Note: the following is a very loose article is based on extensive research that I undertook prior to the recording of the episode (note: I'm not a writer or a journalist and I don't put a lot of time into formatting/correcting as my main focus is to get as much good research together for the episode- the article really just serves as a script that I use to rehearse in the lead up to recording so it will not always be formatted correctly and I'm sure I repeat myself and some facts many times)- but the following links are well worth looking at and are the ones that we highlight in the episode.
The Lowball Tapes:
### The Libor Scandal
The Libor scandal is a financial controversy of staggering proportions, implicating a wide range of players across the global banking industry. Traders, brokers, middle managers, CEOs, and chairmen of major banks, as well as senior executives at central banks, were all drawn into the scandal. It involved the manipulation of a benchmark interest rate that underpinned trillions of dollars in financial contracts.
The full cost of the scandal is difficult to calculate, partly due to its complexity and the secrecy surrounding central bank involvement. However, the scope of its impact is clear. Nearly 60 percent of prime adjustable-rate mortgages in the United States, along with close to 100 percent of subprime mortgages, were indexed to Libor. Manipulation of the rate directly affected millions of American homeowners. Globally, the consequences were equally severe, as Euribor, Libor's European counterpart, carried the same weight in financial markets. Collectively, these manipulations disrupted the lives of tens of millions of people, with financial repercussions running into billions of dollars.
What makes this scandal even more remarkable are the leaked recordings that upended the case. These recordings exposed a troubling narrative: traders went to jail for actions that were technically legal at the time, while CEOs, chairmen of major banks, and even central bank officials—who colluded to fix the Libor rate—escaped prosecution. Despite evidence showing that these senior figures lied to the UK Parliament about their involvement, they were never charged.
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### What is Libor?
Libor, short for the London Interbank Offered Rate, has been widely referred to as "the world's most important number." This benchmark interest rate determines the cost of borrowing for a vast array of financial products worldwide. Adjustable-rate mortgages, credit cards, student loans, auto loans, and municipal bonds all derive their interest rates from Libor. For major corporations, cities, and towns issuing debt, the rate often serves as the foundation for financial agreements.
The sheer scale of Libor’s influence is hard to overstate. Estimates suggest it underpinned financial instruments valued between $350 trillion and $800 trillion globally.
While Libor became a tool for speculative trading, its origins were more practical. The concept emerged decades ago when a Greek banker sought an $80 million loan for the Shah of Iran. The challenge was setting a standardized interest rate across a syndicate of banks offering the loan, as each bank’s borrowing costs varied. The solution was to calculate an average rate: each bank reported its borrowing cost, and these were averaged to create the loan’s interest rate, with a small profit margin added.
Borrowing costs fluctuate over time, and for long-term loans, the disparity between funding costs in the first year and subsequent decades could pose significant risks. If costs rose significantly, the loan could become unprofitable for the bank.
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### The Daily Calculation of Libor
So a flexible rate to address these challenges evolved into what became Libor. Every day around lunchtime in London, 16 banks report their estimates for their borrowing costs across various currencies and time frames. To eliminate outliers, the four highest and four lowest estimates are discarded. The remaining eight figures are averaged to produce the day’s Libor rate.
By the 1980s, the rate had expanded to include new financial instruments, such as interest rate swaps and foreign currency derivatives. The British Bankers’ Association (BBA) formalized Libor’s structure in collaboration with the Bank of England. However, even under BBA management, Libor remained unregulated—a loophole that allowed traders and institutions to manipulate the rate for personal and institutional gain.
### Concerns Over Regulation and the Potential for Manipulation
As Libor became a critical tool for pricing complex financial instruments, concerns began to surface. The rate, though widely used, was not regulated by central banks or financial authorities. This absence of oversight raised questions, especially given the increasing sophistication of traders handling massive sums daily. The unregulated nature of Libor left it vulnerable to exploitation by those seeking to gain a competitive edge.
The mechanism of influence, while subtle, was clear. Consider a scenario where a trader at a major bank benefits from a lower Libor rate. A trader might approach their bank’s Libor submitter and request, “The rate we’re going with will be either 4.16 or 4.17. Can we go with 4.16?” While the trader cannot dictate the rate, they can suggest a preference within a legitimate range that aligns with their trading positions.
However, this represents only one institution’s input. Libor, calculated by averaging submissions from 16 banks after discarding the highest and lowest estimates, would not easily reflect a single bank’s influence. Manipulating the final rate required coordination across multiple banks.
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### The Layers of Libor Manipulation
This leads to the first layer of the Libor scandal: traders leveraging their networks to influence the rate. Their actions, though seemingly dubious, were technically legal at the time. The British justice system, however, later took a different view.
The second, more consequential layer involves manipulation on a larger scale by central banks and government bodies. During the 2007-2008 financial crisis, institutions such as the Bank of England intervened in Libor to stabilize financial markets. Despite the magnitude of this intervention, it was traders—many of them mid-level employees—who bore the brunt of legal consequences. While some were sentenced to prison, senior bankers and government officials emerged largely unscathed.
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### A Tale of Two Narratives
These two layers of manipulation, though distinct, ultimately intertwine. The traders’ actions reveal the vulnerabilities in the financial system, while the central banks’ involvement underscores the broader flaws within regulatory and institutional frameworks. Together, these narratives expose systemic issues in the banking sector, the role of regulators, and the inequities in the UK’s legal response.
To understand the scandal’s human cost, it is crucial to begin with the traders and brokers at the heart of the story. Among them, Tom Hayes stands out as the defining figure of the first phase of the Libor scandal. His case provides a window into the practices, pressures, and consequences faced by those at the center of one of the most significant financial controversies in modern history.
### Tom Hayes: A Mathematician Turned Trading Prodigy
Tom Hayes, a trader with an extraordinary talent for mathematics, was often described as a genius by his colleagues. Hayes, who is mildly autistic, excelled at spotting patterns and developing models that gave him a competitive edge. His abilities earned him the nickname "Rain Man," a reflection of his perceived brilliance within the high-pressure world of global finance.
