The Fix: How Bankers Lied, Cheated and Colluded to Rig the World's Most Important Number (Bloomberg)

Quite some effort has gone into compiling this book, and it shows, but very little can be done about the fact that the authors are mere journalists. Or rather, journalists who cannot hide that they are out of their depth and compensating for it via exaggeration, hearsay and misplaced sensationalism.

So, for example, they repeatedly mention that Tom Hayes was recruited to teach Citigroup about rates trading, because Citibank was some kind of fixed income trading backwater. Perhaps nobody told them that their multibillionaire boss, Michael Bloomberg, cut his teeth as a bond trader at Salomon, a predecessor to Citigroup. Or John Meriwether, or Alan Howard, or Mohamed El-Erian etc. etc. Or that swaps were invented by that fixed income backwater. In short, Citi has never been outside the top 3 in the past couple decades.

Would you write a book about cars if you thought Mercedes was some upstart in things automotive? Should we read it?

There is not much evidence of fact-checking either, combined with total nonchalance about character assassination. Neil Danzinger was some type of louche guy who would do anything for a good broker meal, according to the authors. And Andy Morton was “pushed out” of Citigroup (p. 124) as a result of having condoned Tom Hayes’ antics. The authors could surely arrange to meet Neil and find out for themselves what he’s truly like. Or they could check their Bloomberg terminal and see that Andy still very much works at Citi. (Yes, yes, I know, there’s rules about that now!)

Their account of the birth of Libor rankles with me as well. Not only do they fail to mention that the Eurodollar market arose as a result of a misguided Kennedy-era transaction tax, but they bagged themselves a business trip to Crete, where they met an elder statesman of the market, Minos Zombanakis. The reward for the audience the creator of the Eurobond market granted them (and, full disclosure, I once went to school with both his son Kostis and with Salman Farmanfarmaian, for that matter) was that they close their chapter on him with what was probably the least appropriate quote they could extract from him.

But let’s put all that to one side. Hell, let’s be a bit open-minded about it all. Perhaps what it takes to shed some light here is a totally new perspective, from a couple hard-working, if error-prone and perhaps over-eager, sensationalist outsiders.

Perhaps a bunch of young fellows who have no hope of understanding the small detail would find themselves liberated from it all and able to put together the bigger picture.

I would have been very impressed if they had, for example, managed to articulate the fact that either one basis point is a big deal (the maximum that Tom Hayes could ever hope to move Libor by) or thirty basis points (the amount that banks were instructed by the Bank of England to move their submissions by). They kind of do, but they drop the ball. Perhaps because that would entail concluding that Tom Hayes was a sacrificial lamb.

They twice mention that the size of the market for Libor-based loans is around ten trillion, while the market for Libor-based derivatives has gone from thirty trillion to five hundred trillion. (In reality, it’s more like a quadrillion.) Do they manage to make the mental leap from there to the conclusion that borrowers against Libor get protection from the fact that (with the size of their market 50 times smaller than the size of the bets banks have with one another) it isn’t worth it for the banks to put rates up on all those borrowings? That all those times Tom Hayes was asking for “low 3m” were counteracting the times he needed it higher and completely overwhelmed the residual interest of all banks versus all borrowers to keep rates higher? Erm, of course not.

Do they have anything approaching praise for the fact that, in contrast with its peers, at risk of hurting itself and in the middle of a global crisis, Barclays was making an effort to be truthful about its cost of raising money? Do they take a two second pause from celebrating Bob Diamond’s fall to mention that he was executing orders from the Bank of England when he “fell in line” with the other banks and was mainly punished for his manner, for his brashness and for having a tin ear for politics, rather than for his deeds? Or do they tell you about the size of his house in Belgravia and what color car he was driven in? I’ll leave that to your imagination.

In fairness to the authors, they do grasp and half-convey the fact that the infrastructure of Libor was semi-adequate for year 1990 and wholly inadequate for 2005. The Bank of England has known forever, of course. That’s how come your mortgage runs off of the “base rate” they administer, rather than some “market sardines” rate…

In short, there is a book to be written here, but this is not it. Somebody from inside the market will one day write a book about all this that will be worth reading, and allow me to take you through the main ideas it should contain:

1. Markets were once small. At that time, the feeling was that they were best left to the people who operated inside them. Over the years, however, (mainly due to demographic reasons) they ballooned in size from roughly 1 GDP around 1980 to roughly 6 GDPs today and (more importantly) they became very widely-held. It thus became the job of government not only to sustain them (zB via the Greenspan put) but also to make sure that an idiot could get involved without getting hurt. So Salomon was punished in 1991 for overbidding in auctions (pause to think how weird that is), Deutsche some ten years later for forcing suboptimal delivery in the Bobl contract (that only professionals can trade and whose rules were on the book for a decade), rule NMS forced everybody to give “best execution” a few years after that (and gave rise to the “Flash Boys”) and some poor bastard went to jail last year for…spoofing, believe it or not. Imagine if real estate brokers got jailed for that! Tom Hayes’ main crime was that he was doing in year 2005 stuff that stopped being acceptable around 1995. And UBS was the kind of shop where nobody knew to put him in his place. E basta.

