Ex-Trader: I Took the Fall for the Financial Crisis

Making Money

The episode explores the personal and legal saga of former trader Tom Hayes, who was sentenced to 14 years for LIBOR manipulation before his conviction was overturned by the

Key takeaways

• Tom Hayes's conviction for LIBOR manipulation was overturned by the Supreme Court in 2025.
• Hayes distinguishes between trader-led rate manipulation and 'lowballing,' where banks submitted false rates to hide insolvency during the financial crisis.

Main topics

• LIBOR manipulation mechanics
• The 2008 Financial Crisis and lowballing

Notable quotes

This has got nothing to do with the truth, Tom. It's about who tells the best story.

Conclusion

The episode provides a profound look at the human cost of high-profile

Transcript preview

Speaker 2 (0:00) The barrister said to me, this has got nothing to do with the truth, Tom. It's Speaker 1 (0:02) about who tells the best story. And I just thought, you know, this is a joke. Former trader Tom Hayes was sentenced to 14 years in prison for manipulating one of the world's most important interest rates. Speaker 2 (0:12) He spent five and a half years in prison, Speaker 1 (0:14) but in 2025, the Supreme Court overturned his conviction. Speaker 2 (0:18) People wanted someone to pay for the financial crisis and they wanted bankers to go to prison. So this was manna from heaven. This was like, Speaker 1 (0:25) yeah, look at these evil bankers, look what they've done. To understand Tom's story, you need to understand LIBOR. LIBOR stands for the London Interbank Offered Rate. It helped determine the price of everything, from mortgages and business loans to complex financial contracts worth trillions of dollars worldwide. Every day, major banks submitted estimates of what it will cost them to borrow money from other banks. The highest and lowest submissions were removed, and the rest were averaged to create LIBOR. Speaker 3 (0:50) What is it that you were accused of doing with that number? Speaker 2 (0:55) Well, basically, fundamentally, we were accused of rigging or manipulating the rates. And in practice, what that meant was, you know, the banks who submitted the rates, the rate that they all traded products against, we were choosing rates that were to our commercial advantage. So, I mean, my bank, UBS, would be asked, where could you borrow three-monthly in LIBOR? And my submitter, I wasn't a submitter, I was a trader. And I might send him an email saying, can you submit a high rate or can you submit a low rate? Which would basically be me saying, look, you've got a choice of numbers. You've got five numbers, maybe, you know, 5.1, 5.12, 5.16, 5.18. You know, can you choose a low rate? And he'll say, OK, I'll choose 5.1 or choose 5.12. So you're talking about differences in the submitted rate of the hundreds of a percentage point. which when you take the averaging process actually makes a difference to the published rate in the thousandths of a percentage point. So one might say, well, why would you bother doing that? Because these margins are so small. But obviously the derivative size is large. I might have $100,000 a basis point position, and a basis point is one hundredth of a percentage point. So if the published rate moves by a thousandth of a percentage point, that's worth $10,000 to my book or to my bank or whatever. Every submitter was also a trader. So axiomatically, there is not like this independent pure rate that wasn't influenced by banks' commercial positions. And it broadly worked for 20 years because some banks would have commercial interests where they needed a higher rate and they would submit higher rates. Some where they needed a lower rate, they would submit lower rates. Obviously, the extremes were chopped out anyway. So the number that was spat out largely came out correct, which is why... until 2008 no one ever complained about the published race even though we had this like conflicted system and i was working in japan i didn't even breach any civil regulations in japan so i wasn't sanctioned on a regulatory basis by japan where i was working but then i was prosecuted by two prosecutors in the us and in the uk for something that happened whilst i was working for a swiss bank in japan you know doing yen libel or yen products i mean It was just crazy. Speaker 3 (3:13) So we will get into that. Don't worry. But I just want to make sure that we're really clear on the LIBOR and the manipulation that was happening. You were basically asking the guy within your organization, UBS, to pick a lower rate. Yeah, Speaker 2 (3:27) or Speaker 3 (3:27) lower Speaker 2 (3:27) or higher, depending on... I mean, the thing is, is I would look at the desk position. So I would look across my desk. And actually, when I did the breakdown before my trial, only about 53 % of the time I was asking for... movements