LIBOR Exposed: How the real scandal was buried

[00:00:15] Welcome to today's episode called LIBOR Exposed, How the real scandal was buried and this is such a fascinating story for so many different reasons because we have traders who were found guilty and sent to jail in the UK for a crime that apparently wasn't a crime. We have senior bankers caught on tape talking about collusion and openly manipulating the interest rates and yet they weren't even charged. And we have regulators who knew everything about the interest rates.

[00:00:45] Everything that was going on and who had solid evidence to go after these senior bankers yet instead chose to stitch up those further down the line. The story goes to the heart of everything that is wrong with the financial sector which is why I just love it and I hope you do too. Enjoy.

[00:01:03] Morning Cain and how are you?

[00:01:05] Good, good, good and delighted to be getting into this story. I know this might not have been top of your list but it was one of my favourite stories in the last few years.

[00:01:16] Yeah, what I must admit when we first discussed it and went off and did my initial googling, I wasn't left with a sense of intrigue or excitement at the thoughts of manipulation of bank rates. So I'm looking forward to you selling this one.

[00:01:32] Yeah, I mean, for our listeners and they'll know from the intro, it's about the manipulation of a rate called LIBR and it does get a bit heavy into what LIBR is and what they got up to and what all this was about.

[00:01:46] But what I loved about this episode is it really digs into one of my big bugbears and this is the whole crash that happened in 2007 and 2008 and why nobody, no big bankers were brought to bear, no charges were brought against them.

[00:02:05] There's a few sacrificial, small sacrificial lambs.

[00:02:08] Yes, and while the LIBR crisis isn't so much about the 2007 and 2008 crisis, or the LIBR scandal, even though it does happen around this time, one thread of the story happens around the crash, it does focus in on what do these regulators do?

[00:02:25] What do they know? Are they really looking out for the good of the people? Is it true that financial crimes are just too hard to prosecute? And that's what I loved about this because it exposes an awful lot of what's wrong with the industry and I love that.

[00:02:41] And I think what I loved about this as well is there's recordings of bankers and that, and we'll get into this as well, and we have the recordings on our blog and when you listen to the recordings between the bankers, it really makes you aware of what these guys are up to and what they were doing and I loved all that.

[00:03:02] Yes, I thought it was right.

[00:03:02] Yeah, it's great to have that sort of evidence, all right, and I think there's also a story of what feels like fundamental injustice or unfairness in the treatment of some of these sacrificial lambs versus these bigwigs.

[00:03:15] So that sort of jumped through to me as well as I went through it. Some of it's a bit outrageous.

[00:03:22] It's nuts, it's nuts. There's two threads to this story for our listeners, and we're going to get into the first thread about the small fright, the people who got jailed.

[00:03:31] And let's just get into it. We'll talk first about what LIBR is. So LIBR stands for the London Interbank Offered Race.

[00:03:40] And it's this rate that underpins about between $350 and $500 trillion worth of loans.

[00:03:47] So it's connected to everything from mortgages to credit cards to student loans to big business loans.

[00:03:54] Loads of the world's loans were tied to this rate.

[00:03:58] And I say war because LIBR has been phased out over the last few years as a result of the scandals that we're going to talk about.

[00:04:04] And how it started off originally was that in 1969, a Greek banker was getting together a loan for $80 million for the Shah of Iran.

[00:04:15] And to get this money together, they got a syndicate of banks to raise the money.

[00:04:22] And because it was a syndicate, and this was sort of a new thing back then, each bank's borrowing costs, of course, varied and fluctuates over time.

[00:04:30] So if I'm bank A and you're bank B, and we're giving into this loan, we're pooling our resources, my rate of borrowing might be slightly different to your rate of borrowing.

[00:04:38] And then my rate of borrowing in five years' time will, of course, be different to my rate of borrowing right now.

[00:04:45] So you have to create this flexible race to address this challenge.

[00:04:49] So the way they went about it was they had 16 of the largest banks.

[00:04:54] Every day, they would phone in their race, the rate that they were borrowing money at for that day.

[00:05:02] And then the BBA, which is the British Bankers Association, this London lobby group for bankers, they managed the race.

[00:05:12] They would take out the four highest rates, take out the four lowest rates, then give an average of the eight remaining rates.

[00:05:18] And that gave you the LIBOR race.

[00:05:21] And that's why, apparently, in the markets, you'd often hear LIBOR plus one or LIBOR plus two.

[00:05:26] That would be the LIBOR race plus 1% for the bank's commission or their big top.

[00:05:31] Okay.

[00:05:32] So then in the 1980s, this race expanded to include all kinds of financial instruments like credit rates drops and derivatives.

[00:05:40] And what's key about all this is that LIBOR, even though the BBA were managing it, it remained unregulated.

[00:05:48] It was self-policed by the banks.

[00:05:51] What could go wrong?

[00:05:53] I mean, what were they thinking?

[00:05:55] So as I said at the start, there were two threads to this story.

[00:05:59] There's the first thread, which is the alleged manipulation by traders.

[00:06:03] Then there's the second thread that we'll get into later on, which is the actual manipulation of this race by senior bankers and by central bankers and by the BBA.

[00:06:14] So layer one, the traders.

[00:06:17] And the face of this story is a guy called Tom Hayes because he was the most prominent trader in this story.

[00:06:24] Now, Tom Hayes was this mildly artistic but very talented mathematician.

[00:06:29] He was a trader in the banks and he was very, very good at spotting patterns.

[00:06:33] His colleagues nicknamed him Rain Man.

[00:06:35] And they said he was a mathematical genius.

[00:06:38] Now, Hayes himself was a bit more humble.

[00:06:40] This is a cold.

[00:06:41] He was quite humble, wasn't he?

[00:06:42] He was.

[00:06:43] Modest sort of a guy.

[00:06:44] He was.

[00:06:45] Well, I mean, he wasn't outgoing.

[00:06:46] He was, I suppose that was due to his autism.

[00:06:49] He was different from everybody else.

[00:06:51] And he said himself, he said, I enjoy maths, but I'm not a mathematical genius.

[00:06:54] I enjoy trading, but I'm not a trading genius.

[00:06:57] I am good at taking risks and I enjoy that.

[00:07:00] And he was a very, very good trader.

[00:07:03] In 2008, for example, for his employer, UBS, he made them a profit of 110 million.

[00:07:09] So that's just one man doing his trades, making that amount of money for one bank,

[00:07:13] for which he was paid $5 million.

[00:07:16] Or 5 million pounds, I think, was his salary, including commissions and everything.

[00:07:20] And LIBOR was one of the tools, just one of the tools he used to guess what traders would call an edge.

[00:07:29] Now, it's hard to understand how could one trader influence the LIBOR rate in the way that we explained,

[00:07:35] you know, that they take the four largest, the four lowest, and then they average out the eight remaining.

[00:07:41] But I'll try and explain this as best I can.

[00:07:44] Yeah. So what Hayes would do within his own bank is the bank would be giving a range of rates,

[00:07:52] say two to three rates that they could borrow money at every day.

[00:07:56] And that might be, say, there'd only be one basis point between the rates.

[00:07:59] So they'd be saying, OK, we can either put out a rate of 4.18, 4.19 or 4.20, say.

[00:08:05] And Tom Hayes would say, I'd like you to put out 4.20 because that rate best suits the trades that I'm doing.

[00:08:13] And by that, what we mean is that if he managed to get a LIBOR rate that was put out that was in his interest,

[00:08:20] even 0.01 of a percent is what the differences were between these rates.

[00:08:23] That's one basis point.

[00:08:25] It could mean as much of about $750,000 profit to his trades.

[00:08:30] And just to kind of run with that for a minute.

[00:08:35] So the three rates that they were proposing constituted one of the inputs of one of the participating banks.