2. The true crimes of finance in this century, the ones bankers ought to have been punished for, but got away with, came in exactly two flavors: (i) crimes involving the little guy (post Edwin Artzt we leave the big guy alone), who was lured into borrowing money he would never be able to pay back to buy assets, goods and services he could not afford, and indeed put in competition with the fellow little guy to buy the house in the good school district, the nice vacation, the boat etc. You can say he brought it on himself, but that would be unfair: if borrowing is what it will take to send your kids to the better school or to keep your spouse from divorcing you, you are put in a tragic position. We all know how that ended, with home ownership in the US first rising to 69% and then falling to 61%. And with Spanish families being sweet-talked into buying the sub debt of their home lender etc. etc. (ii) post Glass-Steagall, crimes involving the discounting of decades of receivables that were to be found in the loan books of banks using the mark-to-mark methods found at the investment banks they were allowed to merge with and the conversion of this spurious P&L into bonus, resulting in the urge to “source” even more, often dubious, receivables.

The two above trends fed into each other, rather famously, and the crash in the market for CDOs, CLOs and the squares thereof, SIVs and side-pockets has only really resulted in three convictions thus far, the rather interestingly named Lee Farkas, the email-shy Karim Serageldin, and now the hapless Tom Hayes, who had zilch to do with it, but had confessed to a completely unrelated misdemeanor, had spent some of his employers’ money on petty bribes and rubbed the judge the wrong way with his curt answers. 50k fine and an industry ban would not have been terribly lenient, if you ask me.

Meanwhile, the people whose fiduciary duty it was to make sure the abolition of Glass-Steagall did not result in this mess not only walk the streets, but are regularly invited to tell us where it’s at.

3. There is no free lunch. If you are going to buy a valuable service, you will have to pay for it. Either (i) it works like it does for goods, where there is a wholesale price between professionals and a retail price for customers and you don’t care that the shoes you paid 100 for cost the merchant 30, or alternatively (ii) you pay what is advertised as the wholesale price, but in reality the wholesale price moves around and it’s higher when you are paying it. If it’s not one of those two, then the guy who is selling you the service will go out of business and you won’t be able to buy that service again. That is, for example, the business model behind the New Zealand time zone. It is the time when FX trades the least, so you can move the price against your customers’ orders. Significantly, customers know this. It is a convention they accept.

It is, incidentally, precisely how the FX fix used to work that the authors dedicate the last chapter to. EVERYBODY understands this, it is just that post-crisis it is impossible to voice this truth anymore, so managers around the world did the “Casablanca” thing, paid a few billion (of their shareholders’ money) in fines and life carried on.

And that is how it came about that two rookie journalists happened upon the major discovery that if you deal in billions of dollars at mid-market the banks get their pound of flesh by moving the fixings.

I would not want to be around when their parents explain to them how babies are born.

P.S. “What’s with the second star, Athan?” Erm, some of the gossip is alright. Even if it’s not true, it is good gossip…

GREAT BOOK IT JUST MAKES ME HATE BANKERS EVEN MORE

The book was very clean and in great condition

I always wanted to understand LIBOR, and now I do. Thank you!

A good example of misplaced public confidence and regulatory maivete.

great

I enjoyed reading The Fix, by Liam Vaughn, very much. As a retired financial advisor, I enjoy reading about books like this one, which point out some of the inner workings of the world's financial system. Most non-fiction books on this topic, with the exception of those by Michael Lewis, are usually interesting, but a little dry. Not this one. I read almost like a financial thriller, like one written by Michael Sears. Vaughn does a great job explaining the LIBOR scandal, and how a handful of greedy banksters manipulated the system. Highly recommended

Got this book at London City Airport. This looks very ironic to sell such book in U.K. in general.

I especially like the style of it: documentary, which you read like a thriller at one breath.
Fantastic work was done by authors! Bravo.

If you still not sure you know what Libor is, what it was designed for and how it was manipulated, or you still romantic enough about UBS and other large banks even after the faded 2008 crisis - get this book. You knew only basics and rumors before you read it.

Again - amazing book, great reading.

Diverting look at the Libor scandal through the eyes of the rogue trader at the center, Tom Hayes. By looking at the individuals involved, you get a sense of the real people behind what might otherwise seem to be a black and white case of evil and greed. Instead we see ambition and adrenalin with way too much temptation. You are left thinking these cogs are not the only ones to blame and that more regulation or at the very least, enforcement of the current regulations would be a very good thing for everyone, including the masters of the universe now sitting in jail.

Gritty but accurate read. Definitely worth reading for the first time, and re-reading for additional reads.