that accorded to my own trading book. About 9 % of the time I'd ask for movements where I had no position at all on that particular day. And I think like the rest of them, it was actually contrary to my book because the desk had the larger position. So I mean, if the desk needed it high on a notion of say 200 million and I needed it low on a notion of 100 million, then overall the desk needed it Speaker 3 (4:05) high. Speaker 2 (4:05) You did the greater Speaker 3 (4:05) good in Speaker 2 (4:06) that Speaker 3 (4:06) sense Speaker 2 (4:06) of the desk. Well, I wasn't doing God's work. No, no. It Speaker 3 (4:10) wasn't just always a selfish action is what you're trying to say. I was doing a Speaker 2 (4:14) mathematically sensible thing. Yeah. I mean, that was one of the things where when avarice is thrown at you in a context of a trial and you're like, well, hang on a minute, you know, there's Speaker 3 (4:22) a Speaker 2 (4:22) large number of times here where I'm doing things against my own interest. One of the frustrations for me in my trial was I fought like hell to get my profit and loss in my trial. So I'm in a fraud trial where I'm accused of like manipulating this rate to benefit my trading book and by indirectly benefit myself. And I had no money. I had no numbers in my trial. The only numbers in my trial was my salary and my bonuses. You know, and I was denied my profit and loss where I wanted to show clearly through doing some regression analysis. that this wasn't the thing that was actually making me a profitable trader. Rather than this stupid thing that was presented to the jury that every penny I'd ever made for myself personally and for any employer was as a result of this. But I couldn't do the basic analytical stuff that I needed to do. It was so strange being in a trial with no money and no victims. Like, you know... Like, it was just, I mean, and I think one of the, I got very frustrated being a witness in that case because I felt so angry about the fact that it just seemed to me to be like a show trial. I remember saying to my barrister at one point, they're saying things and they know because of the undisclosed evidence the jury can't see that those things are wrong. And the barrister said to me, this has got nothing to do with the truth, Tom. It's about who tells the best story. And I just thought, you know, this is a joke. Like, and... It was just a complete kangaroo court. Speaker 3 (5:45) I'd like to come to the trial and that in a bit if we can. I just want to make sure that we focus on... The Speaker 2 (5:52) basics. At the start. Speaker 3 (5:53) Well, no, it's okay. Don't worry. Don't worry. You lost five years of your life, essentially, as you see it, because of this. So I can understand why you're passionate. The libel thing, right? Did you know what you were doing was wrong? The manipulation of the rate, would you have said, this is not what we should be doing? Speaker 2 (6:09) Right. So... The very, very obvious element and the point that I've made to my jury was either I'm the stupidest fraudster ever or I didn't think I was doing anything wrong because I know my phone lines are recorded. You know, I know my emails are kept. You know, I wrote 2,000, I made 2,000 requests. I was prolific, as people say. I was brazen, as my trial judge described it. I didn't like the manager of the submitter, but he sat next to me. And because we disliked each other so much, we wouldn't speak. I would communicate with him by email, make requests by email. Now, had I thought I was doing something which was an international criminal fraud, I'd have just turned around to the boat and said, can you do this or can you do that? I wouldn't write it, put it down in writing. And there are numerous instances where I say things like, oh, you just need to give the submitter a Mars bar and they'll put it where you want, or a coffee or some sushi. The idea that this person is being embroiled in some international fraud. over a coffee or a sushi or a Mars bar. And when I got fired for this very late in the day, nobody even believed me that I'd been fired for this behavior. It was just so nonsensical. And so if you ask me, did I think I was doing anything wrong? No. And sometimes people say to me, if you go back, would you do the same thing? I was given what I knew at the time and all the information that was available to me, the fact that all my managers knew and my managers' managers knew, and it was our own company policy. Why would I think anything other than this is normal? You know, and you only have to look at all these people who got caught up in this trawl and that went along the bottom of the ocean and picked up all of us guys. So, no, I'm not apologetic about it. And I can, you know, we can criticise the system and say it was conflicted and it shouldn't have been set up and run like it