Despite the accolades, Hayes downplayed his intellect. "I enjoy maths, but I’m not a mathematical genius," he once said. "I enjoy trading, but I’m not a trading genius. I am good at taking risks, and I enjoy that." His modest self-assessment belied his extraordinary ability to exploit minute inefficiencies in the financial markets.
Hayes used his skillset to outmaneuver less-informed clients, leverage superior intelligence, and adopt faster trading systems. In a field where the smallest advantage could yield massive profits, Hayes’ methods set him apart.
Hayes was a star trader -by 2008/2009 he was making £110 million for his employer, UBS and earning about £5 million a year in salary/bonuses.
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### Brokers: The Industry's Middlemen
In the intricate world of finance, brokers play a pivotal role. Acting as intermediaries, they facilitate transactions between traders at different banks. A trader at Bank A looking to buy or sell may never interact directly with their counterpart at Bank B, relying instead on a broker to bridge the gap.
Brokers earn a commission on transactions but also serve another vital function: they are gatekeepers of information. By peddling market intelligence, gossip, and strategic insights, brokers cultivate close relationships with traders. These relationships are often nurtured through lavish spending, with brokers recycling a portion of the revenue that each trader generates into a client entertainment fund.
Entertainment budgets in the brokerage world are notoriously extravagant, covering everything from expensive dinners and drinks to more controversial indulgences such as drugs, strip clubs, and exotic trips. Spending hundreds of thousands annually on a single client wasn’t uncommon, as brokers competed fiercely to win over the most valuable traders.
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### Hayes: The Exception to Excess
While such extravagance was the norm, Hayes was an anomaly. He had little interest in the high-flying lifestyle that defined his industry. Instead of indulging in nights out or expensive entertainment, Hayes preferred quiet evenings with fried chicken from KFC and episodes of Seinfeld.
Yet, Hayes’ unassuming lifestyle did not diminish his value to brokers. As one of the largest traders in the business, his trade volumes were substantial, making him an indispensable client. Brokers eager to maintain his business had to find alternative ways to reward him, given his indifference to traditional perks.
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### The Stakes of Libor Movements
Hayes’ trading success was intricately tied to movements in the Libor rate, with millions of dollars riding on tiny fluctuations. Changes as small as one basis point—one-hundredth of a percentage point—could mean gains or losses of approximately $750,000 for Hayes. While such shifts might seem negligible to most, they were critical in his world.
Recognizing this, Hayes cultivated relationships with brokers across multiple organizations to help align Libor rates with his trading positions. Unlike many of his peers, who dismissed brokers as second-tier players, Hayes saw their value.
In turn, brokers were eager to oblige. Hayes’ business was too lucrative to ignore, and while many traders worked with a handful of brokers, Hayes intensified his reliance on these relationships, leveraging them to an unprecedented degree.
This intense collaboration with brokers would later place Hayes at the center of the Libor scandal, marking him as one of its most visible and controversial figures.
### How Brokers Helped Manipulate Libor
While working at UBS, Hayes recognized a fundamental aspect of Libor: banks often tailored their Libor submissions to serve their interests, but the system’s structure made it difficult for any single institution to have significant influence. With 15 other banks also submitting rates, the final average resisted tampering from individual actors. Hayes, however, had built relationships at enough institutions and with enough brokers to realize he could sway multiple submissions simultaneously.
By 2007, Hayes had cultivated a network that included traders at RBS and JPMorgan Chase, as well as brokers at ICAP.
Note: ICAP is a huge brokerage firm that facilitates and executes trades on behalf of the world's leading financial institutions
These connections allowed him to make direct requests. He would call and say, “I need Libor up today. Can you please move the submission up or down as much as possible?”
For instance, if a submitter was considering a rate of either 3.18 or 3.17, Hayes might suggest 3.18. If he convinced enough brokers and traders to align, the average rate might shift by a single basis point, or one-hundredth of a percentage point. While small, such movements were significant in Hayes’ world, where a single basis point could impact millions of dollars in trades (remember- one-hundredth of a percentage point—could mean gains or losses of approximately $750,000 for Hayes). Hayes later remarked that he made more requests than anyone else in the industry, calling this his competitive edge.
However, Hayes’ actions did not involve fabricating false rates. His requests always fell within the range of high and low rates “representative” of actual market offers.
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### The Impact of Hayes’ Influence
Although Hayes never knew the full extent of his influence, he estimated that his efforts to move the rate accounted for approximately 10 percent of his profits. For Hayes, this edge was enough to distinguish him in the fiercely competitive trading world.
A UBS spokesperson later dismissed the notion that Hayes had devised the strategy of manipulating Libor. “To suggest that Hayes had a 'light-bulb' moment at UBS about Libor manipulation is ludicrous. Neither Hayes nor UBS invented or initiated LIBOR manipulation. It was industry-wide conduct involving many banks and brokers acting individually and collectively over a prolonged period of time.”
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### Hayes’ Move to Citigroup and the Beginning of Trouble
In 2009, Hayes left UBS for Citigroup, lured by a $3 million signing bonus. However, his time at Citigroup quickly soured. By 2010, the Commodity Futures Trading Commission (CFTC) had launched an investigation into Libor following reports in The Wall Street Journal about rate manipulation. A key piece of evidence was an audio recording involving two mid-level Barclays bankers, which prompted the CFTC and the UK’s Financial Services Authority (FSA) to issue subpoenas to the 16 banks involved in submitting Libor rates.
The banks were compelled to provide regulators with a vast trove of recordings, emails, and documents. These materials revealed two distinct threads in the Libor case.
