In the real word, big conspiracies are hard to maintain. People talk. Disagreements develop. Word tends to get out.

But sometimes widespread conspiracies really do develop and go on for years. How do those get started and how do they go undetected for so long?

Take a look at the mind-bogglingly enormous Libor scandal. How did as many as 16 banks get together to manipulate the interest rate that underpins trillions of dollars of loans and derivatives?

We know the big reason was the almost complete absence of regulation of Libor, which was measured using an honor system where banks submitted their costs of funds. Bankers, an honor system, virtually no oversight, and trillions of dollars in financial instruments. Got it. Fraud.

That’s the structural problem. But the fact that competitors came together to manipulate the critical measure underpinning the financial system points to a big cultural problem too.

And that’s what the The Wall Street Journal’s David Enrich and Jean Eaglesham demonstrate in an excellent investigation that lays bare the City mores and coziness that fostered the scandal. The expense-account cocaine, strip clubs, and hookers are 1980s, er, or 2000s, Wall Street déjà vu. Chiseling pensioners (and many others) out of tens of billions of dollars so you can meet your revenue targets? That wasn’t the exception. It was the rule.

The Journal reports on what can only be described as widespread bribery enabled by City rules that are far weaker than Wall Street’s:

Brokers and traders interviewed by The Wall Street Journal said brokers routinely reward valued traders by returning a percentage of their commissions in the form of entertainment. Brokers have paid for traders to spend weekends in the Alps and Saint-Tropez, and on occasion, have even bought them cocaine or prostitutes, according to people who witnessed such activity.

A few years ago, U.S. and British regulators allege, some brokers were so eager to please bank traders that they helped with an illegal Libor-rigging scheme.

There’s much more here. Limos and helicopters to the Royal Ascot, ski weekends at Chamonix, and in what I’m pretty sure is a first-time entry in the WSJ morgue, “erotic love swing” and “orgasmic time” at the Lady Marmalade brothel.

Some brokers appear to see entertainment as part of explicit favors-for-business exchanges. An electronic-chat transcript unearthed during the Libor investigation showed a broker dangling lunch for an entire trading desk as an incentive for a trader to participate in transactions. In a separate incident, after one broker took a trader to Las Vegas, the trader sent a batch of orders to a rival brokerage, prompting the broker to send an angry missive to the trader demanding to know why, according to a person who read the note.

One former ICAP derivatives broker says the morning after treating a trader to a night out, “there would be a line of trades for me. I didn’t even have to ask.”

It’s worth remembering that it was the Journal, which (with help from the Financial Times) cracked open the scandal in the beginning months of the financial crisis, has a superb investigation that provides another angle to the primary one: Libor’s near-complete lack of regulation.

It’s great to see the WSJ still plugging away on this five years later.


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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.