[00:08:45] Yes.

[00:08:46] That would be, so say for Tom Hayes' banks, UBS, that was, they were given a range of rates that they could borrow money at that day.

[00:08:55] And usually it was between two to three ranges.

[00:08:57] And there was only 0.01 of a percent difference between each of them.

[00:09:01] And he would ask his LIBOR desk to put out the rates that bet suited his trades.

[00:09:06] But that was just for his bank.

[00:09:08] So then you kind of think, but how did he influence the LIBOR rate?

[00:09:11] The overall average.

[00:09:11] Yes, because there was 15 other banks.

[00:09:14] Well, he leveraged his relationship with what are called brokers.

[00:09:18] Now brokers are middlemen.

[00:09:19] So if two traders are doing business together, they don't talk to each other.

[00:09:23] Instead, they use brokers.

[00:09:25] And brokers facilitate the transactions between traders and they earn a commission.

[00:09:29] They're also the gatekeepers of information.

[00:09:31] And they have a large budget to nurture relationships with traders.

[00:09:35] And what they do with this budget sometimes can be pretty outlandish.

[00:09:39] They'll take them for expensive dinners.

[00:09:41] They'll take them for drinks.

[00:09:42] But there's also drugs, strip clubs, foreign holidays.

[00:09:47] They splashed out because it was important for these banks to have the biggest traders do business with them.

[00:09:53] So that's what the broker...

[00:09:55] In the wrong business, I think.

[00:09:57] Well, I don't know.

[00:09:58] I mean, I'm with Tom Hayes in this.

[00:10:00] I would not like...

[00:10:01] It's very, very seedy.

[00:10:03] I remember a friend of ours went over to London and he'd be telling us about the kind of things that the banks got up there.

[00:10:08] Now maybe in my 20s, yeah.

[00:10:09] But no, I wouldn't be...

[00:10:11] Now you're more on the Tom Hayes bucket of KFC on the couch.

[00:10:14] Exactly, watching Seinfeld because Hayes wasn't in for that at all.

[00:10:18] So the traders or the brokers really couldn't get to him in that way.

[00:10:22] So what they could do to help him was that they could help...

[00:10:26] They could choose the LIBOR rate within their institutions or with other institutions that best suited Tom Hayes' trades.

[00:10:35] And because he was such a huge trader and because they wanted his business, they would try to help him do that.

[00:10:40] And he leveraged that relationship to a degree that no other trader would.

[00:10:45] Now, it should be said that it didn't work all the time for him.

[00:10:49] You know, this didn't...

[00:10:50] He couldn't do it every day and ensure that he got the LIBOR rate that he wanted.

[00:10:54] But it worked a good few times for him.

[00:10:57] And he reckons it amounted to about 10% of his profits overall.

[00:11:01] And so it gave him an edge.

[00:11:04] And was this in turn influencing the rates from the other banks?

[00:11:10] Yes.

[00:11:11] Yes.

[00:11:11] Now, this is important.

[00:11:13] So there's one key thing here.

[00:11:15] In all the articles that I read, initially, the articles were saying that he manipulated the rates and he chose artificial rates.

[00:11:24] Now, he didn't choose artificial rates because the rates were within the range that the market was giving the banks.

[00:11:30] But I definitely think...

[00:11:32] And we will be getting into the fact that there was a miscarriage of justice here.

[00:11:35] And Tom Hayes and traders that went to jail were wrongly convicted.

[00:11:39] But I do think there's a case here for collusion, at the very least.

[00:11:43] Because he is colluding with other banks to ensure that he gets the rate that he wants.

[00:11:48] So the legality of it that we'll get into shows that maybe he was wrongly convicted.

[00:11:53] But he isn't totally innocent.

[00:11:56] No.

[00:11:56] And neither are the traders that he was involved in totally innocent.

[00:11:59] Yeah.

[00:12:00] Yeah.

[00:12:00] Maybe this idea of him being antisocial and not a highly sort of engaging person is an artifice.

[00:12:09] Maybe that's not...

[00:12:10] How could he be so influential and build all of these relationships and get people to adjust their numbers if he was completely antisocial?

[00:12:18] Yeah.

[00:12:18] And I've also heard him talk and he comes across very well.

[00:12:21] We will be going into this and saying that Tom Hayes and the traders was a miscarriage of justice.

[00:12:25] And there was.

[00:12:26] But I am not advocating the fact that he is totally innocent.

[00:12:30] And there was also...

[00:12:31] I mean, there's loads of emails and phone conversations where him and the traders come out of it looking very badly,

[00:12:38] looking very unsavory, where he's shouting at brokers to get the rate he wanted or threatening to pull the business.

[00:12:44] So he wasn't this quiet guy sitting in the corner just tapping on a keyboard.

[00:12:48] He was very proactive and very vocerous and very forceful in ensuring he got a rate that he wanted.

[00:12:56] And did that impact the numbers or the lending rates submitted by the other 15 banks?

[00:13:03] Is that ultimately the result of the traders?

[00:13:06] It did.

[00:13:06] But not in any significant way and not in any way that was artificial.

[00:13:10] This is what's key.

[00:13:11] Because he wasn't saying to them, I want a rate of 4.3.

[00:13:15] If they had a rate of, say, 4.18 and 4.19.

[00:13:18] He just had to choose between the rates that they already had, that they were given in the market.

[00:13:24] He couldn't make up a race.

[00:13:25] He just had to choose from within the range that the banks already had.

[00:13:29] So there wasn't anything artificial in that.

[00:13:32] So that is a key point.

[00:13:35] So that's where we are with Tom Hayes.

[00:13:37] And that's how he was using the Libra rate to benefit his trades.

[00:13:43] Now, then we get on to the first part of the second part of the story, if you follow me.

[00:13:49] Because around the 2007-2008 crash, the Libra rates were remaining low.

[00:13:56] So even though, you know, all the banks were in major crisis and lending rates were going up, Libra rates were still pretty low.

[00:14:04] And the media started asking questions.

[00:14:06] They were like, why are the Libra rates so low?

[00:14:08] And as a result of this, US and then UK regulators opened an investigation.

[00:14:13] And they subpoenaed the 16 banks involved.

[00:14:17] And they got a treasure trove of recordings and emails and everything like that.

[00:14:22] Now, within those recordings, some of the recordings were of Tom Hayes and his traders where they were, you know, onto each other to choose a rate that best suited their banks.

[00:14:34] Then they had another set of recordings that had senior bankers actually manipulating the Libra rates where they were actually not just choosing between the range of 4.18 or 4.19, but where they were actually saying, okay, our actual rate is 4.5, but we're just going to put out to the market that it's 4.2.

[00:14:54] So they were manipulating it to a huge degree.

[00:14:56] We're talking about not 0.01 or one basis point.

[00:14:59] We're talking about 30 to 40 basis points.

[00:15:01] Okay.

[00:15:02] And what's the motivation of that?

[00:15:04] Would it have made their cost of borrowing more expensive?

[00:15:07] No, no.

[00:15:08] It was for perception.

[00:15:09] And we're going to get into that.

[00:15:11] It was perception.

[00:15:11] They didn't want the markets to know that they were in trouble.

[00:15:14] If they were saying our cost of Libra or our Libra rates are 4.5 and other banks were saying their Libra rates were 4.3, it would make them look bad.

[00:15:24] So they all started low balling so that it wouldn't seem that they were in any trouble, even though everybody was in trouble at the time.

[00:15:31] But anyway, the regulators got this treasure trove of recordings and they went after the banks.

[00:15:39] And as a result of this, they fined Barclays, first of all, £290 million.

[00:15:46] Bob Diamonds, the CEO of Barclays, had to resign.

[00:15:49] And there was parliamentary inquiries.

