The emails between bankers involved in the rate-setting scandal reveal a sexualised and illicit tone – like secret lovers. They also point to a deeper truth about the psychology of organisations
It is always exciting to overhear the conversations of people planning to do something bad, and there is something disturbingly compelling about reading the emails and instant messages exchanged by Barclays bankers in the process of rigging interest rates for their own gain.
Technicalities aside, they are in a familiar register. It’s not the cool calculation of spies plotting an intelligence operation, nor the furtive euphemisms of criminals planning a bank heist, but something more ordinary and more intense: lovers in the throes of an illicit affair. Favours are begged and joyfully rewarded, terms of endearment lovingly dropped, affections ecstatically expressed. The parties appear to take a certain pleasure in playing their allotted roles: seducer and faux-reluctant seducee.
Some background: the scandal involves two species of banker: “traders” and “submitters”. It’s the job of submitters to send accurate information about the day’s trading to the banking authorities, so that they can set benchmark interest rates, based on submissions from all the big banks. It is the job of traders to make bets on the level of interest rates – on Libor and Euribor numbers.
If traders can influence the calculation of these numbers by the breadth of a gelled hair then they stand to make a lot of money for their employer, and for themselves in the form of bonuses. In this game, then, traders seduce, and the resonantly named submitters are seduced.
Like any dutiful philanderer, the Barclays trader knows it’s important to show some respect to the object of his ministrations. “Please feel free to say ‘no'”, says one to a submitter, after requesting a quick fiddle of the Libors – and that they must also be showered with gifts: “Coffees will be coming your way either way.”
The same trader explains modestly that the cappuccinos are “just to say thank you for your help in the past few weeks”. The corresponding submitter, having submitted, replies: “Done, for you big boy.” It brings a tear to the eye.
Like lovers who embark on an affair because of, as well as despite, its wrongness, the erring bankers clearly took a special pleasure in crossing boundaries. Here is a Barclays trader explaining the rules of the game to a nervous novice: “This is the way you pull off deals like this Chicken, don’t talk about it too much … this is between you and me, but really don’t tell ANYBODY.” In those capital letters alone you can the smell the fevered pleasure of taking part in a conspiracy, knowing that they might get caught out.
But then, as with any affair, there is always the prospect of time together alone, of stolen moments free from the possibility of prying eyes: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger.”
This, then, is what brings down banks and distorts economies: sexting with pound signs, followed, at the end of the day, by a Bollinger ejaculation.
It need hardly be said that bankers, particularly on trading floors, are overwhelmingly male. This matters. There is much that is comic about the sexualised nature of this male-on-male banter, but it points to a deeper truth about the psychology of organisations. Put a bunch of confident, aggressive men in the same room and reward them for taking risks, and you create a pressure cooker, from which probity and prudence evaporate like steam.
In 2008 John Coates and Joe Herbert from Cambridge University shadowed 17 male traders over the course of eight days. The traders worked on a typical City of London trading floor, where their decisions affected the outcomes of trades worth millions of pounds. The traders earned good salaries and were able to make bonuses of up to £5m. At the beginning and end of each working day, Coates and Herbert measured the testosterone levels of each trader (before you ask, they did so by taking saliva samples). They also recorded how much profit and loss each trader made that day.
The researchers found that on days when the traders beat their previous monthly average, their testosterone levels would go through the roof. One trader, for example, enjoyed a winning streak that saw his profits reach twice his historic average – and his testosterone increase by 76%. Even more significantly, Coates and Herbert found that when traders’ morning levels of testosterone were higher than normal, they made higher profits than days when they started off with low levels. In other words, better trades produced more testosterone, and testosterone made them better traders. What makes you a better trader for a day or a week, however, can in the long term lead you to take disastrous mistakes.
Testosterone, of course, is linked to sexual excitement, which would explain the overheated tone of those Barclays emails. It is also linked to risk-taking. When researchers at Harvard asked students to play an investment game, in which every participant was given a sum of money and asked to invest as much or as little of it as they wished, the men with above-average levels of the hormone were much more likely to make risky investments. It doesn’t take a great leap to see that Barclays traders were getting high on more than one type of risk.
But sex and risk aren’t the only elements in this unstable compound: there is also power. Although the traders must cajole the submitters into doing what they want them to do, it is clear who the real boss is in the trader-submitter relationship. The traders are the prime movers; the submitters can only refuse.
