Bloomberg Businessweek: Was Tom Hayes in Charge of a $350 Trillion Conspiracy? Or Just Taking the Fall For One

The following is an excellent article written by Liam Vaughan and Gavin Finch in the September 21 – September 27, 2015 issue of Bloomberg Businessweek on page 54 titled “Was Tom Hayes in Charge of a $350 Trillion Conspiracy? Or Just Taking the Fall For One” and online titled “Was Tom Hayes Running the Biggest Conspiracy in History?” and I quote:
Was Tom Hayes Running the Biggest Financial Conspiracy in History?
Or just taking the fall for one?”
Liam Vaughan Gavin Finch
Bloomberg Businessweek
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September 14, 2015 — 1:12 AM CDT
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Former UBS trader Tom Hayes leaving Westminster Magistrates on June 20, 2013, after appearing in court.

Former UBS trader Tom Hayes leaving Westminster Magistrates on June 20, 2013, after appearing in court.
Photographer: Andrew Cowie/AFP via Getty Images
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On a deserted trading floor, at the Tokyo headquarters of a Swiss bank, Tom Hayes sat rapt before a bank of eight computer screens. Collar askew, pale features pinched, blond hair mussed from a habit of pulling at it when he was deep in thought, the British trader was even more disheveled than usual. It was Sept. 15, 2008, and it looked, he would later recall, like the end of the world.

Hayes had been awakened at dawn in his apartment by a call from his boss, telling him to get into the office immediately. In New York, Lehman Brothers was plunging into bankruptcy. At his desk, Hayes watched the world process the news and panic. Each market as it opened became a sea of flashing red as investors frantically dumped their holdings. In moments like this, Hayes entered an almost unconscious state, rapidly processing the tide of information before him and calculating the best escape route.

Hayes was a phenom at UBS, one of the best the bank had at trading derivatives. All year long, the financial crisis had been good for him. The chaos had let him buy cheaply from those desperate to get out and sell high to the unlucky few who still needed to trade. While most dealers closed up shop in fear, Hayes, with his seemingly limitless appetite for risk, stayed in. He was 28 years old, and he was up more than $70 million for the year.
Featured in Bloomberg Businessweek, Sept. 21-27, 2015. Subscribe now.
Featured in Bloomberg Businessweek, Sept. 21-27, 2015. Subscribe now.
Photographer: Andrew Parsons/i-Images/Polaris

Now that was under threat. Not only did Hayes have to extract himself from every deal he’d done with Lehman, but he’d also made a series of enormous bets that in the coming days, interest rates would remain stable. The collapse of the fourth-largest investment bank in the U.S. would surely cause those rates, which were really just barometers of risk, to spike. As Hayes examined his tradebook, one rate mattered more than any other: the London interbank offered rate, or Libor, a benchmark that influenced $350 trillion of securities around the world. For traders like Hayes, this number was the Holy Grail. And two years earlier, he had discovered a way to rig it.

Libor was set by a self-selected, self-policing committee of the world’s largest banks. The rate measured how much it cost them to borrow from each other. Every morning, each bank submitted an estimate, an average was taken, and a number was published at midday. The process was repeated in different currencies. During his time as a junior trader in London, Hayes had gotten to know several of the 16 individuals responsible for making their bank’s daily submission for the Japanese yen. His stroke of genius was realizing that these men mostly relied on interdealer brokers, the fast-talking middlemen involved in every trade, for guidance on what to submit each day.

Hayes saw what no one else did because he was different. Hayes’s intimacy with numbers, his cold embrace of risk, and his manias were more than professional tics; they were signs that he’d been wired differently since birth. Hayes would not be officially diagnosed with Asperger’s syndrome until 2015, when he was 35, but his co-workers, many of them savvy operators from fancy schools, often reminded Hayes he wasn’t like them. They called him Rain Man. Most traders looked down on brokers as second-class citizens, too. Hayes recognized their worth. He’d been paying them to lie ever since he had.