[00:15:51] And it ultimately led to huge settlements with the banks where all the banks had to pay about $10 billion.

[00:15:57] But what's interesting here, Keith, is that all the bankers that went into the parliamentary inquiry, they all came out and said, we knew nothing of the manipulation.

[00:16:06] It was just a few rogue traders.

[00:16:09] And the regulators went along with this story.

[00:16:12] Even though the regulators had other recordings that we're going to get into in thread two, the regulators went along with the story that it was just Tom Hayes and a few rogue traders who were doing what they were doing.

[00:16:23] And there wasn't any other large manipulation involving senior bankers.

[00:16:27] So on the back of this, because of the parliamentary inquiries and all that, there was huge pressure, of course, from the public and the politicians to jail some bankers.

[00:16:37] Because up to this stage, this is now 2012, still no bankers really had been jailed.

[00:16:42] I think one or two in America had been jailed for some sort of manipulation, but very low down as well.

[00:16:49] And so in 2012, Hayes was arrested by the British regulators.

[00:16:56] He was released without charge.

[00:16:57] And then eight days after he was released, he was sitting at home watching TV when Eric Holder, Barack Obama as Attorney General, and a guy I am going to talk about a bit more later on.

[00:17:07] He comes into this press conference with flashing bulbs and, you know, all this kind of show.

[00:17:16] And he says that they're fined UBS, which was Tom Hayes' previous employer, because by this stage, Hayes had been working for Citigroup, 1.5 billion.

[00:17:25] And he also named Tom Hayes and said that they were seeking to extradite Tom Hayes and one other trader on criminal charges.

[00:17:32] So now Tom Hayes was looking at being extradited to America and possibly facing 30 years in jail.

[00:17:38] So straight away, he got on to his lawyers and they went to the UK regulators and they said, we want to cooperate with you because, you know, nobody wants to be extradited to the US.

[00:17:48] And so he agreed to work with the UK regulators and he agreed to their narrative that his actions were illegal and he confessed guilt.

[00:17:56] And the evidence appeared overwhelming.

[00:17:58] There was thousands of emails and recordings of him asking brokers to pick the best rate that suits his trades.

[00:18:05] And as part of his cooperation, he named 20 other individuals that were involved in this with him.

[00:18:10] Oh, wow.

[00:18:11] Yeah.

[00:18:11] And he was formally charged in June 2013.

[00:18:15] But over that summer, Hayes started reviewing all the evidence and he just got more and more annoyed because all the evidence was shown, first of all, that all his superiors in the banks that he worked for, they were all involved.

[00:18:29] All his senior managers endorsed him.

[00:18:32] There was emails and recordings where they're encouraging him to do what he's doing.

[00:18:36] Everybody else in the business was doing the exact same thing.

[00:18:39] It was an industry standard.

[00:18:41] And he also looked at the rules around LIBOR and he thought, you know, there's nothing, even though this looks bad, I haven't done anything wrong here.

[00:18:51] And I'm being scapegoated and nobody else that's senior above me is being brought to trial.

[00:18:58] You know, this is not right.

[00:18:59] So he eventually, he went to the regulation and said, I'm withdrawing my cooperation.

[00:19:04] And he put his faith in jury trial.

[00:19:09] Oh, yeah.

[00:19:10] And juries love bankers, of course.

[00:19:12] Yes.

[00:19:13] The ordinary person on the street loves a nice banker.

[00:19:16] But just curious as to why the US legal system singled him out in particular.

[00:19:22] Why would he have come to their notice, I wonder?

[00:19:25] Because the banks, from what I can gather, the banks were keen to protect their more senior people who had also been caught on tape doing manipulation that I'm going to get into.

[00:19:36] And they were also keen to, I suppose, throw some base the way of the, to the regulators.

[00:19:44] And Tom Hayes and his colleagues were the group of people that they focused on.

[00:19:48] And he had left?

[00:19:50] He had been fired by Citigroup.

[00:19:52] Yeah, his employer, Citigroup, had actually fired him as well.

[00:19:54] So they really hung around to try.

[00:19:56] And his previous employer, UBS, threw him under the bus, basically.

[00:19:58] Yes, they all provided plenty of evidence that showed that what looked like him and his fellow traders or brokers were doing was, you know, wrong.

[00:20:08] And now, as we shall see, the law doesn't go in the favour of the regulators, at least in the US.

[00:20:17] But, you know, we'll get into that.

[00:20:20] So, yes, and as you were saying, the public weren't very keen on bankers at this stage.

[00:20:24] And neither was the judge, it appeared.

[00:20:26] Because even in the pre-trial, the judge that oversaw this case, this is what the judge said.

[00:20:30] He said, in my own mind, if I was trying this case myself without a jury, it would not last two weeks.

[00:20:36] It's an open and shut case.

[00:20:38] It's self-evident.

[00:20:39] There was dishonesty.

[00:20:40] So that's not prejudicial.

[00:20:42] I don't know what is.

[00:20:43] And they tried to get that judge recused, but they couldn't.

[00:20:47] So it goes to trial.

[00:20:49] And in fairness, you know, the testimony that he gave to the English regulators is pretty damning.

[00:20:53] He says that I knew I shouldn't do it.

[00:20:55] I probably shouldn't have done what I did.

[00:20:57] There was loads of email and documents that Hayes and the traders and brokers knew that they were pushing the envelope.

[00:21:04] And there was definitely, I think, a case for collusion.

[00:21:07] As I said, they're not totally innocent.

[00:21:09] On the stand, Hayes disavowed the admissions.

[00:21:12] He said he exaggerated his guilt to ensure that he wouldn't be extradited.

[00:21:16] You can understand that maybe he did do that.

[00:21:18] The fear of being extradited would be so big that you'd admit to nearly anything.

[00:21:22] And he said that his behaviour was the accepted norm, that no rules had been broken.

[00:21:28] Now, when he was cross-examined himself, the reports I read said that he didn't handle himself very well while being cross-examined,

[00:21:34] that he was very brittle, very defensive and evasive.

[00:21:37] But the pivotal part of this whole trial, Keith, and this is where it comes down to this,

[00:21:42] the crux of this was the interpretation of how LIBOR rates could be used.

[00:21:46] OK, so just bear with me for a minute.

[00:21:49] The prosecution argued that setting LIBOR rates to suit a bank's commercial interests was unequivocally against the rules.

[00:21:56] That's what they were saying.

[00:21:57] But Hayes's defence said that no such rules had ever explicitly been written down.

[00:22:03] And that is factually accurate.

[00:22:04] There was no rules that said you couldn't choose a rate that was in your bank's interest.

[00:22:10] That's what laws are there for.

[00:22:12] You know, laws are there so that there's no ambiguity.

[00:22:15] And there was actually no rules saying that banks couldn't do this.

[00:22:18] And banks were allowed to submit rates that reflected genuine borrowing costs.

[00:22:23] And Hayes and his fellow traders, they always chose between a range of two to three numbers that were out there in the market already.

[00:22:32] They weren't, you know, coming up with numbers.

[00:22:34] They weren't manipulating any numbers.

[00:22:36] And as I said, the rates that were chosen were valid and genuinely available.

[00:22:42] So that's key.

[00:22:43] But what changed the whole narrative was that the prosecution brought in a star witness from the BBA.

[00:22:50] That's the British Bankers Association.

[00:22:53] And he came into the trial and he testified that there could be no commercial consideration in determining LIBR submissions and that he had no knowledge of such practices.

[00:23:05] Now, Judge Cook used that BBA's testimony to conclude that LIBR rules prohibited any commercial considerations.

[00:23:13] Is that just a personal belief as opposed to something that's...

[00:23:18] Yes. Stick a pin in this because, first of all, we're going to get back to this BBA official because he features very prominently in the second thread of this story.

