Book Review: “The Spider Network” by David Enright

The Spider Network by David Enright

One of the numerous outrageous financial machinations of the early twenty first was the infamous manipulation of the London Interbank Offered Rate, LIBOR. This statistic is intended to reflect day to day fluctuations in the interest rates banks in London paid for borrowing. Similar statistics proliferated, for other financial centers and different currencies.

In order to serve us better, all kinds of interest rates became pegged to these benchmarks. So, for no apparent reason, and certainly no consent, businesses, consumers, institutions, and governments interest payments rose and fell with LIBOR or other similar number.

That’s annoying and possibly bad policy, but the big problem is that financial institutions also manufactured various derivatives tied to LIBOR. Tiny movements in this daily mark could mean millions in gains or losses in derivatives. Already, there has to be a problem, since these derivatives are amplifying the “signal” that is really not that precise.

It gets worse, of course. The same banks that are setting the daily LIBOR via their reports were and are dealing in these derivatives. Yes, that is a conflict of interest. There is a temptation to fiddle the reports, which could nudge the official rate up or down, in order to benefit the bank’s own trading position or other interests. And, by the say, when the bank “wins”, generally everybody else loses money, including pension funds, local governments, companies, and the general public.

The Spider Network is about an infamous case of such manipulation, one of the few brought to trial. Enrich makes pretty clear that conflict of interest was rife and lots of parties were fiddling away with LIBOR and friends. Bosses and higher-ups knew and encouraged it. Dicey payoffs of various kinds were exchanged.

Business as usual. Too bad for all you losers out there.

The particular case involved Tom Hayes, a borderline-autistic wizard trader who, among other things, cajoled various LIBOR submitters to nudge the number to favor his complex trading positions, and delivered payoffs in various forms including fake trades that generated generous fees to the traders involved.

Hayes was caught, confessed, pled ‘not guilty’ (after confessing!), was convicted and then sentenced to years of prison. He clearly did it, but the story is both complicated and sad, because he is essentially the only one who was punished, despite all the other participants.

Furthermore, Enrich makes a clear case that Hayes is probably a bit autistic. He is phenomenal at math, but oblivious to people, and not good at parsing hazy rules. This combination made him phenomenally good at making money and blind to ethical boundaries, but it also made him unpopular and politically naive: a perfect fall guy. Many of his “friends” were back stabbing rats, and, of course top management was happy to screw him over and blame him for everything.

Hayes was his own worst enemy in many ways. He never concealed his behavior, at least partly because he thought is was normal and expected. His bosses knew and encouraged him, so he assumed it was OK. All his trading partners knew and were profiting from the same stuff, so how was he doing something wrong?

It’s all very sad. We honestly sympathize with Hayes, who didn’t get it, and was mercilessly exploited by his colleagues, and then thrown under the bus. (He also got poor legal advice, and ignored the good advice he did get, even from his lawyer wife.)

Enrich has a less than completely worshipful attitude towards the financial regulators and enforcers involved in the episode. The regulators seem incompetent and negligent, pursuant to the intention of the governments at the time. When they finally do step into action, there are turf battles, show boating, and astonishing fumbles.

We learn that the US “bad cops” help drive British citizens in to the arms of HM own prosecutors, the “good cops”. In this case, there was an unsightly queue of UK defense attorneys begging for their clients to be prosecuted (and even convicted) in the UK, in order to avoid extradition to the US. In the Hayes case, the Americans even developed a lot of the evidence, which the lackadaisical Brits picked up and used. Nevertheless, the Crown achieved very little.

Hayes’ own trial was a shambles. After cooperating with the prosecutors and delivering reams of self-incriminating evidence, he changed his mind. He decided that it wasn’t fair to prosecute him while everyone else got off. Once he reneged on the plea deal—after a detailed confession—the prosecution hammered him as hard as possible. Not only did the Crown not follow up on the evidence they had, they withheld evidence from Hayes. In the end, he was hit with a long prison sentence.  It’s sad.

Enrich give us the whole gory story, with a cast of hundreds. Literally. The front matter lists a “Cast of Characters” with 80 some people. And plenty more individuals appear here and there in the 400+ pages of this report. Who can keep track? Not I.

This is the huge weakness in the book.. Enrich goes on and on, weaving in tiny incident after tiny incident. I lost track of who all these people were, and how these incidents were related. In fact, many of them are not related to the main story of Hayes. So why were they included?

I think the book really would be better if it were condensed to a quarter of the length.

As it is, this book was an awful slog to get through, even though the writing about the arcane finance was pretty good.

  1. David Enright, The Spider Network, New York, HarperCollins, 2017.


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