First, there was evidence of traders like Hayes requesting specific rates within preselected ranges to benefit their trades. For example, a broker might inform Hayes that RBS was considering a rate of 4.18 or 4.19, and Hayes might suggest they submit 4.19. In these cases, the submitted rates were legitimate figures within the market range, and no manipulation of the actual rates occurred.
Second, the investigation uncovered large-scale manipulation of Libor rates far beyond the available market range, a practice known as "lowballing." This manipulation was driven by the chairmen and CEOs of major banks and sanctioned by senior central bank executives.
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### Unequal Accountability
Despite evidence pointing to widespread institutional involvement, it was the “low-hanging fruit” of individuals like Hayes who bore the brunt of legal consequences.
### The Investigation Intensifies: Hayes’ Dismissal and the Growing Scandal
In September 2010, Tom Hayes was fired by Citigroup after multiple interviews with the bank's legal team. Regulators had begun applying pressure on financial institutions, but despite Hayes’ termination, no immediate action followed. For nearly two years, the Serious Fraud Office (SFO) chose not to prosecute.
That changed dramatically on June 27, 2012, when Barclays was fined £290 million for rigging interest rates. The scandal forced Barclays’ CEO, Bob Diamond, to resign, sparking a wave of investigations into banks worldwide. Institutions like UBS, Hayes’ former employer, reached massive settlements. Collectively, more than a dozen banks admitted to involvement in manipulating Libor rates, paying fines estimated between $5 billion and $10 billion.
Yet, while these banks acknowledged wrongdoing, they maintained that the manipulation was limited to traders and that senior management had no knowledge of these activities. This assertion was later exposed as untrue.
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### The Arrest
On a chilly Tuesday morning just before Christmas in 2012, Hayes answered a knock at his door to find over a dozen police officers and SFO (Serious Fraud Office) investigators. They entered his home, seizing computers and documents before arresting Hayes on suspicion of conspiracy to defraud. At the station, he declined to comment and was later released.
In his retelling of these events, Hayes believed that this was all a huge misunderstanding and that once he explained how trading in Libor operated, that the regulators would drop the case.
However, eight days after his arrest, Hayes was blindsided by news reports. Sitting at home watching television, he saw U.S. Attorney General Eric Holder announce at a press conference that UBS had been fined $1.5 billion for rigging Libor at its Japanese arm. Holder also revealed that the Department of Justice was criminally charging Hayes and his former colleague, Roger Darin, and seeking their extradition to the United States.
Facing the prospect of extradition and a potential 30-year sentence under U.S. laws, Hayes’ lawyers approached the SFO in the UK to negotiate a deal. To avoid extradition, Hayes would need to cooperate fully with UK authorities, agreeing to their narrative that his actions were unequivocally illegal and confessing his guilt.
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### Cooperation and Betrayal
The evidence against Hayes appeared to be overwhelming. Investigators across three continents had collected thousands of emails and audio recordings documenting his actions, whereby he instructed brokers to choose a Libor rate that best suited his trades. Hayes agreed to cooperate, embarking on an extensive confession to the SFO.
In June 2013, after 82 hours of interviews, Hayes was formally charged. During these sessions, Hayes named over 20 individuals as co-conspirators, including traders at JPMorgan, RBS, Deutsche Bank, and HSBC, as well as brokers at major interdealer firms. His disclosures even extended to identifying his own brother-in-law as being involved.
For Hayes, the decision to implicate others was pragmatic. Cooperation was the only way to avoid extradition to the U.S., where sentencing laws were far harsher than in the UK. Comparing his situation to surviving a terminal illness, Hayes later remarked that securing a UK trial felt like receiving a “cancer all-clear.”
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### A Growing Indignation
Over the summer, as Hayes reviewed the evidence shared by investigators, he grew increasingly incensed at the scope of what he believed to be systemic hypocrisy. Documents revealed senior managers had condoned his behavior, manipulation predated his tenure, and internal bank guidelines even seemed to encourage his actions.
For Hayes, Libor rigging wasn’t the rogue act of a few traders; it was standard industry practice. Hayes saw himself as a scapegoat, singled out to bear the blame for practices that were pervasive and condoned at higher levels. He spent that summer at home, poring over the evidence, convinced he was being unfairly targeted. “Why should I take the fall?” he wondered, as anger and frustration consumed him.
On October 9, as the Serious Fraud Office (SFO) was preparing to finalize its case against Tom Hayes and his alleged co-conspirators, Hayes’s legal team made a decisive move. A letter arrived, informing the SFO that Hayes would no longer cooperate. “As a matter of courtesy we are now in a position to advise that Mr. Hayes will plead Not Guilty to all Counts,” the letter stated. “Accordingly he now formally withdraws from the process.” By stepping back from his earlier agreement and refusing to admit guilt, Hayes avoided the threat of extradition to the United States. However, he was now gambling on a jury in London—a bold and risky decision.
The entire trial process, including the pretrial hearings, revealed the daunting challenge Hayes and his defense team faced. The climate of public outrage against bankers in the wake of the global financial crisis loomed large over the proceedings. Across the world, bankers were blamed for pushing economies to the brink. With the financial system barely stabilized, and economies like Ireland still deep in bailouts, the mood was hostile. Greece remained in financial turmoil, the United Kingdom faced a double-dip recession, and whispers of another potential collapse amplified the urgency for accountability.
In such an atmosphere, there is a distinct risk of overreaction. Historical parallels can be drawn to anti-terrorism efforts, where fear and anger sometimes led to individuals being unfairly targeted based on superficial associations. The public and judicial system, seeking someone to hold accountable, can shift blame onto more accessible scapegoats, rather than addressing those truly responsible. This environment creates fertile ground for miscarriages of justice, as courts and judges may feel pressure to make examples of individuals.
Hayes’s experience illustrates this dynamic. During a pretrial hearing, the presiding judge expressed a prejudiced certainty about Hayes’s guilt based solely on email evidence. The judge remarked, “In my own mind if I was trying this case myself without a jury, it would not last two weeks … it is an open and shut case on the emails … it is self-evident there was dishonesty.” Efforts by Hayes’s defense team to have the judge recused were unsuccessful.