[00:23:26] You'd wonder why did he come in and just say, all of a sudden, oh no, the rules, okay, while it's not in the rules, you know, we would always interpret the rules that there was no commercial consideration.

[00:23:36] This is basically a retroactive rule that the judge then took on board and applied to this case and said, there you go.

[00:23:43] You can't set pick rates that are of benefit to your bank's commercial consideration, even though this had never been written down.

[00:23:51] And you have to wonder, and we will get into, why did the BBA official come in and say that?

[00:23:57] It's very interesting.

[00:23:58] And most experts agree that the judge's interpretation in this trial is totally wrong.

[00:24:04] There were so many prosecutions.

[00:24:08] I think 38 individuals in all were prosecuted as a result of this.

[00:24:12] Only five went to jail.

[00:24:14] Four were found guilty.

[00:24:15] One pleaded guilty.

[00:24:17] There were many convictions in the US and they were all overturned because they all got back to this ruling and said, no, the judge can't have interpreted that.

[00:24:25] Because there wasn't anything written down to actually say that they couldn't take into consideration their commercial interests.

[00:24:32] But anyway, that's where we were at.

[00:24:34] And on the basis of that sweeping ruling by the judge, really, Hayes was found guilty in 2015.

[00:24:39] He was sentenced to 14 years.

[00:24:43] Wow.

[00:24:43] Now, that was later reduced to 11 years and he ended up serving 5.5 years.

[00:24:48] As I said, most of it was on this base of this sweeping ruling by the judge, which we are going to get into.

[00:24:55] Now, again, it has to be said, even the US courts that overturned convictions of traders did say that while these traders were innocent of criminal charges, the judge did say they may have violated any reasonable notion of fairness.

[00:25:10] Yes.

[00:25:10] So it's a moral judgment as opposed to a legal.

[00:25:13] Yes, exactly.

[00:25:14] Exactly.

[00:25:15] And you read the stories at the time and you'd be just going, these guys should be in jail.

[00:25:20] And I'm not here to trumpet any bankers and say, you know, they're all innocent.

[00:25:26] Legally, these guys were innocent.

[00:25:28] And when we get now into the second thread of the story, you'll see why we really do think that there was such an injustice here.

[00:25:35] So you can be sympathetic to their, I suppose, ultimate destination without being sympathetic to the individual or their actions, I guess.

[00:25:46] Exactly.

[00:25:46] And I think your sympathy will definitely increase when we get into this second side.

[00:25:51] Because the second thread of the story revolves around what we call, or what was called, low-balling.

[00:25:57] And this is, we just touched on it briefly there.

[00:25:59] This is where in the 2007 and 2008 crisis, interbank lending basically ground to a halt, which meant that interest rates to borrowing, you know, really increased for the banks.

[00:26:11] But the banks didn't want to project any vulnerability.

[00:26:15] So the banks, instead of putting out a rate that they were being charged, which might have been, you know, and these figures now, I'm just putting out numbers there, but say now it was 4.8.

[00:26:23] They would put out a figure of 4.5.

[00:26:26] Now, again, just to put that in perspective, Hayes was choosing a race of, say, between 4.18 and 4.19 at one basis point, 0.01.

[00:26:36] These senior bankers were manipulating the race to the tune of about 30 to 40 basis points, and they were low-balling them.

[00:26:46] So this was in an effort to avoid a run on the bank, which we saw sort of at the height of this crisis, where essentially that edifice of confidence in a financial institution would crumble.

[00:26:59] People would start taking their cash out.

[00:27:01] That would lead to sort of a snowball effect, and suddenly the bank's in trouble.

[00:27:05] Exactly, exactly.

[00:27:06] But at the start, and those three kind of phases that I'm going to go through in this thread, initially the banks were doing it individually out of self-interest.

[00:27:16] They didn't want the media or the markets to get any idea that maybe they were in trouble.

[00:27:20] And if they put out high LIBOR rates, it would signify that they were at credit risk and they'd be in trouble.

[00:27:26] So, as I said then, reporters started to notice this, and that kicked off the inquiries that led to all these subpoenas,

[00:27:33] that then led to the regulators getting this treasure trove of recordings.

[00:27:38] And up to 2017, all the public knew was that these recordings had recordings of Hayes and his fellow traders doing what they were doing.

[00:27:47] But they didn't.

[00:27:48] The regulators also had a mountain of recordings to show senior bankers talking to each other and manipulating these rates by 20, 30 and even 40 basis points.

[00:28:02] And the regulators never released these recordings.

[00:28:06] And we wouldn't know of these recordings if it wasn't for the fact that in 2017, a BBC reporter called Andy Verity was covering the LIBOR trial,

[00:28:14] and somebody sent him recordings from Barclays.

[00:28:18] And these are the lowball tapes that are going to be on our blog.

[00:28:22] If you click on the link below this podcast, it'll bring you to our blog,

[00:28:25] and I'll put the lowball recordings at the top of the page.

[00:28:28] And I really would recommend our listeners to listen to these recordings.

[00:28:33] What a great surname for a champion of truth.

[00:28:35] Verity.

[00:28:35] Verity, yes.

[00:28:36] Yes.

[00:28:37] And there's another champion here, Keith.

[00:28:40] Out of these tapes comes one hero, a guy called Peter Johnson.

[00:28:45] And he worked in Barclays.

[00:28:47] He was the guy who sat at the LIBOR desk for Barclays.

[00:28:50] So he was the guy who called the LIBOR rates.

[00:28:51] And Johnson was calling in honest LIBOR rates.

[00:28:56] He was calling in the rate that Barclays was actually being charged to borrow.

[00:28:59] But all the other banks were calling in lower rates.

[00:29:03] And he was coming under massive pressure from his bank to put in dishonest rates.

[00:29:09] And in the tapes, it's so clear how uncomfortable Johnson is with all this and how exasperated he is.

[00:29:16] And I'll give you some quotes that just show what he's saying.

[00:29:20] He's saying, this is an ethical and legal thing now.

[00:29:23] I'm basically giving a false raise.

[00:29:25] In another conversation with his trader, he says, this is so fucking wrong.

[00:29:30] It should be much, much higher.

[00:29:32] Believe me, you have no idea how much higher.

[00:29:35] And then in another conversation with one of his bosses, he's been directed to keep LIBOR artificially high.

[00:29:43] And his boss says, this is coming from floor 31.

[00:29:46] A reference to the floor where the CEO, John Varley, and Deputy Bob Diamond had their offices.

[00:29:53] And Johnson is becoming exasperated.

[00:29:57] And you can hear him on the tape.

[00:29:58] And he says, OK, I'm sending an email to everyone, to the senior people.

[00:30:01] And he does.

[00:30:02] He sends an email to management explicitly stating that the bank was being dishonest by definition.

[00:30:09] Nothing happened.

[00:30:10] So a nice arse covering exercise as well.

[00:30:13] Oh, yes.

[00:30:14] And his manager is encouraging him to because his manager wants to cover his ass as well.

[00:30:18] As we shall see, it doesn't really help Johnson's case at all.

[00:30:21] And Johnson then, he is so exasperated by this whole thing.

[00:30:26] He actually rings the Federal Reserve in America.

[00:30:29] And these are all on tape as well, telling them what's going on.

[00:30:33] And one of his colleagues, a guy called Colin Birmingham, also rings the Fed to let them know what's going on.

[00:30:39] So this is all on the lowball tapes.

[00:30:42] And the regulators had all these tapes.

[00:30:44] And not only did the regulators have these tapes, they rang the bloody regulators and told them what was going on.

[00:30:49] And we never knew anything about these tapes and wouldn't have known about these tapes if it wasn't for somebody sending them into the BBC.

[00:30:57] So, you know, stick a pin in that.

[00:30:59] Why did the regulators sit on those?

