November 18, 2017
“Scott Peng dreamed of becoming an astronaut. He loved the idea of floating weightless above the earth, conducting trailblazing experiments that only a few dozen other humans had ever had the chance to perform.”
November 18, 2017
“Then Chang Díaz learned something devastating about Peng: He was nearsighted. Chang Díaz hadn’t realised it earlier because Peng wore contact lenses. The brilliant Peng somehow had neglected to look up the credentials of successful astronauts.”
November 18, 2017
“Peng joined the swelling army of engineers, mathematicians, and scientists heading to work on Wall Street.”
November 18, 2017
“Peng typed up a quick five-page report, titled “Is Libor Broken?” To jazz it up, he stuck a modified Hamlet quote—“Something is rotten in the state of [Libor]”—at the top. Peng figured his report was going to cause a stir. After all, its clear implication was that banks were fudging their Libor data—an incendiary accusation, given Libor’s central place in the financial system. So he summoned his boss, an executive named Michael Schumacher, into a small meeting room. It was important to get his buy-in to ensure there wouldn’t be any blowback to Peng.
“I wrote something, and I think it might be a little controversial,” Peng said. Then he handed Schumacher the draft.
Schumacher scanned the report and then paused for a moment. “Go for it,” he said. The report was sent out to Citigroup’s clients, as well as a handful of reporters, on 10 April 2008.”
November 18, 2017
“One of Peng’s colleagues angrily told him that he had just cost the bank $10 million. Plus, another official chimed in, the BBA was irate. Someone at the trade association had called that morning and was demanding that Citigroup retract Peng’s report. His colleagues were inclined to bow to the pressure rather than fight the powerful group. Peng replied that he would be happy to retract the report if anybody could identify inaccuracies in it. Nobody did, so the report stood. But that didn’t stop his colleagues from bad-mouthing him. “My personal view is that Scott Peng was rather distant to the whole process and would not really have known about the intricacies of Libor, not being an expert in the money markets,” Andrew Thursfield, Citigroup’s representative on the Libor oversight committee, would later declare.”
November 18, 2017
“The entire BBA, for that matter, seemed out of its depth with Libor. At times, the frustration boiled over. Screaming matches erupted between the hapless Ewan and Mollenkamp, who perceived the BBA as trying to hide the increasingly obvious problems with its flagship product.
For her part, Knight wrote a typo-strewn e-mail to bank CEOs asking them to “secure specific posative comments” from research analysts and to make sure we “have them on side … We need to reinforce Libor.”
November 18, 2017
“Maybe, she said, a trade group like the BBA shouldn’t be responsible for such an important financial benchmark? Perhaps regulators or central bankers should be involved in administering or at least overseeing it. She was greeted with blank stares. Nobody wanted to be responsible for this mess.”
November 18, 2017
“For their next project, Mollenkamp and Whitehouse set out to prove that Libor was broken. They decided to look at an instrument called credit default swaps. These were basically insurance contracts between a bank and another party that paid out if a company defaulted on its debts. Investors used the instruments to protect themselves when they were buying corporate bonds.”
November 18, 2017
“In any case, despite the increasing concerns about Libor, the Bank of England continued to rely on it. When it unveiled a new emergency lending program for British banks, it used Libor to determine the interest rates and fees banks would pay to participate. There was nothing the Americans could do—which is just how Hayes, his fellow traders, and the BBA liked it”
November 18, 2017
“On the evening of 4 November, a senior official at the Bank of England, Paul Fisher, shot off a personal note to Ewan. It had been a long day at the central bank, with a global crisis raging. Fisher’s job included keeping tabs on the foreign-exchange market, which, thanks to the violent financial turbulence, had suddenly become a full-time occupation. But Fisher was preoccupied with an unrelated problem. He had read a Goldman Sachs research note earlier that day about Libor. Fisher was no expert on the benchmark, but he knew its definition: It was the rate at which banks thought they could borrow money from each other. The Goldman report had got the definition wrong, describing Libor as the rate at which banks loaned money to each other. When Fisher noticed the error, it got him thinking: How widespread was the confusion?”
November 28, 2017
“There’s number one rule, if you go drinking, make sure you get in,” Aaron slurred. “That is the only rule…. It doesn’t matter if you go out drinking till four o’clock in the morning. Make it home, make it into work, and then people will send you home if you look like shit. But at least make the effort to make it in. That’s the only rule.”
Notes From: David Enrich. “The Spider Network.” iBooks.
Check out this book on the iBooks Store: https://itunes.apple.com/dk/book/the-spider-network/id1145710390?mt=11