While there was no question about the actions Hayes had taken, the prosecution faced the challenge of proving that Hayes knew those actions were dishonest. The linchpin of their argument was Hayes’s own words i.e. the testimony that he gave when he was cooperating with the SFO as well as emails and phone transcripts where he is directing brokers to chose a Libor rate that suited his trading positions.
“I knew that, you know, I probably shouldn’t do it,” Hayes said during a 2013 interview with the SFO. The interview, played in court at a volume so loud it distorted the sound, continued with Hayes stating, “But, like I said, I was participating in an industrywide practice that predated my arrival at UBS and postdated my departure.”
When Hayes took the stand, he attempted to reframe the narrative. He disavowed the admissions he made in interviews with the SFO, claiming that he had exaggerated his involvement to ensure he would face charges in the United Kingdom, rather than risk extradition to the U.S. In testimony spanning two weeks, Hayes asserted that his behavior had been an accepted norm within the industry and, crucially, that he had not considered it dishonest.
Hayes’s lawyers supported this argument by presenting documents showing that his supervisors at UBS had encouraged the practice. For a moment, it appeared the prosecution’s case might falter. Hayes came across as earnest and naïve—more a cog in a flawed system than a criminal mastermind.
However, any momentum in Hayes’s favor evaporated under cross-examination. When asked to confirm basic details about his trading practices, Hayes became evasive and defensive. He appeared visibly tense, clenching his jaw and narrowing his eyes as he answered. When pressed on the evidence against him, Hayes attempted to redirect, denouncing the investigation as a jurisdictional battle between the U.K. and the U.S., calling himself a “fugitive from American justice.”
Despite Hayes’s unsteady performance on the stand, what ultimately undermined his defense was not his demeanor but the limitations placed on the trial itself. Critical evidence, which might have provided context or exoneration, was suppressed. Judge Cooke directed the jury to consider the evidence within a narrowly defined framework, ensuring that the prosecution’s narrative would prevail. For Hayes, the outcome was increasingly inevitable.
A pivotal issue in Tom Hayes's trial centered on the interpretation of how Libor rates could legally be used. The prosecution argued that setting Libor to suit a bank’s commercial interests was unequivocally against the rules. Hayes's defense countered that no such rules were ever explicitly written down—a factually accurate claim, as Libor was unregulated.
Under the rules set by the BBA, banks were allowed to submit rates that reflected genuine borrowing costs, even if those rates aligned with their commercial interests. What Hayes did was within these parameters—he requested rates that were valid and genuinely available in the market.
The prosecution sought to negate this argument by calling a star witness: the individual in charge of Libor at the British Bankers Association (BBA). This official testified that there could be no commercial consideration in determining Libor submissions and that he had no knowledge of such practices.
Now stick a pin in the BBA officials testimony- we’re going to come back to it later- because as events unfold, it becomes clear that this official is far from an impartial observer in this whole scandal.
Judge Cooke used the BBA witness’s testimony to conclude that Libor rules prohibited any commercial considerations- this is the crucial part of the entire case against Hayes and other traders who were charged. This interpretation was based solely on the testimony of the BBA official and it wasn’t written down or recorded anywhere in Libor’s rules/definiation, yet it was retroactively applied to Hayes’s actions, despite other jurisdictions, including the United States, rejecting this view entirely.
Furthermore, recordings from 2008 reveal the same BBA official discussing how he and senior executives at major banks, including CEOs and chairmen, collaborated to increase the Libor rate for explicitly commercial reasons. These tapes, which would surface years later, starkly contradicted his courtroom assertions and undermined the foundation of the prosecution’s case.
The divergence in legal perspectives became glaringly apparent in subsequent trials. In 2017, other traders facing similar charges were acquitted when the same BBA witness admitted during testimony that it was permissible to set Libor with commercial interests in mind, provided the rates fell within a representative market range. These admissions directly contradicted the rationale used to convict Hayes.
The perception of a miscarriage of justice grew even stronger in 2022 when a U.S. court overturned the convictions of two traders and dropped all charges against Hayes. The court concluded that Libor guidance did not prohibit submissions influenced by commercial considerations, directly undermining the legal foundation of Hayes’s conviction in the UK.
After ten weeks of proceedings, the jury in Hayes’s trial deliberated for five days before returning a unanimous guilty verdict on all counts. Hayes, stoic in the face of the outcome, showed little reaction when the judge sentenced him to 14 years in prison—an unusually harsh penalty for white-collar crime in the UK. On appeal, the sentence was later reduced to 11 years.
As well as the questions that surrounded the evidence and interpretation of Libor rules/definitions, another glaring injustice in Tom Hayes’s case lies in the fact that, while he bore the full brunt of the law, many of his former colleagues, bosses, and associates escaped accountability entirely. These individuals, some of whom were deeply complicit, not only avoided prosecution but continued to work in the financial industry, reaping considerable rewards. How, then, did Hayes become the scapegoat in the Libor scandal?
One critical factor was Hayes’s naivety. Unlike many of his peers, he was unapologetically transparent in his actions, leaving an extensive trail of text messages, chat logs, and recorded phone calls. These communications explicitly documented his requests to adjust Libor rates in ways that could impact trades worth millions of dollars. Hayes’s openness stemmed from a belief that his actions were entirely within the bounds of legality. He later asserted that he was so forthcoming because he was convinced he was doing nothing wrong.
The second factor lies in the priorities of prosecutors and regulators, who were under immense pressure to deliver a conviction. Hayes represented the path of least resistance. The evidence against him was straightforward, and his case was relatively easy to prosecute compared to the more opaque or indirect involvement of his superiors. While documents and communications clearly implicated higher-ranking individuals—managers who not only knew about Hayes’s actions but actively encouraged or condoned them—these figures were never charged. They may not have been as brazen or prolific as Hayes, but their complicity in the broader system of Libor manipulation was evident.