[00:31:00] Now, then we come to the second part of this thread.

[00:31:04] So you have the bankers manipulating the rates for their own self-interest.

[00:31:07] But then in 2008, the central bankers get involved.

[00:31:12] Because around this time, Europe and the US and all the other governments are releasing emergency funding and initiatives to recapitalise the banks and to increase liquidity.

[00:31:22] Yet despite all their efforts, and even despite the fact that the banks are trying to keep the LIBOR rate low, it's still too high.

[00:31:28] So the central banks have a choice.

[00:31:33] They can either flood the market with cheaper borrowing options and ease liquidity, or they can do the more ethically questionable thing, which is pressure the banks to submit even lower LIBOR rates.

[00:31:46] In one of the podcasts I was listening to, the analogy was you have a patient who has a high temperature.

[00:31:51] You can either treat the underlying conditions by giving them drugs and, you know, treating them, or you can fiddle with the thermometer.

[00:31:57] And what the banks, what the central banks did here was they fiddled with the thermometer.

[00:32:01] They pressurised the banks to submit even lower rates.

[00:32:07] And is any of this on tape, or is that in your notes as well, the involvement of the central banks?

[00:32:13] Well, here's a quote from one of the bosses.

[00:32:16] You'll never get the central bankers actually on tape.

[00:32:19] But here's a quote from one of Johnson's bosses.

[00:32:22] And he says, PJ, because that's what they call Johnson.

[00:32:25] PJ, you're going to absolutely hate this.

[00:32:27] But we've had some very serious pressure from the UK government and the Bank of England about pushing our LIBOR rates lower.

[00:32:34] So that's where one of his managers hit.

[00:32:36] Now, and again, for our listeners, this is evidence and recordings from just one bank.

[00:32:42] There was 15 other banks.

[00:32:44] So can you imagine the treasure trove of evidence that the regulators are sitting on that we don't know yet?

[00:32:49] So this is just all from one bank.

[00:32:51] So what the lowball tapes indicate is manipulation of LIBOR from government officials through to the central banks.

[00:32:59] Because apparently the pressure came from Gordon Brown's office into the central banks.

[00:33:04] And then they put pressure onto the most senior bankers.

[00:33:08] And as a result of all this anyway, when all this was coming out,

[00:33:12] and when the UK had their parliamentary inquiries that led to Bob Diamond resigning,

[00:33:16] all of this was withheld.

[00:33:18] The central banks went into the parliamentary inquiries in 2012 and said,

[00:33:21] we only found out about lowballing a few weeks ago.

[00:33:24] We didn't know about it at all.

[00:33:25] Whereas these tapes showed that the central bankers knew about it as early as 2007 and 2008.

[00:33:32] And Diamond didn't mention this in his testimony or as a defensive mechanism, he was loyal?

[00:33:37] I would say so.

[00:33:39] I would say there was an agreement that, you know, we got to keep all this in-house.

[00:33:43] Because I suppose if he started talking about the central bankers knowing about it,

[00:33:46] then he would also have to implicate himself in this huge manipulation of lowballing.

[00:33:50] So no, they all just put the pressure and put the focus on Tom Hayes and the traders.

[00:33:56] And we would, as I said, never have known about this,

[00:33:58] except if it wasn't for Andy Verity getting these lowball tapes.

[00:34:02] Now, just to pull back for a minute,

[00:34:06] it is worth saying that however misguided the central banks might have been in pressurising the banks to do this,

[00:34:13] the central bankers were doing this not out of self-interest.

[00:34:16] They were doing this for the greater good.

[00:34:18] You know, there wasn't any self-interest there as such.

[00:34:20] They were looking out for the economy.

[00:34:22] There's a lot of sort of traditional, sort of historical kind of circumstances

[00:34:29] whereby people would claim that they're excused by the fact that they did the greater good.

[00:34:34] But, you know, it doesn't necessarily mean it's without pain or without implications either, you know.

[00:34:39] I know, I know.

[00:34:40] And especially when they sat back and let the traders take the heat for a manipulation that really wasn't a manipulation,

[00:34:48] especially when you compare it to what they were asking the bankers to do.

[00:34:52] Manipulation got a huge degree, so there's a lot to be said for that.

[00:34:56] But then we come to another of the tapes on the low-balling tapes,

[00:35:00] and this really exposes a very sinister side to all this, Keith, especially in relation to the regulators.

[00:35:07] So there's a recording.

[00:35:09] Remember the BBA official who testified at the Tom Hayes trial

[00:35:12] and came up with the rule that said that the banks couldn't, you know,

[00:35:15] pick a libra rate that best suited their commercial needs.

[00:35:19] Well, this same BBA official is caught on recording talking to a Barclays official

[00:35:26] saying that we need to increase the libra rate in the US

[00:35:31] because the newspapers are coming out and saying the libra rate is too low.

[00:35:35] Now, just for our listeners, the libra rate is being set in relation to different currencies.

[00:35:41] So you set a libra rate for the US dollar, you set the libra rate for starting.

[00:35:45] So this BBA official is talking to Barclays person, and he said,

[00:35:51] we've just had a meeting with the board.

[00:35:54] And he confirms that the people who were in that meeting were the CEOs and chairmen of the senior bank.

[00:36:00] And he said, and we have agreed, we are agreeing that we are going to push the libra rate in the US dollar up

[00:36:07] to cut off this rumour, this story that's going around,

[00:36:10] that the libra rate is too low.

[00:36:14] And within two days of that meeting, the libra rate in the US increases by 20 basis points.

[00:36:21] So this is manipulation at a vast scale.

[00:36:26] Yes, and this isn't...

[00:36:27] Systemic.

[00:36:28] And this isn't for the greater good of the economy.

[00:36:31] Why the BBA wanted to do this was because this was for their own self-interest,

[00:36:35] because the BBA were getting huge license fees from all the banks for their libra rate,

[00:36:39] and they couldn't have the libra been undermined by this.

[00:36:43] So what's astonishing here is they even on the tapes, Keith, talk about collusion.

[00:36:48] Here's a quote from them.

[00:36:50] We have to be careful about, quote, collusion, unquote.

[00:36:54] They're actually admitting to colluding.

[00:36:56] And the irony and hypocrisy here, Keith, what the BBA is doing here is they're manipulating the libra rate

[00:37:03] with a view to hiding the fact that the libra rate is being manipulated.

[00:37:08] Okay.

[00:37:09] It's amazing.

[00:37:09] They're doing so for their own commercial reasons,

[00:37:12] while also then providing testimony in Tom Hayes' trials,

[00:37:16] saying that the libra could never be manipulated for their commercial reasons.

[00:37:19] And furthermore, that they had no knowledge of it ever being used in this way,

[00:37:23] when they're using it in that exact way.

[00:37:25] And was this person named?

[00:37:27] Oh, yeah.

[00:37:27] Yeah, yeah.

[00:37:27] I'm not going to name him now because, you know, I don't want to get sued,

[00:37:30] but he is named.

[00:37:31] He's a named official.

[00:37:32] Yeah.

[00:37:33] Wow.

[00:37:34] Yeah.

[00:37:34] And the regulators had these recordings of the BBA official doing this.

[00:37:38] Now, you would have to ask, it poses a very serious question.

[00:37:42] Why did the regulators, knowing that the BBA were manipulating it themselves

[00:37:47] for their own commercial reasons,

[00:37:50] then have this guy from the BBA go up and say, you know,

[00:37:54] oh, well, you can't manipulate it for commercial reasons.

[00:37:56] So the regulators got him, I think, pressured him to come up with this rule

[00:38:02] that suited their prosecution so that they could have something to hang Tom Hayes with,

[00:38:07] knowing full well that the BBA themselves did the exact same thing.

[00:38:11] So a sacrificial lamb, really, to satiate the hunger for retribution for a banking crisis.

