Former trader Tom Hayes arrives at Southwark Crown Court in London, Britain July 30, 2015.PETER NICHOLLS/Reuters
The best evidence so far that international banking has descended into a cultural black hole is provided by the trial and conviction of Tom Hayes, the Citigroup trader who this week was sentenced in Britain to 14 years imprisonment for rigging Libor benchmark interest rates. The punishment is up there with sexual assault and armed robbery, but there can be few people who truly understand what he did that was dangerous enough to warrant so many years in the slammer.
Mr. Hayes was described in court as the stereotypical geek, a math whiz plucked out of obscurity to earn multimillion-dollar wages trading yen derivatives at UBS AG and Citi.
Mr. Hayes, who has been diagnosed with Asperger's Syndrome, admitted most of what he did to British Serious Fraud Office investigators, mainly in order to avoid the clutches of the U.S. Department of Justice. He was equally frank about his personality failings, saying he was too embarrassed about his appalling fashion sense to do video conferences. He drank hot chocolate at boozy trader lunches, slept under the same superhero duvet covers he had as a child, and often forget to bathe for days when he was making big money.
It sounds less funny when you consider the penalties that Libor rigging cost the big banks – billions of dollars in fines each for Deutsche Bank AG and UBS. Mr. Hayes's defence was that his actions were condoned and encouraged by the institutions which (until the fines) profited from his gaming. The manipulation of the global benchmark interest rates was so widespread that even "Mother Teresa" would have done it, he claimed.
The "bosses knew all about it" defence crops up in almost every crooked trader trial. The argument never succeeds in a court of law. In the court of public opinion, it is seen as either a self-serving excuse or proof that the defendants are fall guys, thrown to the lions to keep the investigators out of the real den of thieves in the boardroom. The debate in this matter tends to fall either way, depending on your political tendency (or your position if you are a banker), but it is also possible that both answers are true. If you are a Tom Hayes or a Nick Leeson, who brought down Barings bank, or a Jerome Kerviel, who cost Société Générale €4.9-billion ($7-billion) in fraudulent trading, it may be true that the bosses knew the business was rotten, but that doesn't make you innocent.
Which brings us back to the important point about culture. No one can seriously contend that the Toms, Nicks and Jeromes who career about the financial sector causing havoc every five years or so are a personal danger to the public. There is no reason to put them in prison – there is every reason to keep them out of banking (and that is guaranteed anyway), but no reason for taxpayers to fund their incarceration. The only reason to put Mr. Hayes away for such a long stretch is to frighten those who might be tempted to follow in his footsteps.
And it won't work. If you seriously believe that fear of jail will stop the next nerdy, pimply, inadequate fantasist from taking down the banks, listen to Tom Hayes explain why he did it: "The point is you're greedy, you want every little bit of money you can possibly get, because that is how you are judged. I wanted to do my job as perfectly as I could do it because that is how I do a job. It is like solving that equation, it is like seeing that number – there isn't subjectivity, it is make money, lose money – it is just so pure."
Some would describe the world of Mr. Hayes or Mr. Kerviel or Mr. Leeson as amoral, but it is in fact worse than a world without conventional ethics. It is a world without culture, one where judgments are binary: win-lose, profit-loss.
If what motivated the big Libor rigger was a Ferrari lifestyle of booze, girls and yachts, it might be sleazy, but at least it would have purpose. What Mr. Hayes described in court was a world that was so inward-looking, so empty and so devoid of meaning outside of the scorecard of the bank, that he might as well have been living in a separate dimension. In such a world, the obvious question – "Why are we doing this?" – is never asked.
This is a world that was created not by accident, but by design. Investment banking profits are notoriously volatile; these institutions are highly geared, not just in their balance sheets, but in their operations because of the huge cost of their staff. High costs mean they are ravenous for revenue, the income treadmill spins ever faster, because without the hundred-million dollar a year contributions from a Tom Hayes, bonuses would not be paid. More importantly, investors would begin to question the reason for supporting such an expensive and risky business and the lavish lifestyles of the bank's directors.
A court of law has no answer to these problems. It is not a legal question, nor even an ethical question. It is about culture and the lack of it in banking.
Carl Mortished is a Canadian financial journalist and freelance consultant based in the United Kingdom.