This disparity underscores a troubling dynamic in the financial industry: while those at the lower echelons are held accountable, those in positions of greater authority often escape unscathed. Hayes’s conviction and the lack of consequences for others highlight a justice system that punishes the visible and straightforward while turning a blind eye to the more complex or politically sensitive cases.
### The Libor Scandal: Layer Two
As previously outlined, the Libor scandal had two distinct but interconnected layers. While Tom Hayes became emblematic of the first layer, involving traders influencing Libor within market-permissible ranges, the second layer delves deeper into systemic manipulation. This broader level of corruption implicated some of the highest-ranking individuals in the financial world, and at its center was a mid-level Barclays banker, Peter Johnson—a figure who emerges as a tragic hero in this tangled affair.
### What Was Lowballing?
By 2007 and into 2008, as the financial crisis began to take hold and interbank lending froze, borrowing money became increasingly expensive. The natural consequence of this scarcity was that interest rates for borrowing would rise. Higher rates signaled higher risk, akin to individuals with poor credit records paying steeper interest on loans. For banks, being seen as a higher credit risk in this precarious environment could be catastrophic.
To avoid projecting vulnerability, most major banks began systematically underreporting their borrowing costs in their daily Libor submissions. Known as "lowballing," this practice allowed banks to present a stronger face to the market by artificially deflating their reported interest rates. Each day, when these banks phoned in their Libor rates, the figures they submitted were significantly lower than what they were actually paying to borrow.
### Emerging Suspicions and Evidence
Financial reporters began to notice discrepancies, questioning why Libor rates were not rising in tandem with the tightening money markets. These suspicions led regulators to subpoena 16 banks, uncovering a trove of internal recordings and emails. While some of this evidence implicated traders like Tom Hayes in small-scale rate adjustments, the most damning material remained hidden from the public and even from parliamentary inquiries. It wasn’t until 2017, when BBC journalist Andy Verity received these confidential recordings and documents, that the full scale of the manipulation began to emerge.
### Peter Johnson: The Reluctant Insider
Peter Johnson, who managed the Libor desk at Barclays, played a central role in this layer of the scandal. Johnson was responsible for calling in Barclays’ daily Libor rate, basing it on the bank’s actual borrowing costs.
Upon returning from vacation in late August 2007, he noticed that most other major banks were significantly underreporting their rates. While Johnson's submissions reflected genuine borrowing costs, they stood out as being far higher than those of his competitors. This honesty put Barclays under unwelcome scrutiny, culminating in a news story titled "Barclays Takes a Money Market Beating."
### Pressure Mounts on Johnson
Following the negative press coverage, Johnson faced mounting pressure from within Barclays to align with the industry practice of lowballing. Unlike the small adjustments traders like Hayes made—choosing rates within a narrow, market-representative range—Johnson was being asked to manipulate rates by 20 to 30 basis points, well outside any realistic borrowing costs. This was not a matter of choosing between market-permissible numbers but rather outright fabrication.
### Recorded Objections and Whistleblowing
Johnson's discomfort with the practice is palpable in taped conversations. In one recording, he describes the situation as “an ethical and legal thing now—I’m basically giving a false rate.” In another exchange with a Barclays trader in New York, Johnson states with exasperation, “This is so fucking wrong, it should be much, much higher, believe me you have no idea how much higher.”
The pressure to manipulate rates extended to the very top of Barclays. In one recording, Johnson was told that the directive to keep Libor artificially high came from "floor 31"—a reference to then-CEO John Varley and his deputy, Bob Diamond, who would later become CEO. Frustrated and alarmed, Johnson demanded documentation of these instructions and emailed senior management, explicitly stating that the bank was being "dishonest by definition." Despite his protests, the practice continued.
Johnson’s frustration eventually led him to report the manipulation to the Federal Reserve. These whistleblowing efforts were also documented in taped conversations, as was a similar complaint made by his colleague, Colin Bermingham. Both men reached out to federal authorities to alert them to the ongoing deception.
### A Distinct Layer of Manipulation
By distorting rates by 20 to 30 basis points, this practice went beyond personal trading advantages to fundamentally distort market perceptions of financial stability. The broader implications of this manipulation would ripple through the global economy, raising serious questions about the integrity of the financial system.
### Central Bank Involvement in the Libor Scandal
Initially, in 2007, the manipulation of Libor rates appeared to be driven by the self-interest of individual banks. The goal was straightforward: to avoid signaling to the markets that they were being charged higher borrowing rates, which could cast doubt on their financial health. However, as the financial crisis deepened, the manipulation escalated, with politicians and central banks stepping directly into the fray.
### A Coordinated Effort by Central Banks
By October 2008, evidence suggests that central banks, including the Bank of England, the Banque de France, the European Central Bank, Banca d’Italia, Banco de España, and the Federal Reserve Bank of New York, began intervening on a significant scale in the setting of Libor and Euribor rates. This collective action came amid one of the most precarious moments of the global financial crisis, as the credit markets froze and interbank lending ground to a halt.
In the United Kingdom, the Bank of England’s involvement was driven by acute political pressure. On October 8, 2008, Prime Minister Gordon Brown announced a £50 billion emergency funding package to recapitalize British banks. That same day, six central banks—including the Federal Reserve, the European Central Bank, and the Bank of England—launched a coordinated cut in official interest rates in a bid to unfreeze the paralyzed credit markets. Yet, despite these efforts, Libor rates stubbornly remained high, undermining the intended effects of the rescue measures.
### Pressure from Whitehall and the Bank of England
Jeremy Haywood, then Gordon Brown’s Chief of Staff, reportedly became increasingly frustrated that Libor rates were not falling in line with the broader efforts to stabilize the financial system. Two potential solutions emerged: the first involved flooding the market with cheaper borrowing options, effectively easing liquidity constraints. The second, far simpler but more ethically questionable, was to pressure banks to submit artificially lower rates.
