The Spider Network | David Enrich

Summary of: The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History
By: David Enrich

Introduction

Welcome to the thrilling tale of ‘The Spider Network,’ based on the true story of Tom Hayes, a mathematics prodigy who ventured into the high-stakes world of finance. As you journey through this summary, you’ll learn about Hayes’s early struggles with socializing and relationships, his entry into the banking industry, and his eventual entanglement in one of the greatest financial scams in history – the Libor scandal. Delve into the intriguing world of derivatives, interest rates, and the manipulation of a crucial financial benchmark that eventually led to sensational headlines and legal repercussions.

The Story of Tom Hayes

Meet Tom, a mathematical prodigy with a troubled past but an unlimited future in the finance world. Starting from his early days, Hayes displayed an unparalleled talent for numbers. He would lend money to friends with an incredible 50-percent interest rate, and his win-at-all-cost attitude would see him pocket more than his fair share from slot machines. Throughout his life, he struggled to socialize, dressing neatly and avoiding eye contact whenever possible. His father’s early departure didn’t help. Tom Hayes was living with mild Asperger’s, making him an outsider with his unique condition. Nevertheless, the upside to Tom’s condition was his hyper-focused brain, which was a perfect fit for stock market trading. In 1999, he interned at UBS, a Swiss bank, learning the basics of trading. From there, there was no turning back. Soon, he had landed a job at the Royal Bank of Scotland, where his genetic coding proved advantageous, and he started making crucial decisions that would ultimately shape the global finance world.

The Untold Story of Libor Manipulation

Tom Hayes uncovers the rigged scheme of Libor manipulation by banks for their financial gain.

Tom Hayes, while working at the Royal Bank of Scotland, explored Libor, the London Interbank Offered Rate, a crucial benchmark used globally to determine interest rates. Libor is based on the average rate of borrowing money submitted by different banks in London, and it influences various transactions like mortgages across the world. However, banks were trusted to submit honest numbers without any system to verify accuracy, leading to incorrect rates and rigged systems.

Tom Hayes discovered that Libor played a significant role in derivatives, which were increasingly popular in the 2000s. Banks used derivatives as a contract for insuring against risks, like a client not making mortgage payments. Banks created derivatives as insurance for almost every deal they made, and Libor had an impact on the value of many of these derivatives.

Hayes uncovered the rigged Libor system, where banks collaborated to shift the rates for their financial gain, leading to crises like the 2008 financial crisis. As a result, the banks manipulated Libor’s rates, resulting in increased profits. In summary, The Untold Story of Libor Manipulation is a fascinating read on how trusted banks rigged the system for profit.

The Secret Trades of Tom Hayes

Tom Hayes, a math genius, became a successful trader in finance and was recognized as a powerful force in the Japanese market. It was during his tenure with UBS that he discovered the possibility of manipulating Libor. Hayes bought derivatives with values that would increase based on the fluctuating interest rates and would call his brokers to convince those in charge of submitting their bank’s Libor information to manipulate the numbers. He did this to the point where submitters became lazy and just copied Libor figures from a spreadsheet rather than calculating the average cost of borrowing money. This system was a success until one day, Darrell Read, one of Hayes’ brokers, found a significant shortcut to this system. Read knew someone named Colin Goodman who had a spreadsheet with a suggested Libor rate, and by getting him to put the appropriate number in the spreadsheet, Hayes and UBS were happy.

Libor Manipulation Rewards

The article delves into Tom Hayes’s compensation methods for brokers who helped him manipulate the Libor rate. One of the rewards includes a switch trade involving two traders and a broker, resulting in the broker receiving double the commission. Hayes also relied on wining and dining the brokers and traders. Even though UBS executives knew of the wrongdoing, Hayes continued as long as he brought in profits for the bank. Hayes received obscene amounts of money, making up to $10 million a day for UBS in 2007 and over $100 million in 2009 alone. When UBS failed to deliver on bonus promises, Citibank offered him a $3 million signing bonus, and its executives were also eager to help Hayes manipulate Libor.

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