It all started on 16 April 2008 when The Wall Street Journal printed a story on its front page with the headline “Bankers Cast Doubt on Key Rate Amid Crisis”. Written by Carrick Mollenkamp from Fleet Street, London, it began: “One of the most important barometers of the world’s financial health could be sending false signals. In a development that has implications for borrowers everywhere, from Russian oil producers to homeowners in Detroit to, bankers and traders are expressing concerns that the London Interbank Offered Rate, known as Libor, is becoming unreliable.”
The most obvious question is: How was Libor getting manipulated? The starting point was the primitive way Libor was calculated. The rate was an average of different banks’ estimates of how much they thought they would have to pay for funding. As the authors write, the “big flaw in Libor was that it relied on banks to tell the truth but encouraged them to lie. When the 150 variants of the benchmark were released each day, the banks’ individual submissions were also published, giving the world a snapshot of their relative creditworthiness.” Those making their firm’s Libor submissions “were prevented from deviating too far from the truth because their fellow market participants knew what rates they were really being charged.” 
Among those who read the WSJ article on Libor was Vince McGonagle, working at the enforcement division of the Commodity Futures Trading Commission (CFTC) in Washington for 11 years. He asked his staff to put together a dossier and decided to launch an investigation. Earlier, in March, economists at the Bank for International Settlements, a group created by central banks around the world, had published a paper that identified unusual patterns in Libor during the crisis. However, the study concluded that these were “not caused by shortcomings in the design of the fixing mechanism.”
The book reads like a novel where characters, events and locations come alive with vivid descriptions. It opens with a secret meeting in a bar with a source, who identifies Hayes as the villain of Libor manipulation setting the tone of for a gripping thriller. But the real villains of the saga are British Bankers’ Association (BBA), Financial Services Authority (FSA), UK, and Bank of England (BoE). BBA continued to claim, long time after the WSJ article, that the Libor was reliable even in times of financial crisis. In October 2008, the International Monetary Fund found that “although the integrity of the U.S. dollar Libor-fixing process has been questioned by some market participants and the financial press, it appears that U.S. dollar Libor remains an accurate measure of a typical creditworthy bank's marginal cost of unsecured U.S. dollar term funding.” The minutes of the Bank of England show that deputy governor Paul Tucker was aware as early as in November 2007 of concerns that the Libor was being manipulated. In early 2008, the then New York Fed President Tim Geithner wrote to BoE chief Mervyn King to ‘fix’ Libor. But BoE didn’t act on it. FSA couldn’t care less about Libor. This is a short, fascinating book and a must-read. 
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
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