The latter approach prevailed. On October 29, 2008, Paul Tucker, Deputy Chief of the Bank of England, contacted Barclays CEO Bob Diamond to relay concerns from "senior figures" in Whitehall over why Barclays’ Libor submissions were consistently higher than those of its peers. That same day, Peter Johnson, Barclays’ Libor submitter, received a call from his superior. The message was clear: “PJ, you’re going to absolutely hate this... but we’ve had some very serious pressure from the UK Government and the Bank of England about pushing our Libors lower.” Despite agreeing that the request was “the wrong thing to do,” Johnson’s boss emphasized the pressure they faced, saying, “These guys don’t see it, they’re bent out of shape. They’re calling everyone…”
### Denials from Senior Officials
When the scandal came to light in 2012, senior figures in both the banking sector and central banks denied any involvement. Paul Tucker testified before Members of Parliament, claiming that he was unaware of lowballing until that year. However, records show that Tucker was informed of the practice as early as 2007, raising allegations that he had misled Parliament.
### Revelations from the Lowball Tapes
The tapes and emails unearthed in 2017 by BBC journalist Andy Verity painted a damning picture of institutional collusion. These documents offered conclusive evidence that the Bank of England, along with central banks in other nations, played an active role in the manipulation of Libor rates. Far from being a rogue practice by individual traders or banks, lowballing was orchestrated at the highest levels of the financial and political system, revealing a deeply embedded culture of manipulation designed to maintain the appearance of stability during a time of profound crisis.
The tapes surrounding the manipulation of Libor reveal a tangled web of self-interest, collusion, and hypocrisy among banking executives and regulatory institutions. Initially, the manipulation of Libor appeared to be an effort by individual banks to present a stronger face to markets and media, a maneuver to mask the true cost of borrowing during times of financial stress. As liquidity dried up, banks suppressed their reported borrowing rates, creating a facade of financial stability.
However, recordings and internal documents reveal a more cynical and organized manipulation at play. One damning tape features a senior official from the British Bankers’ Association (BBA), the lobbying group that oversaw Libor, in a conversation with a banking executive. They discuss a meeting held with the chairmen and CEOs of major banks, during which it was agreed to increase the U.S. dollar Libor rate. Up until then, the focus had been on lowballing—suppressing rates to create an illusion of health and liquidity. But this time, the BBA’s motive was different.
Journalists had started to question the implausibly low Libor rates, raising suspicions about the integrity of the benchmark. The media scrutiny posed a serious threat to the BBA, which profited significantly from licensing Libor to major banks. To protect its interests and ensure the credibility of the rate, the BBA orchestrated a plan with senior banking executives to increase the U.S. dollar Libor rate. A memo circulated by the BBA emphasized the risk to its business model if trust in Libor eroded further.
And the tapes that Andy Verity of the BBC got his hands on where we hear the BBAS official orchestrating this manipulation is so clear cut and blatant- it’s astonishing - in the the BBA official acknowledges that banks are deliberately lowballing- here’s a direct quote form that conversation when they are discussion how they will get all of the banks to increase the rate: “We have to be careful about quote collusion unquote. The bank executive recommends to the BBA executive that they discreetly approach banks board members of the BBA who had attended that meeting rather than the CEO’s and Chairmen, only to be reminded by the BBA official that the bank board members who attended the BBA meeting were in fact the CEO’s and Chairmen of the main banks- this shows conclusively that the most senior bankers were involved in the collusion.
And the regulators had access to these recordings from as early as 2008.
Within days of the meeting mentioned in that taped conversation, the U.S. dollar Libor rate jumped by 20 basis points—a significant and deliberate move.
This manipulation stands in stark contrast to the behavior of traders like Tom Hayes. Hayes and his peers operated within narrow, pre-defined ranges of rates that reflected actual borrowing costs. They requested adjustments of one basis point or less—minor shifts that did not distort the overall benchmark. By comparison, the coordinated increase of 20 basis points orchestrated by the BBA and senior bankers was a blatant distortion, entirely detached from market realities.
Moreover, while the Bank of England and other central banks had previously pressured institutions to lowball Libor during the financial crisis to inject liquidity and stave off collapse, this action by the BBA was purely self-serving. The recordings make clear that the motive behind the increase was to shield the BBA’s interests, not to support the broader economy.
In a Kafkaesque twist, the BBA official caught on tape orchestrating the manipulation in 2008 was the same individual who later served as the prosecution’s star witness in Tom Hayes’s trial. During Hayes’s proceedings, this official testified that it was illegal to set Libor rates for commercial reasons—a statement that formed the crux of the case against Hayes and other traders. Yet this same individual had, as the recording proves, explicitly outlined a plan to manipulate Libor for the BBA’s commercial benefit.
The irony and hypocrisy of this- the BBA is manipulating the Libor rate with a view to hiding the fact that the rate is being manipulated, and doing so for their own commercial reasons, while also providing testimony at a trial stating that Libor should never be manipulated for commercial reasons, and furthermore that he had no knowledge of it ever being used in that way for commercial reasons, and then this testimony is used to jail traders while they get off scot free.
This poses a very serious question: remember the pin I asked you to stick when we first mentioned the testimony that this BBA official gave at the Tom Hayes trial- what could possibly have been his motive for essentially making up a new rule that he knew not only to be false, but that he himself is showing to be breaking in the recording? How did the regulators convince him to make up this rule? I’m sure the fact that they had a recording of him talking about collusion and then implementing a plan that led to the US Libor rate increasing by 20 basis points had nothing to do with it.