[00:38:21] Yes.

[00:38:21] Yes.

[00:38:22] And this...

[00:38:22] Outrageous.

[00:38:23] It is nuts.

[00:38:25] It is nuts.

[00:38:26] And you'd have to look at the regulation and say, you know, you have recordings knowing that this was going on.

[00:38:33] And yet the very person from the BBA who did this practice himself,

[00:38:37] you then got him to go and stand in Tom Hayes' court case and say that,

[00:38:42] oh, well, the rule stipulates that this could never be done,

[00:38:45] even though he himself had done it himself.

[00:38:46] And that was a fundamental piece of evidence in condemning him.

[00:38:50] Yes.

[00:38:50] Yeah.

[00:38:51] Yeah.

[00:38:51] If you think that's unbelievable, Keith, what's even more astonishing is the hero of this story,

[00:38:57] Peter Johnson, the guy who railed against his bosses for increasing and manipulating the LIBRA race,

[00:39:04] who sent an email to his bosses saying it was dishonest,

[00:39:06] who rang the Federal Reserve to tell them about it,

[00:39:10] Peter Johnson went to jail for doing the exact same thing that Tom Hayes did

[00:39:14] because Peter Johnson was in charge of the LIBRA desk.

[00:39:17] So he was doing what Tom Hayes was doing, which all traders were doing,

[00:39:21] which is every day they were picking a race that best suited their bank's commercial position.

[00:39:27] He was sentenced to six years.

[00:39:29] He served two years and he had two years in parole.

[00:39:32] As a Colin Birmingham, his colleague who also rang the Fed and told them about this.

[00:39:38] And further up the chain, the deeper, more systemic.

[00:39:43] What are we talking about in terms of justice served here?

[00:39:46] None.

[00:39:47] None.

[00:39:47] This is the third part of the story.

[00:39:50] And it's really what I got interested in this story because I've always had a bit of a bugbear

[00:39:55] about the 2008 crisis, as has a lot of people, Keith.

[00:39:59] I think that the fallout from the 2008 crisis and the fact that no senior bankers were ever brought to justice as a result of it.

[00:40:09] People scratched their heads.

[00:40:11] And like an awful lot of the time, the prosecutors and the regulators come out and say,

[00:40:15] well, financial crimes are very difficult to prosecute.

[00:40:18] But I wanted to see, OK, well, you know, how true is that?

[00:40:23] And the Libra scandal really shines a light that it's not true what they're saying.

[00:40:29] Like they have so much evidence against these senior bankers in the Libra scandal and they did nothing.

[00:40:33] So let me just go into this a little bit.

[00:40:36] So first of all, prosecutors and regulators, they're intelligent, you know, they're ambitious people.

[00:40:40] But they always prioritize winnable cases.

[00:40:43] And that's fair enough.

[00:40:44] You hear that they don't want to bring a case to trial that they're going to lose.

[00:40:48] That's grand.

[00:40:49] They'll always preference lower hanging fruit because they're less resource, they're more vulnerable defendants,

[00:40:54] and it presents an easier win.

[00:40:56] OK, I can understand that.

[00:40:58] I can also understand that maybe they didn't want to go after the central banks, you know,

[00:41:02] when the central banks were involved in all this.

[00:41:04] I get that as well.

[00:41:07] But what this case does, it first of all shines a light on how they might have used evidence

[00:41:12] against the BBA to force the BBA into making up a move for Tom.

[00:41:16] He is a stride.

[00:41:16] So that's on an individual case level.

[00:41:19] But on a broader level, it really, the Libra scandal is a damning counterpoint to the argument

[00:41:25] that financial crimes are too complex to tackle because the authorities here have irrefutable evidence.

[00:41:32] Like they've recordings.

[00:41:33] And we only have the recordings from Barclays.

[00:41:35] They have 15 times as much recordings from other banks.

[00:41:39] God knows what they have.

[00:41:40] It really raises serious questions about their commitment to accountability and the broader

[00:41:47] integrity of financial oversight.

[00:41:50] It's crazy.

[00:41:52] Yeah, and it beggars belief really that they can prove a case and prosecute a case for what

[00:42:00] looks like micro manipulation versus what simple backroom macro manipulation is unprovable.

[00:42:07] Well, I looked into this because it's hard to look at it on a macro level and start to say,

[00:42:13] OK, well, how is this happening?

[00:42:15] So I decided just to focus in on one individual.

[00:42:18] And now, you know, this isn't all about this one individual, but he always pops up in all of the

[00:42:24] analysis of the 2008 crisis.

[00:42:26] And it's the Attorney General at that time in America, Eric Holder.

[00:42:29] By shining a light on him, it gives you a very good indication of what's wrong with the regulation

[00:42:34] here.

[00:42:35] So, I mean, Eric Holder, first of all, he's lauded for his leadership as Attorney General

[00:42:39] on social justice issues.

[00:42:40] He refused to defend state bans on same-sex marriage.

[00:42:44] He successfully challenged discriminatory voting laws.

[00:42:48] So that's all good.

[00:42:49] But his record on financial crimes is abysmal.

[00:42:54] Not a single prominent banker or firm was prosecuted under his watch from 2009 to 2015.

[00:42:59] So that included the whole financial crash.

[00:43:02] And you look at his background.

[00:43:04] He worked with a law firm called Covington & Burling.

[00:43:07] And this law firm is renowned for its white-collar defence practice and its representation of some

[00:43:13] of Wall Street's largest banks.

[00:43:14] He worked for them before he became Attorney General.

[00:43:17] Straight after he left the Attorney General's office, he went back to work for this same company,

[00:43:23] this same law firm, who makes their money from defending these banks.

[00:43:27] So, I mean, conflicts of interest.

[00:43:30] Wow.

[00:43:31] And as one person said, he said,

[00:43:33] are we going to operate under the assumption that the attorneys at the Department of Justice

[00:43:37] who are leaving for high-paid jobs in the private sector aren't going to be influenced

[00:43:41] by their financial connections?

[00:43:43] It's absurd to even make that case, which is very true.

[00:43:48] And Holder went on to defend his decision, right, to not seek high-level prosecutions,

[00:43:53] arguing that large financial settlements were preferable to trying to make examples of people

[00:43:59] with jail time.

[00:44:00] I mean, what a load of bullshit, because he didn't have any problem making examples of Tom Hayes

[00:44:06] and loads of other low-lying fruit, loads of other small fries.

[00:44:10] So he has no problem sending people to jail.

[00:44:12] But he does have a problem going after the big boys.

[00:44:16] He testified then at a judiciary committee.

[00:44:19] This is what he said.

[00:44:20] He said, if you do bring criminal charges against a large bank, it will have a negative impact

[00:44:24] on the national economy, perhaps the world economy.

[00:44:27] He was effectively saying that some bankers are too big to jail.

[00:44:31] Too big.

[00:44:31] Yeah.

[00:44:31] Now, he got into so much trouble over that that he walked back.

[00:44:35] And this is what he said then.

[00:44:36] He said, banks are not too big to jail.

[00:44:39] If we find a bank or a financial institution that has done something wrong, if we can prove

[00:44:43] it beyond a reasonable doubt, those cases will be brought.

[00:44:47] Again, bullshit.

[00:44:48] Because they had so much evidence.

[00:44:50] The evidence from the Barclays table alone would definitely lead you to believe that they

[00:44:55] could bring serious charges against serious senior bankers for manipulation.

[00:45:00] But as I said, they have 15 other banks, at least with recordings.

[00:45:04] They have a mountain of evidence.

[00:45:06] What jumps into my mind here is that sort of, you know, that concept around the Colosseum,

[00:45:13] the Roman Colosseum, you know, this idea of bread and circus to keep the plebs happy.

[00:45:18] Yeah.