was, which would be a fair criticism. But then to sort of like... embroil us and like blame us for actions of other people in relation to a different thing to do with libel was just not Speaker 1 (8:04) fair i just wanted to check uh just to clarify for the audience because i listened to the lowball tapes and what i understood was that it was common practice you guys were kind of trained that way you weren't just like a one-off person doing this everyone was kind of doing it well i think Speaker 2 (8:17) i think the word training is probably the wrong way to put it because that would imply there was some sort of like you know official protocol. I mean, but you learn by osmosis and you learn, you come in and you see the way things are done and it's done openly and it's done transparently. And, you know, it's just, it's just part of your job and you don't even think about it. So when you Speaker 3 (8:35) went into the organization, this is what people Speaker 2 (8:37) are doing and you Speaker 3 (8:38) start Speaker 2 (8:38) doing it. Is that, is that what you're saying? Speaker 3 (8:40) Yeah, Speaker 2 (8:40) pretty much. I mean, they actually moved, they actually moved the cash guys who were the submitters closer to the derivatives traders who were us guys to facilitate. the flow of information between the departments. So these guys would know what the positions were of these guys. And I made a lot of requests, in part because Yen wasn't part of this internal IT system, and also in part because I think it is possible that for some people they might have had some sort of doubts about it. But I wasn't one of those people. Speaker 3 (9:13) You didn't see it as wrong? Speaker 2 (9:14) Well, no, I mean, because I, and the biggest evidence of that is the fact that my behavior didn't change. I was open about it, transparent about it. And because of my Asperger's, I would be like, if I needed a low rate for the week, I wouldn't just send one email on a Monday and say we needed a low for the week. I would send an email on Monday, on Tuesday, on Wednesday, on Thursday, on Friday. If I'm going to buy a lottery ticket, I'd rather have a million lottery tickets than a single lottery ticket. But that was why I got called, I think, like the Jesse James of LIBOR. You know, I got, you know, I got all sorts of like grief about being like the worst of the worst. And it came to like the number of requests I made because I was prolific. I was brazen, as my trial judge said. So it was when you take those things in context, you can see why I don't look back at that and think I did the wrong thing. Speaker 3 (10:01) Yeah. And I think what most people don't understand is there's two types of liable manipulation. There's what you, the traders were doing, which is this. A fraction of a percent, yeah, and then there's lowballing, which is, can you explain what lowballing is and what that was doing to the libel rate? Speaker 2 (10:18) Well, lowballing effectively was a thing that precipitated all of the investigations, precipitated the whole sort of libel scandal. And in effect, at the tail end of 2007, you'll remember Northern Rock went under, people were queuing outside trying to get their money. I mean, that was the beginning of the sort of... the global financial crisis and liquidity was getting tight and people were struggling to borrow money because you know nobody quite knew where the bodies lay and i mean it got progressively worse and it got a lot worse in september 15 2008 when lehman's went under but in that time period um there was a lot of focus the libel rates your published rates were published every day so i mean not only was the final number published after all the calculations but each individual bank's contribution was published So you could look through and you could say, you know, RBS is submitting one, you know, Deutsche is submitting one, UBS is submitting one, you know, oh, Barclays is submitting nine. They must be struggling to borrow money. Yeah, they stick Speaker 3 (11:17) their head above the trenches almost or get Speaker 2 (11:19) singled out. And so then there's all these press articles, Barclays struggling to borrow money, you know, in the market. And so at that point, you had various central banks, you know, both in the UK. and in in europe the new york federal reserve um uh treasuries you know we had the uk treasury whitehall um putting pressure on people like barclays to like lower their rate because they didn't want them to be you know an outlier and didn't want them to be appear to be financially struggling so effectively what happened was then what happened then was banks started to actually collectively submit rates that were not within the reasonable range that i described earlier So if I was trying to give you a real world example, if I walked into 10 banks on the high street and I said to the