Adding to the layers of injustice, the whistleblowers who attempted to expose these practices paid a heavy price. Peter Johnson, the Barclays banker who repeatedly alerted his superiors and even contacted the Federal Reserve, was prosecuted instead of commended. Alongside his colleague Colin Bermingham, who also alerted the fed, Johnson faced charges from the Serious Fraud Office for the same actions that led to Tom Hayes convection. Both men were convicted, with Johnson receiving a six-year sentence, two of which he served in prison and two on parole.
The pursuit of traders and brokers in the Libor and Euribor cases stands in stark contrast to the leniency shown to those at the top of the banking hierarchy. In total, 38 individuals—24 in the UK and 14 in the United States—have faced prosecution for allegedly “rigging” these benchmark interest rates. The trials, however, have revealed a deeply flawed legal strategy. In nine separate proceedings, including seven in the UK, more defendants were acquitted than convicted, as juries often found the evidence against them unconvincing. Moreover, in the United States, where harsher penalties were initially threatened, all convictions have since been overturned.
At the core of the controversy lies a troubling inconsistency in legal interpretations. In most jurisdictions, including the United States, the actions of these traders were deemed neither fraudulent nor criminal. The UK, however, has maintained a singular and punitive stance. Many legal experts, both domestic and international, argue that the UK’s position is incorrect and does not align with global norms.
The stark disparity was underscored in April 2024 when the Court of Appeal rejected an appeal from Tom Hayes and Carlo Palombo. In its judgment, the court ruled that financial traders contributing to Libor and Euribor must have submitted the “lowest,” or cheapest, rate at which they could borrow. This interpretation has been widely contested by academics, banking professionals, and even the original architects of Euribor. James Hines KC, a prosecutor for the Serious Fraud Office, is said to have admitted to the defendants’ legal team that “it was never part of our case” to argue that banks were required to quote the lowest available rate.
Documents obtained by a whistleblower and shared with The Times further illuminate the dissonance. In 2008, amid mounting scrutiny of Libor, the organization overseeing the rate reportedly considered amending its definition to include the word “lowest.” However, after consulting with major banks, central banks, and regulators, the amendment was abandoned. The historical guidance, therefore, left room for a range of rates, reflecting a bank’s commercial realities rather than a single “lowest” figure.
The creators of Euribor have been vocal in their criticism of the UK court’s interpretation. Nikolaus Bömcke, one of its founders, described the situation as a “human tragedy that people have been sent to jail on this kind of error.” Helmut Konrad, another key figure in drafting the Euribor code, expressed surprise at the insistence on a “lowest” definition, emphasizing that the guidance was designed to account for a range of commercial interests, not just the lowest rates. Ian Tyler, a former head of capital at the Royal Bank of Scotland, added that the judgment reflected a fundamental misunderstanding of how markets operate. “The rules never used ‘lowest,’ so the judges are retrospectively moving the goalposts,” Tyler said.
These critiques highlight a significant miscarriage of justice. Most observers agree that the traders’ actions, confined to selecting between two or three legitimate rates within a narrow market range of one basis point, were not criminal. By contrast, the manipulations carried out by central bankers, CEOs, and chairmen—actions that moved rates by 20 to 30 basis points and were entirely outside the market range—had a far greater impact.
### Why Didn’t Prosecutors Target Bigger Players?
Prosecutors and regulators, despite their intelligence and ambition, often prioritize winnable cases over challenging ones. When the risk of losing a high-profile trial looms, they are frequently reluctant to proceed. This approach results in a preference for low-hanging fruit—less resourced, more vulnerable defendants who present easier wins.
In the Libor case, the U.S. Department of Justice (DOJ) and UK regulatory bodies avoided pursuing sovereign institutions like the Bank of England or European central banks. These entities, central to the scandal, were left untouched.
Prosecuting financial crimes has long been considered a formidable challenge, requiring vast resources, specialized knowledge, and the fortitude to take on some of the world’s most powerful institutions. The prospect of a high-profile courtroom defeat often deters prosecutors, leading them to prioritize cases with lower stakes but higher odds of success.
Yet the LIBOR scandal serves as a damning counterpoint to the argument that financial crimes are inherently too complex to tackle. In this case, authorities had irrefutable evidence: recordings capturing officials openly discussing their collusion to manipulate the benchmark rate, followed by a documented increase in the rate just two days after the meeting. The straightforward nature of this evidence undercuts claims about the difficulty of prosecuting such cases, casting a harsh light on regulators' reluctance to bring criminal charges against senior bankers. It raises serious questions about their commitment to accountability and the broader integrity of financial oversight.
And remember, we only have access to recording form Barclays- the regulators have these tapes as well as recording form 15 other banks- one can only imagine how much additional evidence they have and that we’ll never know about.
Why does this happen?
Eric Holder’s press conference remains a stark emblem of hypocrisy. In his address, Holder laid out the charges against Tom Hayes and stressed the importance of holding financial institutions accountable for manipulating the system for profit. Yet, at the time of his remarks, Holder already possessed irrefutable evidence that the manipulation of LIBOR—a rate underpinning trillions of dollars in global transactions—was far more extensive. Central banks, all major financial institutions, and the British Bankers’ Association (BBA) were implicated in deliberate collusion to distort the system.
While the involvement of central banks during the 2008 financial crisis might be defensible as a strategy to stabilize chaotic markets, the evidence reveals that major banks had been gaming the system for their own financial gain for at least a year before the crisis erupted. Recordings show the BBA collaborating with bankers to artificially inflate the LIBOR rate, a move explicitly designed to protect their own interests. Despite the clarity of the evidence, Holder failed to act decisively, a glaring oversight that highlights the double standards and entrenched conflicts of interest that often define investigations into financial misconduct.
Holder’s role in this saga is especially compelling when viewed in the broader context of his tenure and career. While he has been rightly lauded for his leadership on social justice issues—such as refusing to defend state bans on same-sex marriage and successfully challenging discriminatory voting laws—his record on financial crimes tells a very different story. Not a single prominent banker or firm was prosecuted under his watch for their role in the subprime mortgage crisis that nearly brought the global economy to its knees.