[00:45:19] Yes.

[00:45:20] But yet, the nobles were scot-free and implication-free.

[00:45:28] So, you know, it seems like the trials of the two guys and the range of other people

[00:45:34] were just satisfying them all.

[00:45:35] Yeah.

[00:45:36] And the thing is, Keith, that doesn't work.

[00:45:39] Like, the people aren't stupid.

[00:45:41] And what comes out of all this is that they have brought out instead, instead of going after

[00:45:47] these bankers for criminal charges, what they instead is they bring these deferred prosecution

[00:45:51] agreements or DPAs.

[00:45:54] And these are a common tactic in the financial sector, which allows institutions to avoid

[00:45:58] criminal charges by paying hefty fines and commission operational reforms.

[00:46:01] And I remember when I first saw one of these, I thought, oh, this is brilliant.

[00:46:05] You've got this prosecutor came out to these big flashing lights and said, we've got a bank

[00:46:10] and they've agreed they've done wrong and they're paying a billion dollars.

[00:46:13] And when I saw the first one of these, I thought, oh, that's really good.

[00:46:16] Finally, charges are being brought and they're being fined.

[00:46:18] And this is great.

[00:46:19] But the more you saw these DPAs, it really revealed a very troubling dynamic because rather than

[00:46:27] deterring misconduct, what they really did is they reinforced the perception that financial

[00:46:32] institutions can simply buy their way out of trouble.

[00:46:35] They're above the law.

[00:46:35] How can we afford to get away with it?

[00:46:37] Yeah.

[00:46:37] Well, this is it.

[00:46:38] When you have these guys now, these prosecutors coming out and it's been such a regular occurrence

[00:46:43] saying, we got them.

[00:46:44] And you're kind of going, you got what?

[00:46:46] What it basically shows is that for the banks now, this is just a cost of doing business.

[00:46:51] It's like we can break the law and a DPA will be brought against us, but we'll just pay

[00:46:56] off, you know, a billion and we'll walk away scotter.

[00:46:59] And we'd bake it into, you know, the cost of doing business.

[00:47:02] Yeah.

[00:47:03] Like these repeated reliance on DPAs, like the fundamental questions is what disincentives

[00:47:09] exist for senior bankers to prevent their institutions from breaking the law if they know that fines

[00:47:14] are the most worst likely outcome.

[00:47:17] There's no personal consequences.

[00:47:20] Yeah.

[00:47:20] And did it cut a check on the spot or what?

[00:47:23] I'm not too sure.

[00:47:24] I mean, they also say that, you know, oh no, it's not just the fine.

[00:47:27] They also have to agree to change our work practices and all that.

[00:47:30] And they're saying that's a good thing.

[00:47:32] But I guarantee you, if bankers thought they were going to jail, they'd change their work

[00:47:36] practices pretty fucking quickly.

[00:47:39] You know, like this, it's ridiculous.

[00:47:42] And like the absence.

[00:47:46] And history keeps repeating itself.

[00:47:47] So there's no, there's no sense of lessons being allowed.

[00:47:50] No, but I mean, this absence of accountability, it really has a few widespread public frustrations.

[00:47:56] It's led to populist movements.

[00:47:58] On the left, you have Bernie Sanders with his simple answers.

[00:48:01] And on the right, you have Donald Trump with his simple answers.

[00:48:03] And this populist movement, I'm not saying it's all down to the way financial institutions

[00:48:08] have been handled.

[00:48:11] But they do play a part.

[00:48:13] And it really gives a perception of inequality within the justice system.

[00:48:18] You know, there's one set of rules for the very, very rich bankers.

[00:48:21] Yes.

[00:48:21] And another set of rules for others.

[00:48:23] And I was thinking like, and again, getting back to the prosecutor saying, well, it's very

[00:48:27] hard to prosecute and to show that these guys at the top were involved.

[00:48:31] But I'm a big fan of mafia history.

[00:48:35] And look, for all bankers who are listening to this, I'm not comparing you to the mafia

[00:48:40] as such.

[00:48:41] But the mafia were very hard to prosecute back in the 60s to get the big bosses involved.

[00:48:48] Because they never got their hands dirty?

[00:48:50] They never got their hands dirty.

[00:48:51] So what the criminal justice system in America did was they brought out the RICO Act, the

[00:48:55] Racketeer Influence and Corruption Organisations.

[00:48:58] And what this allowed them to do, it allowed them to prosecute individuals who managed criminal

[00:49:03] enterprises without directly committing crimes themselves.

[00:49:07] Now, I'm not saying, what this means is that if a banker, say you're a chairman or CEO,

[00:49:12] right, if one of your managers rips off somebody to the tune of 10 million, you shouldn't be

[00:49:17] held accountable for that.

[00:49:19] But if there are practices going on that you have knowledge of, you mightn't be directing

[00:49:23] them yourselves.

[00:49:24] You mightn't be, you know, putting down instructions to your employees to say to do that.

[00:49:29] But if you know that they're going on and if it can be shown that, OK, you didn't have

[00:49:33] any direct involvement, but you knew about it, then that would be enough for them to be

[00:49:38] criminally charged.

[00:49:39] And if the justice system is able to bring in acts like that to go after normal criminals,

[00:49:45] why can't they bring in similar acts?

[00:49:48] And the reason why...

[00:49:49] Isn't that what Fanny Willis is trying to do at the moment?

[00:49:52] Who's this?

[00:49:54] The Georgia prosecutor, I think.

[00:49:57] Is she?

[00:49:57] There was talk of her using the RICO Act.

[00:50:00] Yeah.

[00:50:01] But I mean, I don't know if they need the RICO.

[00:50:03] I mean, racketeering, that sounds a bit...

[00:50:05] I don't know if that would apply to banking, but they could definitely...

[00:50:07] I think it's more the basis of it as opposed to the term racketeering.

[00:50:14] I think it's what had to apply that law and that mechanism, I think.

[00:50:18] Well, I think there's definitely...

[00:50:19] That's an interesting one.

[00:50:21] There's definitely a case that can be made that these kind of laws could be applied to

[00:50:25] the financial sector.

[00:50:26] And you kind of think then, though, why isn't this?

[00:50:28] What's going on here?

[00:50:29] And the reason is, Keith, the banks are ingrained in the highest level of government.

[00:50:34] If you looked at when the banking crisis hit, the Treasury Secretary for George W. Bush

[00:50:39] was Hank Halston, CEO of Goldman Sachs.

[00:50:42] When Obama came in, OK, Tim Geithner didn't come from Wall Street as such, but Obama's

[00:50:47] staff, and there was a great article by Matt Tabby, I think his name is, which showed the

[00:50:53] influence of Wall Street advisors on the Obama administration.

[00:50:57] Even Trump, the guy who's going to drain the swamp, his chief financial advisor was Gary

[00:51:02] Cohn, a former Goldman CEO.

[00:51:04] His Treasury Secretary was Steve Munchen, who spent 17 years at Goldman Sachs.

[00:51:09] So, like, these guys are at the very highest levels of government.

[00:51:13] So, of course, turkeys aren't going to vote for Christmas.

[00:51:16] They're going to do everything in their power to make sure that tough laws don't come to

[00:51:21] bear on Wall Street.

[00:51:23] And have you any information about the lives after imprisonment of Johnson and Hayes, or

[00:51:31] did they ever pop up anywhere?

[00:51:33] Well, Tom Hayes is still fighting his case.

[00:51:36] Right.

[00:51:36] The last, or the most recent reports are that his case has been referred to the UK Supreme

[00:51:42] Court.

[00:51:43] No days has been put in there.

[00:51:44] He lost an appeal there.

[00:51:46] And all the other legal systems around in the US and in other parts.

