It’s not cricket

Cricket has been synonymous with fair play and “gentlemanly behavior.” photo:

The game of cricket has been played in England since at least the 16th century. It is played with a bat and ball, and a match can last as long as five days. As the British spread their empire around the world, they took cricket with them. Today, it is a popular game in almost all parts of the former British Empire with the notable exception of the United States and Canada. In India, cricket is almost a religion.

Schoolchildren in England play the game and are taught that it does not matter if you win or lose – it’s how you play the game. Cricket has been synonymous with fair play and “gentlemanly behavior” In fact, the phrase “it’s not cricket” has become a metaphor for conduct that is not straightforward and fair.

Until the 1980s, the top jobs in the financial markets of the City of London (Britain’s Wall Street) were reserved for men (no women allowed) who had attended elite, private preparatory schools such as Eton or Harrow. At those elite schools, they certainly played cricket against other elite schools. This led to a business climate in which they were all members of an “old boys’ club.”


Until recently, 16 of the major investment banks in London would tell Thompson Reuters daily what interest rate they would expect to pay if they were to seek a loan from another bank. Thompson Reuters would then discard the highest and lowest four rates and average the remaining eight to arrive at the daily LIBOR interest rate – the London Interbank Offered Rate. LIBOR was then used to set interest rates on trillions of dollars of borrowed funds around the world, such as mortgages, credit cards, student loans, and corporate loans.

You may have noted that the banks told what they might expect to pay – not what they actually paid. This was an honor system, and an unscrupulous bank might have been able to manipulate LIBOR to its advantage by giving a false estimate. But the key players in the banks had played cricket against each other, so they trusted each other implicitly.

By the mid 1980s, the British government became concerned that this cozy, old-fashioned way of operating might lead to London losing its status as a leading financial market, so they implemented regulatory reform. As with the later repeal of the Glass-Steagall Act in the U.S., the reforms in Britain allowed investment banks and commercial banks to merge. The reforms also relaxed financial regulation. The British Financial Services Authority operated with what some U.S. regulatory authorities recently described as a “light touch.” These changes led to London’s dramatic growth as an international financial center. Financial institutions from around the world began to move some of their more aggressive operations to London. Companies began hiring people with financial skills even if they had never played cricket.


Installing key players who have never played cricket has led to some problems. Earlier this year, the CEO and COO of Barclays Bank (neither of whom could possibly have been a cricket player) both resigned in the wake of a scandal involving the manipulation of LIBOR rates. Allegedly, starting in 2005, Barclays derivative traders routinely asked the people who submitted the LIBOR estimates to submit deliberately false estimates so that the traders could profit from the resulting shifts in rates. After a particularly profitable manipulation, one of these traders apparently told his Barclays contact, “Dude – I owe you big time!” Not words often heard at a cricket match.

A trader for JP Morgan Chase was known as “the London Whale,” and it is doubtful if he ever played cricket, either. He took huge positions on credit default swaps and his losses may result in that bank losing as much as $9 billion.

Talking of credit default swaps: This brilliant form of derivative “investment” originated in London in AIG’s financial products group, created by another gentleman who could not possibly have grown up playing cricket. They sold billions of dollars of default insurance to the likes of Goldman Sachs and Deutsche Bank against the possibility that their collateralized junk-mortgage portfolio might go bad. Unfortunately, AIG neglected to reserve any money to cover those bets. The result of this particular scam was that the American taxpayer had to cover the bets in order to prevent AIG from going bankrupt.

The bowler (pitcher) in cricket tries to make the ball bounce on the ground about one yard in front of the batsman. If the bowler is skillful, he can make the ball change direction after it hits the ground, thus causing the batsman to miss the ball or hit it with the edge of the bat and be caught out (on a fly ball). If the wicket (ground) is a little wet, it is easier for the bowler to make the ball turn after bouncing. That makes life difficult for the batsman and so gives rise to the term “sticky wicket.”

Relaxing financial regulation, but more importantly removing the requirement that all key players in the London financial markets be cricketers, has definitely made doing business there a stickier wicket.

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