bank manager, I'll pay 5 % to borrow money for two months, will you lend it to me? And he was like, no, sorry, that's not enough. And every bank manager said no. And then at the end of that process, you were asked, well, where can you borrow money in reasonable size? And you answered 4%. That's... demonstrably, numerically, objectively, false. And that's what lowballing was. So in order to protect their solvency and their franchise, these banks basically started lying about their solvency positions and lying about their borrowing costs to protect their solvency, I should say. And that's interesting. That's what triggered the investigation. But then when everybody started investigating, they found all of that stuff that never led anywhere, obviously, because no one wanted it to. Instead, they found people like me saying, oh, I'd like it higher, I'd like it low, across various different banks across the world. And, you know, I was working in Japan doing yen for a Swiss bank. I had nothing to do with the UK or the US, but I was conveniently became a political football. Speaker 3 (13:13) Do you think you were scapegoated then? Speaker 2 (13:16) I was scapegoated for an industry practice that was conflicted. And I was scapegoated alongside others, I should add, because I was not the only person who went to prison, to protect the more senior people who had committed a greater crime. I mean, it was interesting because, again, my trial judge sort of tried to differentiate between the sets of behavior. One being noble was this noble endeavor. to protect the solvency of the banks when all the banks were going under. Okay, fine, I can accept that. But don't defecate on me because... You can say shit Speaker 3 (13:52) if you need to. All right, Speaker 2 (13:53) don't shit on me. Don't shit on me because you're trying to like, you know, have a smoke and mirror situation with regards to the thing that was much more serious. And that was the case. But also, I mean, it was politically expedient. You know, people wanted someone to pay for the financial crisis and they wanted bankers to go to prison. So this was manna from heaven. This is like, yeah, look at these evil bankers. Look what they've done. I mean, most people think that I had something to do with Sterling Libor. Most people think that I've affected their mortgage in some way, shape or form. Most people think that it's been affected by some sort of margin of, you know, many, many percent, which is completely wrong. And it was just, there were so many things that were just... just not correct in the narrative that was being propagated. And we just stayed silent. We didn't, we didn't counter it enough. Speaker 3 (14:47) This ad's brought to you by Hiscox. So this year I made myself a promise to go on more holidays as I tend to just overwork. So last month I went to Bali with some mates. On the flight I was buzzing, 10 days in the sun, but then life happened. On day three I had a crash with a car. I'll save you the details, but my arms were flapping around in a way that you really don't want them to. 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Protection is subject to already holding a relevant Hiscox policy and to policy talks and get to terms and conditions. How does it affect Speaker 1 (16:02) normal people then? So Speaker 2 (16:04) if, let's just say I successfully quote unquote manipulated the rape, and although the rape was truthful, Speaker 2 (16:13) And although the rate was accurate, the final published rate moved by, I don't know, one thousandth of a percentage point. For some people in some currencies, that could have a very infinitesimally small impact on them. I mean, we worked in the wholesale market. So like, you know, all my clients, for example, were banks. 28,000 trades I did. All but 40, this was at UBS, were with other banks. I was a market maker for the street. I think I did 40 with like hedge funds or asset managers or whatever. So it was, I didn't face retail clients, but nonetheless, retail clients, some of them in some currencies have products that is attached to LIBOR. That would be predominantly in the US and they could be credit cards or they could be mortgages, which are attached to a variable or floating rate, which in this instance would be LIBOR. So in those instances, you can have like a very, very small, you know, movement in the rates. which would impact them. But you're talking about thousands of percent. And I never understood why I was sitting in a seat in a dock on trial for yen libel moving by thousands of a percent when the Japanese don't even tie their retail products to libel. They try to tie it to Taibo, which is the Tokyo equivalent. And you had Wonga lending people money back then at 6,000%. And it just seemed entirely like I didn't get it. But the other thing is, is that you have to look at what the cumulative