Follow-up Friday: Many LIBOR Liars, One Conviction

Waiting since 2012 with baited breath for the outcome of the LIBOR scandal investigations.

Photo credit: John Gapper axce3q7cqaewfe7

     Being economically illiterate has its consequences. Those lowest on the totem pole will take the hardest hit. Mish’s Global Economic Analysis

In 2009, twenty-nine-year-old Tom Hayes was making £325,000 (about $500,000 in 2009 dollars) a year at Swiss Bank UBS. His reputation as a super trader caught the attention of Citibank head hunters, who lured him across the Atlantic and paid him £3.5 million for nine months’ work ($5.25 million).

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Yours for only $19.95 from Walmart.

Pretty good for a math nerd who used his childhood superhero bedspread until he was twenty-four, and was known by his colleagues as “Tommy Chocolate” because he preferred cocoa to beer.

Then Citibank fired him.

Turns out Mr. Hayes was the ringleader in a cabal of traders who were rigging interest rates. But — was it just Tom Hayes and the traders, or did everybody know, right up to the CEOs?

This month, Hayes was the first person to be convicted of manipulating the London interbank offering rates (LIBOR) for profit. He was found guilty on eight counts of conspiracy to defraud and sentenced to fourteen years.

     If you aint cheating, you aint trying. Trader at Barclay’s

Happy ending for the rest of us?

Bring out the toothpicks and prop up your eyelids. This is soporific, but we must try to understand.

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Zzzz … (Photo credit Mark Engelbrecht)

Why it matters: LIBOR is what banks charge each other for loans. Businesses and governments everywhere rely on it to set their own rates on loans, mortgages, and derivatives, and it affects ordinary people investing in houses, paying student loans, car and mortgage loans, even tourists buying foreign currencies on vacation.

The crime: bankers and traders placing bets, then rigging interest rates so that they won their bets.

             It’s just amazing how libor fixing can make you that much money. (Quote by a trader)

What’s happened since?

(1) Lawsuits are pending.

(2) Oversight of LIBOR has been instituted.

(3) UBS AG, pled guilty in the US to manipulating the LIBOR and paid $203 million. Four other banks – Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland and UBS AG – pled guilty to felony charges in a related case for manipulating the price of U.S. dollars and euros (FX). The fine: over $2.5 billion. Seven banks have been fined over $10 billion in Europe and the United States.

Missing? The big boys.

  • Robert Diamond, fired from Barclays for his role in the scandal: founded a new bank.
  • Fred Goodwin, aka Fred the Shred, head of the Royal Bank of Scotland, which has been fined millions: enjoys a generous, taxpayer-funded pension.
  • Andy Hornby, who presided over the collapse of the HBOS: thriving as head of a betting empire. 
  • Panagiotis Koutsogiannis, aka Pete the Greek, a manager of UBS who chat-messaged Hayes about fixing rates: will not be prosecuted.
  • Alex Wilmot-Sitwell, described as “grossly incompetent” by the head of the Tory party for his involvement in the LIBOR scandal: Head of Bank of America’s European business. 
  • Citibank, Haye’s boss for a year (they fired him when the LIBOR scandal began to boil) and the biggest LIBOR liarNone of Citibank’s higher ups are under scrutiny. 

Hayes has been diagnosed with autism, and didn’t have to sit in the docket during the trial. He was accompanied by an aide who calmed him when he got upset and waved his arms around. He and his wife cried at the sentencing. In his defense, he said:

  • “The practice [of fixing rates] was tried and tested, it was so endemic within the bank (UBS), I just thought … this can’t be a big issue because everybody knows about it … (it was) such an open secret.”
  • “I was very, very, very open, very transparent … All my managers knew. I had no reason to think that it was wrong.”
  • He wasn’t motivated by money, but wanted “to do my job as perfectly as I could do it.”

Perfect? Maybe for the big boys.

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