Finch Gavin - The fix: how bankers lied, cheated and colluded to rig the worlds most important number

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Liam Vaughan
and Gavin Finch

This edition first published 2017
2017 Liam Vaughan and Gavin Finch

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To Robert, a class act

There were four of us at a table by the bar, eyeing each other with suspicion: two reporters, a highly paid derivatives trader in his early thirties, and a lawyer who had cautiously brokered the meeting. We'd just written a story about how the trader and a handful of his colleagues had been sacked, and he was incensed. His reputation was ruined, and he was aggravated by what he saw as the fundamental ignorance of the press. Did we even understand what Libor was? Did we understand what Libor had become?

On that chilly afternoon in February 2012, at a near-empty hotel bar in central London, the word Libor had not yet entered the public vernacular. In the world of finance, it was common. Libor was the name of a benchmark interest rate, one that was both mundaneit was just a measure of how much it cost banks to borrow from each otherand extraordinary. Libor was in everything, from mortgages in Alabama to business loans in Liverpool to the hundreds of billions of dollars in bailout money given to banks during the financial crisis. It was sometimes called the world's most important number, and the trader sitting across from us was accused of trying to manipulate it.

Why do you need to know that? he snapped when we asked. He had heavy bags under his dark, narrow eyes. All we needed to appreciate, the trader insisted, was that Libor wasn't what we thought it was. There are no rules, he said, avoiding eye contact. There never have been. This is all a fucking joke. When we pressed him for specifics, he clammed up. After the second round of drinks arrived, we tried a different approach. What was it we didn't understand?

The trader shook his head impatiently. Discussing Libor with colleagues and counterparts was as much a part of life on the trading floor as debauched nights out and crude language, he said. It had been going on forever and was widely condoned by management. But it had gotten more complicated than that, he continued. Libor had broken down. It was supposed to be a measure of how much lenders paid each other to borrow cash, but since the crisis, banks no longer lent to each other at all. Libor had become a fictional construct, dreamed up each day in the minds of a group of bankers with a vested interest in where it was set. The world's most important number was a fraud.

After an hour and a half, the trader relented and gave us his name. We asked if we could meet again and struck a deal: If we promised never to mention our meetings in our articles, he said he would guide us through the secretive, close-knit world of derivatives tradinga rarefied ecosystem where mathematically gifted young men bet billions of dollars of their employers money on movements in complex securities few people understand, then come together in restaurants and clubs in the evenings to enjoy the spoils.

The party was ending fast. A few days earlier, the first official document alleging Libor manipulation at a group of major banks had leaked. The affidavit filed by antitrust authorities in a court in Canada was light on details and, beyond a few brief news items, attracted little interest from the mainstream media. Still, we were intrigued. One of the more shocking aspects of the case was that the traders involved worked for the very banks whose recklessness had helped bring the global financial system to its knees in 2008. We had listened to kowtowing executives from bailed-out behemoths like UBS, Royal Bank of Scotland and Citigroup tell the public how they had reformed. If the Libor allegations were true, rather than learning their lesson, the banks were behaving worse than ever.

Six traders and brokers were named in the Canadian document, but the individual who was pulling the stringsthe kingpin at the center of the conspiracywas referred to only as Trader A. This was tantalizing. How had he done it? How had one man managed to shift one of the central pillars of the financial system in the years when the banking authorities were supposedly at their most vigilant? And what kind of individual would have the chutzpah to even try?