results in a fair rate.

BUT... Other people saw this rate which looked like a really convenient
benchmark, and started using it as a benchmark. Now you have all the makings
of a conflict of interest.

------
Mikeb85
If it was the biggest in history he likely wouldn't have been caught.

While the amounts he was trading seem pretty massive, the truth is there are
some traders that handle much more money. Never mind the banks themselves,
trading firms, governments, etc...

There's no doubt that, if larger actors wanted, they could run much larger
scams and not get caught.

Tom Hayes only got caught because he wasn't big enough.

~~~
eli
I don't follow your logic. Isn't a larger scheme always more likely to be
noticed than a smaller one?

~~~
a3voices
Well the largest scheme is probably how banks create money out of nothingness
through lending, but it's legal.

"By creating money in this way, banks have increased the amount of money in
the economy by an average of 11.5% a year over the last 40 years. "

~~~
ecdavis
I don't think fractional reserve banking really counts as a scheme or a
conspiracy. It's not secret at all, completely legal and has been widely
studied by economists. I think "banks create money out of nothingness" is also
a mischaracterization. It's more like currency minted by the private sector.

That being said, I think there is something about it that fundamentally
offends human sensibilities.

~~~
logfromblammo
The only thing not quintessentially conspiratorial about it is that everybody
knows about it and believes that it is actually happening.

It is _not_ like currency minted by the private sector. That would be more
akin to futures contracts settled by physical delivery or prepaid service
contracts. The private sector has to back up its currency with actual goods or
services. If you issue hemp futures, you had damned well better be a hemp
farmer _and_ insure your crop, and if you issue hemp scrip, you'd better have
some actual reserves of hemp in your warehouse.

All that is backed by _something_ , even if it is little more than a
believable promise.

The promise that backs fractional reserve is that you can have your cake and
eat it, too. If you make a deposit, you can withdraw 100% of it at any time,
even though they will immediately lend 90% of it to someone else. That someone
else will then bid against you for the same goods and services, using exactly
the same money you are bidding with.

Lets say you deposit $100. You want a doodad from Jack Handy. Joe Blow also
wants that doodad, and he has $0. But the bank manager is his brother-in-law,
so he can qualify for a loan of any size. Ordinarily, you could get the doodad
for $50. But Mr. Blow starts a bidding war with you, using your own money, and
the final price is $60. If you win, you write a check for $60, and Jack Handy
deposits $60. The bank has the same amount in reserves, and can issue the same
amount in loans. If Joe wins, the bank lends him $60 of _your_ money, writes a
check for $60, and Jack Handy deposits it. The bank _still_ has the same money
in reserves, but has promised to pay the _same_ $60 to _both_ you and Jack.
Thanks to the trick, you effectively lost $37.50 (100x60/160) for the doodad
you didn't get, Jack effectively lost $12.50 ($50-37.50)--surprise! $60 of
lender-inflated bank credit is worth less than the $50 in cash--and Joe is now
paying the bank rent on the doodad.

    
    
          | before deposit       || after deposit        || after Joe buys       |
          | Cash | Credit | Debt || Cash | Credit | Debt || Cash | Credit | Debt |
      ----+------+--------+------||------+--------+------||------+--------+------|
      You | $100 |     $0 |   $0 ||   $0 |   $100 |   $0 ||   $0 |   $100 |   $0 |
      Jack|   $0 |     $0 |   $0 ||   $0 |     $0 |   $0 ||   $0 |    $60 |   $0 |
      Joe |   $0 |     $0 |   $0 ||   $0 |     $0 |   $0 ||   $0 |     $0 |  $60 |
      Bank|   $0 |     $0 |   $0 || $100 |    $90 | $100 || $100 |    $30 | $160 |
    

The are not creating money out of nothing. They are creating credit out of
their own debts, and screwing everyone else over hard in the process. They are
literally the _only_ winner in the above scenario.

~~~
dragonwriter
> It is not like currency minted by the private sector. That would be more
> akin to futures contracts settled by physical delivery or prepaid service
> contracts. The private sector has to back up its currency with actual goods
> or services.

Well, except in the real world where, before banking regulators stepped in and
stopped it, one of the common forms of privately-issued currency was by
private banks issuing loans (including in the form of privately-printed
banknotes) _without_ regulated reserve requirements.

~~~
logfromblammo
The parent post was comparing fractional reserve banking to privately issued
money, and I interpreted that to be excluding bank-issued currency.

That would still include stuff like payroll scrip redeemable only at the
company store.

------
hyperliner
This is just like the movie Goodfellas, except Tom Hayes (a.k.a. "Henry Hill")
was not smart enough to, in a timely manner, seek out the prosecution and
rattle everybody out in exchange for entering the Witness Protection Program
or some form of clemency.

From what I have read in different cases involving a criminal group or simply
a group of teenagers vandalizing a place, it does help to be the first one to
talk to the police. Once the police / prosecution has enough information to
make a case, they don't need anybody else.

(For those who have not seen the movie, it's a good movie to watch.)

~~~
gvb
He _did_ "enter a “supergrass” (informer) deal in the U.K." and ratted out
everybody.

After ratting out everybody (and avoiding extradition to the US), he withdrew
from the plea deal and gambled that the UK jury would be sympathetic.

 _On Oct. 9, as the SFO was finalizing its case against Hayes and his co-
conspirators, a white envelope arrived. It was from Hayes’s lawyers. “As a
matter of courtesy we are now in a position to advise that Mr. Hayes will
plead Not Guilty to all Counts,” the letter said. “Accordingly he now formally
withdraws from the process.” Having avoided extradition, the natural born
trader was taking the biggest risk of his life, reneging on the deal and
entrusting his fate to random jurors in a London courtroom._

~~~
eric_h
Seems as though that was the worst gamble he ever made. His other gambles were
with others' money (essentially just gambling his job) - this one was for 14
years of his life.

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cowardlydragon
Nope. Oops. Hit enter too fast.

Notice the targeting of key employees that aren't paid that much but wield a
lot of influence? I'd guess this guy actually doesn't play the shadows game
that well if he is Aspergers.

Imagine what goes on with people with better understanding, more money to
bankroll them, better payoffs? Oh yeah, politics as usual.

------
rwmj
I'm supposed to feel sorry for him? He defrauded people out of real money,
just the same as if he'd picked their pockets on the street. He got 14 years
for it — good.

~~~
mschuster91
Nope, he defrauded banks. Banks are not people.

~~~
jgalt212
He defrauded real people whose borrowing costs and investment proceeds are a
function of the daily LIBOR fix.

------
coldcode
Given the long process to bring this to justice, imagine all the ones that
never get that far. It's much easier to convict someone of stealing bread from
a 7-11.