Their relative positions can be explained by where they sit within the bank. The traders sit in the front office of a trading floor, amusingly nicknamed “the dark side” by its inhabitants. This where the BSD, or big swinging dicks, hang out, eyes fixed to their screens, as they make trades, throw back coffees, and all the while make minute assessments of their own place in a hierarchy in which the biggest earners – the “rainmakers” – sit at the top.
The back- and middle-office is populated by those who, like the submitters, do the trader’s paperwork. The bank’s “risk and compliance officers” have the unglamorous and low-status job of ensuring traders comply with the bank’s internal rules. It’s not cool to be in compliance: they are known as “business blockers”, profit-suckers who contribute only cost to the company’s bottom line. Being a trader is really the only job to have. It is hardly surprising that submitters should want to please the boys in the front office; power is famously seductive.
Psychologists have found that testosterone levels go up and down with status and power – something that is true of women as well as men – and so do ethical standards. Joris Lammers, a psychologist from Tilburg University in the Netherlands, asked 61 people to write about a time when they felt either powerful or powerless: a standard way of “priming” people to feel something. He then gave his subjects the chance to decide how many lottery tickets they should receive, by rolling two dice without anyone else – as far as they knew – looking on. Those primed to feel powerful were more likely to lie about their scores in order to wangle extra tickets.
Oddly, when the same people were asked if it was ever OK to cheat on expenses, they were more likely to express strong disapproval of cheating. In a series of similar experiments, Lammers found the same thing over and over: people who felt more powerful were more likely to be hypocritical.
You may have wondered why bankers – and not just traders, but executives like Bob Diamond – seem to find it hard to understand why so many people are so angry with them. Another recent study suggests an explanation: they have had several points chopped off their emotional IQ by the experience of power.
Deborah Gruenfeld, a professor of management at Stanford University, designed an experiment that was inspired by her experience of sitting next to a high-powered businessman on a plane. Instead of turning off his overhead fan, he wordlessly directed it away from his face and into hers. Gruenfeld sat there for a minute before realising she could turn the fan off herself. As she reached up do so, she began to wonder if power makes people more assertive and, at the same time, corrodes their ability to see something from someone else’s point of view.
In Gruenfeld’s experiment, the subjects were primed to feel either powerful or powerless, before being ushered into a separate room, where they were covertly filmed. They were told to sit down at a desk, on which there was a packet of papers for them to look at. In front of their seat there were table fans at full blast, positioned by the experimenters to blow on the participants in an annoying way. The “high-power” subjects were far more likely to move the fan off the desk, while the subjects primed to feel powerless meekly put up with being gusted on.
In a follow-up experiment, people primed in the same way were provided with a marker and asked to draw a capital E on their forehead (they were reassured that it would be removed before they left). There are two ways to do this: you can draw the E as if you are reading it yourself, which makes it illegible to anyone else. Or you can draw it “backwards”, so that another person can easily read it. The high-powered people were three times more likely to adopt the former strategy. It didn’t occur to them think about someone else’s perspective.
It may seem hard to believe in the ease with which people can be made to think and behave differently by the simple act of priming them to do so. But one of the recurring themes of decades of similar experiments is that although we all like to think of ourselves as good people, our ethical choices depend to a surprising extent on the choices we’re presented with at any given moment, as well as the people we’re surrounded by.
The banking problem is multifaceted: it’s an ethical problem, an incentive problem and a regulation problem. But above all, it’s a problem of having too many over-confident people in the same room.
A group of people high on the same combination of sex, power and risk is bound to make the already very confident feel dangerously invincible, and untethered from any legal or ethical obligation. There was too much confidence on the Barclays trading floor, just as there has been – and somehow continues to be – in the boardroom.
The traders thought they could get away with cheating, while the board seem unable to see what the fuss is about. Barclays is full of men with backwards Es on their faces, all telling each other they can read it just fine.
People talk about the “confidence crisis” in banking as if the problem is there’s too little of it. The real problem is the opposite.
Ian Leslie is author of Born Liars: Why We Can’t Live Without Deceit, by Quercus. Available at guardianbookshop.co.uk for £7.99. Twitter: @mrianleslie
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