[00:51:51] In Europe, I should have said, there's Eurobor, which is the equivalent of LIBOR for the European

[00:51:57] market.

[00:51:57] And the actual founders of Eurobor have come out very vocally and saying that the UK's

[00:52:03] interpretation of LIBOR and Eurobor, because one or two of the traders who were jails were

[00:52:08] jailed for what they did.

[00:52:10] They did the same as Tom Hayes for the Eurobor race.

[00:52:13] And the founders of Eurobor have come out and said, the UK's interpretation of this is totally

[00:52:19] wrong.

[00:52:20] You know, totally wrong.

[00:52:21] So they're still fighting for justice.

[00:52:23] Peter Johnson is out of jail.

[00:52:25] He actually pled guilty.

[00:52:27] And he pled guilty, as he said.

[00:52:29] Yeah, he pled guilty because he said he was going to lose his house.

[00:52:32] And he could see that Tom Hayes had already been found guilty and the other traders were

[00:52:35] found guilty.

[00:52:36] And he thought, I can't fight this case.

[00:52:38] Now, he has come out and there's been reports of the miscarriage of justice in relation

[00:52:42] to his case.

[00:52:43] It is shameful.

[00:52:45] And I don't know, there's no real simple answer to this, because especially in terms

[00:52:49] of the regulations, Keith, because people say, well, governments shouldn't hire Wall Street

[00:52:54] people.

[00:52:54] But the fact of the matter is that you're in government, you want the brightest and the

[00:52:58] best.

[00:52:58] And the brightest and the best will usually go to Wall Street where they can make way more

[00:53:03] money than if they go into universities or whatever.

[00:53:06] So maybe you need a mixture of both.

[00:53:09] You need a mixture from the academic and from Wall Street.

[00:53:11] But there is no real simple answer to this.

[00:53:14] But it's a shameful episode.

[00:53:17] But I also found it very enlightening because it reveals the contradictions, the conflicts

[00:53:24] of interest, the cynicism.

[00:53:25] And I suppose even the corruption of not just at the banking sector, but also at the regulatory

[00:53:33] and the enforcement agencies that are involved.

[00:53:36] It's I just found this.

[00:53:38] And their comfort and collusion in throwing people under the bus.

[00:53:44] Yeah.

[00:53:45] Particularly this.

[00:53:46] You know, I think it's probably wise to not name this person.

[00:53:49] But that BBA official, how did they sleep at night?

[00:53:52] And not only him, Keith, it was the regulators like pressured him.

[00:53:58] They pressured him to come up with that testimony to say, we want you to say that.

[00:54:04] I'm guessing now, but I can't understand his motive for going into the trial and helping

[00:54:09] the prosecution in that way.

[00:54:11] And not only did they say, we want you to come up with that rule.

[00:54:13] They wanted him to come up with that rule knowing, and I presume they used the recordings

[00:54:18] of him actually contravening the rule that they asked him to come up with.

[00:54:23] Like it's...

[00:54:24] Wow.

[00:54:24] It really shows how these people sometimes, it's all about the win.

[00:54:29] And they don't really care how they get the win or who gets hurt in them.

[00:54:35] Or, or the other side of it is you can excuse any behaviour if you're confident that it's

[00:54:41] in the greater good.

[00:54:41] There is that, there is that.

[00:54:44] But I mean, looking at all the evidence, these legal people, these regulators are looking

[00:54:48] at their counterparts in the US who behave the exact same, in many same ways.

[00:54:53] But they're also looking at the judgments in the US and the judgments all across Europe.

[00:54:57] And they're all saying, no, this is a wrong interpretation.

[00:54:59] There must be part of them.

[00:55:00] There must be saying, okay, maybe we got this wrong.

[00:55:03] But of course, they're never going to come out and say that.

[00:55:06] Wow.

[00:55:07] Yeah, it was for all those reasons that I've been reading this case over the last few years.

[00:55:13] It would pop up in the Times every now and then.

[00:55:15] And I just thought, you know what?

[00:55:16] I really got to dig into it and just find out what this is all about.

[00:55:20] So I just found it a fan.

[00:55:21] I think, yeah, I think you've sold me on the story here.

[00:55:24] The nugget, couple of nuggets.

[00:55:28] But again, like a lot of what we do, it's a human story that really resonates.

[00:55:31] The humans behind these big stories, the characters behind them.

[00:55:35] And in this particular case, it's that sense of maybe not justice denied, but certainly justice unevenly applied.

[00:55:47] It is.

[00:55:48] And it's that sense of injustice.

[00:55:50] And it's not so much the sympathy I have for Tommy.

[00:55:53] I have a bit of sympathy for him.

[00:55:54] But when I've listened to the recordings and the emails and everything that him and the trio just got up to, I was kind of like, you know, you knew.

[00:56:00] No, it's poor Johnson, I think.

[00:56:02] That's Peter Johnson, I feel very, very sorry for.

[00:56:05] And it's also then, as I said, I've always thought to myself, what happened in 2008 that people weren't brought to justice?

[00:56:13] And these excuses that the regulators put out, that it's very hard to find the evidence and it's very hard.

[00:56:18] These big bankers are behind walls of lawyers and it's very hard to bring them to justice for what they've done.

[00:56:24] And then you look at the evidence that they have in relation to this specific case and you go, that's not, at least in this case, that's not the reason.

[00:56:31] The reason is because it was too inconvenient.

[00:56:35] There's an awful lot of conflicts of interest going on here.

[00:56:40] When you have the attorney general working for a firm that defends these banks and then going back to work for these very same banks.

[00:56:48] Yeah.

[00:56:54] I was actually reading this story at the time thinking, you know, it doesn't pay to be an honourable whistleblower and to be that canary in the coal mine.

[00:57:04] Yeah.

[00:57:05] I mean, is it a deterrent to whistleblowing, I wonder?

[00:57:08] Well, I mean, you just have to look at the Johnson story.

[00:57:10] You would have thought that the regulators would have listened to those tapes and gone, okay, Johnson, even if they thought that Johnson had done the same as Tom Hayes.

[00:57:20] And even if they thought that what Tom Hayes had done was bad, you know, was guilty.

[00:57:24] You would have thought they still would have listened and said, okay, you know, he might have done what Tom Hayes has done, but this guy is actually an honest guy.

[00:57:31] This guy did his best to shine a light on this.

[00:57:33] But I suppose...

[00:57:35] And maybe tilt your head up from the trading floor up to floor 31 and think, hmm.

[00:57:41] I know.

[00:57:41] I know.

[00:57:42] It makes the blood boil and you can see why so many people are so mad and why it, you know, one of the reasons for these huge divisions that are happening across the political landscape.

[00:57:56] I'm not saying, as I said, that this is the sole reason, but it's definitely one of the drivers.

[00:58:00] Interesting. And I wonder why this isn't more commonly known as a story.

[00:58:07] Does it feel too dry, too hard to unpick?

[00:58:10] I don't know.

[00:58:11] Or did it pick up a lot of attention at the time?

[00:58:14] It didn't. It didn't.

[00:58:14] I mean, Andy Verity, when he wrote a book about this and there was a good bit of publicity about it at the time, but it has since died down.

[00:58:23] And you're kind of going, wait a second, these tapes, you know, these tapes are what it's all about.

[00:58:29] These tapes, more than anything else, show A, bankers breaking the law on a big, big scale and B, regulators burying it.

[00:58:37] What more do you want?

[00:58:38] You know?

[00:58:39] I know.

[00:58:40] Anyway.

[00:58:41] Interesting.

[00:58:42] Okay, good story.

[00:58:43] All right, your turn next.

[00:58:44] Look forward to this.

[00:58:45] Cool.

[00:58:46] All right.

[00:58:47] See you, Keith.

[00:58:48] See you now.

[00:58:48] Bye.

[00:58:49] Bye.