By the time the market opened in London, Lehman’s death was official. Hayes instant-messaged one of his brokers in the U.K. capital to tell him what direction he wanted Libor to move. “Cash mate, really need it lower,” he typed, skipping any pleasantries. “What’s the score?” The broker sent his assurances and, over the next few hours, followed a well-worn playbook. Whenever one of the Libor-setting banks called and asked his opinion on what the benchmark would do, the broker said—incredibly, given the calamitous news—that the rate was likely to fall. Libor was often called “the world’s most important number,” but this was how it was set: conversations among men who were, depending on the day, indifferent, optimistic, or frightened. When Hayes checked later that night, he saw to his inexpressible relief that yen Libor had fallen.

Hayes was not out of danger yet. Over the next three days, he barely left the office, surviving on three hours of sleep a night. As the market seesawed, his profit and loss in one stretch went from minus $20 million to plus $8 million in just hours. Amid the bedlam, Libor was the one thing Hayes had some control over. He cranked his network to the max, offering his brokers extra payments for their cooperation and calling in favors at banks around the world. By Thursday, Sept. 18, Hayes was exhausted. This was the day he’d been working toward all week. If Libor jumped today, his puppeteering would have been for naught. Libor moves in increments called basis points, equal to one one-hundredth of a percentage point, and every tick was worth roughly $750,000 to his bottom line.

For the umpteenth time since Lehman faltered, Hayes dialed one of his most trusted brokers in London. “I need you to keep it as low as possible, all right?” Hayes said. “I’ll pay you, you know, $50,000, $100,000, whatever. Whatever you want, all right?”

“All right,” the broker repeated.

“I’m a man of my word,” Hayes said.

“I know you are. No, that’s done, right, leave it to me,” the broker said.

Hayes was still in the office when that day’s Libor was published at noon in London. The yen rate had fallen one basis point, while comparable money market rates in other currencies continued to soar. Hayes’s crisis had been averted. Using his network, he had personally tilted one of the central pillars of the planet’s financial infrastructure. He pulled off his headset and headed home to bed. He’d only recently upgraded from the superhero duvet he’d slept under since he was 8 years old.”

(THIS IS A GREAT ARTICLE.  JUST PROVING HOW BAD THE DERIVATIVE MARKET IS.  ALL YOU HAVE TO DO IS BE A GOOD LIAR, LIKE TOM HAYES.  THE PROBLEM FOR HIM, THOUGH, IS HE MADE SOME MISTAKES AND FINALLY WAS BEING INVESTIGATED BY ATTORNEY GENERAL ERIC HOLDER, WHICH LATER LED TO HIS CONVICTION AND A 14-YEAR JAIL SENTENCE IN ENGLAND FOR RIGGING LIBOR (LONDON INTERBANK OFFERED RATE).  THIS IS A RATHER LENGTHY STORY BUT WELL WORTH READING.  IT REMINDS ME OF CON MEN LIKE “THE WOLF OF WALL STREET,” JORDAN BELFOUR, AND OTHERS LIKE ENRON’S KENNETH LAY  AND BERNARD MADOFF, WHICH WERE ALL SMOOTH OPERATORS.  SO LONG AS OUR GOVERNMENT WAS SO LAX BECAUSE OF POOR REGULATIONS AND STILL EXIST, WHAT ELSE CAN YOU EXPECT FORM THE BIG INVESTMENT BANKS AND THE HEDGE FUND THAT RUN THEM KEEP GETTING AWAY WITH MURDER?  THAT’S WHY QUESTIONS LIKE THIS MUCH BE ANSWERED IN THE REPUBLICAN AND DEMOCRATIC PRESIDENTIAL PRIMARIES.  DONALD TRUMP MADE THE COMMENT THAT “HEDGE FUND DEALERS WERE GETTING AWAY WITH MURDER.”  SO, HOPEFULLY, IF WE WANT OUR FINANCIAL SYSTEM TO TURN AROUND, THESE QUESTIONS HAVE TO BE ANSWERED BY THE CANDIDATES, OTHERWISE, THE MEDIA.  AND SENATOR HILLARY CLINTON SAYING IN 2008, WHEN RUNNING FOR PRESIDENT THAT HEDGE FUNDS SHOULD BE TAXED.

LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran

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About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog (my.barackobama.com) and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
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