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1-Page Summary of The Spider Network

Overview

If you have a mortgage, student loan or credit card, interest rates affect your finances. One of the tools for calculating interest rates is London Interbank Offered Rate (Libor).

In the late 2000s, a group of traders and brokers earned lavish profits for their banks by manipulating Libor. This is an example of how amoral people are in the financial sector.

Catching the Bug

Tom Hayes grew up in a poor neighborhood of London that was filled with Victorian buildings. He had many jobs for his neighbors, and he wanted to make enough money so that he could get out of there.

Hayes had a lot of anger in him. He was angry at his dad for cheating on his mom and leaving, he was angry at his mom for being so involved with politics (he felt neglected), and he also harbored resentment towards her because she imposed strict rules on him. They frequently argued, sometimes even getting violent. Hayes would throw things or lock her in the cellar as an outlet for that anger.

Hayes had a problem with his temper. He was angry and threw tantrums when he didn’t get what he wanted. However, these outbursts were actually a misguided attempt to win his mother’s approval because she never seemed to like him. Hayes decided that if he got good grades in school, she would be proud of him and love him more than anyone else ever could. Even as a child, Hayes was good at math and other academic subjects but not so great socially or at making friends. As an adult, it turned out that Hayes had Asperger’s syndrome (a disorder on the autism spectrum).

Although Hayes was teased at school and suffered tension at home, he found solace in the world of numbers. He described math as his purest love and a source of stability. Unlike other children who were afraid to tackle difficult math problems, Hayes was more fascinated than afraid. His love for math led him to an obsession with finance thanks to his grandfather Raymond Hayes, who worked as a stockbroker for one of London’s oldest firms. Raymond enjoyed chatting about his career with young Hayes and even trained him on how to read stock market data in newspapers and discern trends.

The author’s grandfather was a big influence on the author’s financial education. Raymond told stories about his life that were really useful for the author to understand how money works, as well as how people think and act around it. One of those stories involved insider trading. In 1953, when Raymond made a lot of money by using insider information to buy stocks before they rose in price, it wasn’t against the law at all. It became illegal 30 years later; however, in 1953 no one thought that this practice was wrong or inappropriate at all.

Tom Hayes would take this lesson to heart. He’d use it in his career, which wouldn’t end up with him getting a new television set.

The Lucrative Vulnerability of Libor

In the late 1960s, Mohammad Reza Pahlavi, the Shah of Iran, had a ceremony in which he was crowned. He sat on a throne that contained more than 26,000 jewels and no one could have guessed what would happen to him within two years.

The Shah inherited the throne from his father, who was a military general. The country’s name changed from Iran to Persia after Reza became king. After that, democratic elections installed a new leader and he lost power for awhile until the United States helped him take it back with some conditions like paying money and receiving economic aid.

In 1969, the Shah of Iran wanted to start a new government agency and needed $80 million. The only problem was that there were no banks who would give him that loan since he was not an individual but the leader of a nation. A banker named Milos Zombanakis had to arrange for thirty or so banks to offer the loan as a group (or syndicate). They had to figure out how much interest they should charge on this huge sum. Normally, large loans come with fixed rates of interest, but in this case it was different because each bank could have charged any rate it wanted depending on what central bank decided about its own interest rates. So if one bank set its rate too high, it would be losing money when central bank raised its rates above 6%.