Such inaction raises serious questions about Holder’s motivations, and a look at his professional trajectory provides some clues. Both before and after his tenure as Attorney General, Holder was a partner at Covington & Burling, a law firm renowned for its white-collar defense practice and its representation of some of Wall Street’s largest banks. As Bartlett Naylor, a former chief of investigations for the U.S. Senate Banking Committee, aptly put it: "Are we going to operate under the assumption that attorneys at DOJ who are leaving for high-paying jobs in the private sector aren’t going to be influenced by their financial connections? It’s absurd to try to make that case."
Holder’s actions—or lack thereof—are hardly unique. Regulatory agencies across the globe have consistently failed to hold senior bankers accountable, even when armed with damning evidence. Holder, too, served under a president with his own political calculations and priorities. Barack Obama, surrounded by advisors with deep Wall Street ties, pursued policies that some argue reflected the influence of the financial sector. Investigative journalist Matt Taibbi has written extensively on the pervasive presence of influential Wall Street figures within the Obama administration. Similarly, during the crash itself, George W. Bush’s administration exemplified this dynamic: Treasury Secretary Hank Paulson, who played a central role in responding to the crisis, was previously the CEO of Goldman Sachs.
This interconnectedness between the financial sector and those tasked with regulating it represents a fundamental problem. Institutions that should serve as objective watchdogs have become enmeshed with the very entities they are meant to police. The result is a system rife with conflicts, where accountability for egregious misconduct remains elusive, and financial crimes often go unpunished.
### Deferred Prosecution Agreements: The Path of Least Resistance
A common tactic in the financial sector is the use of deferred prosecution agreements (DPAs), which allow institutions to avoid criminal charges by paying hefty fines and committing to operational reforms. In the Libor scandal, nearly a dozen firms collectively paid approximately $10 billion in fines. These agreements allowed banks to sidestep legal action by promising to improve compliance and meet specific conditions.
DPAs have become a hallmark of financial regulation, but they are not without criticism. Public announcements of these settlements often feature prosecutors claiming victory over malfeasance. At first, these pronouncements seem like wins—high-profile firms paying billions for wrongdoing. Over time, however, the repeated use of DPAs reveals a troubling dynamic.
Rather than deterring misconduct, these settlements reinforce the perception that financial institutions can simply buy their way out of trouble. For banks, the penalties—however steep—become a cost of doing business, rather than a genuine deterrent. When wrongdoing surfaces, the burden is often shifted onto mid-level employees, who are sacrificed to protect senior executives and the institution’s broader interests.
### A Question of Deterrence
The repeated reliance on DPAs raises a fundamental question: What disincentives exist for senior bankers to prevent their institutions from breaking the law if they know fines are the worst likely outcome? Without personal consequences, such as job loss or imprisonment, senior leaders face little pressure to enforce ethical behavior.
Drawing parallels to organized crime prosecutions, the lack of accountability for top banking executives mirrors the challenges faced by prosecutors in tackling the mafia during the 1960s and 70s. Back then, the introduction of the Racketeer Influenced and Corrupt Organizations (RICO) Act enabled authorities to prosecute individuals who managed criminal enterprises without directly committing crimes themselves. One must wonder why similar laws have not been adapted to hold financial executives accountable for systemic wrongdoing within their institutions.
### The Case for Public Accountability
Imagine the impact of a senior banking executive subjected to a televised "perp walk," facing trial for their institution’s misdeeds. The visual alone could serve as a powerful deterrent, creating fear not just of reputational damage but of personal loss, including imprisonment. Legal accountability for top executives could shift the cultural norms within financial institutions, making unethical practices less attractive.
### Populism and the Legacy of Injustice
The absence of accountability for senior banking figures has fueled widespread public frustration. Populist movements led by figures like Bernie Sanders and Donald Trump have capitalized on this discontent, highlighting Wall Street’s perceived immunity from punishment after the 2008 financial crisis. Meanwhile, millions of ordinary people lost jobs, homes, and savings during the same period.
“There’s a kernel of truth behind slogans like ‘Drain the Swamp,’” one expert observed. “That sense of injustice still resonates strongly, even if the issues are often simplified.” The enduring perception of inequality within the justice system—one set of rules for the powerful and another for everyone else—continues to erode public trust in institutions. Addressing this imbalance may require a fundamental rethinking of how financial crimes are prosecuted, with a renewed focus on accountability for those at the top.
### Future Accountability: Governments and National Banks Under Scrutiny?
The unresolved question is whether governments, national banks, and even former prime ministers will ever be held accountable, rather than allowing lower-level traders to continue bearing the brunt of legal action. However, the likelihood of this happening appears slim.
Beyond the personal toll on those imprisoned or prosecuted, the manipulation of Libor had devastating financial repercussions. The practice of lowballing Libor rates led to smaller payments on interest rate swaps than should have been due. Before the financial crisis of 2007–2008, states and municipalities had entered into $500 billion in interest rate swaps to hedge against municipal bond sales. Estimates suggest that the manipulation of Libor cost these municipalities at least $6 billion. These losses compounded the $4 billion already paid by municipalities to unwind swaps that backfired during the crisis.
The full extent of wrongful profits reaped by banks remains difficult to quantify, but it is widely believed to amount to hundreds of millions, if not billions, of dollars gained through artificially inflated Libor rates. The ultimate cost of this systemic manipulation may never be fully known.
Libor itself, synonymous with the scandal, has been gradually phased out since the crisis first erupted. The rate officially ceased to exist in September 2024, marking the end of an era in global finance.
As for Tom Hayes, his fight for justice continues. At the time of this recording, his case has been referred to the UK Supreme Court. However, no timeline has been set for the hearing, which will depend on the court's availability to take on the case.
It was a shameful episode, one that starkly revealed the contradictions at the heart of financial regulation and enforcement.