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    Project for Philosophical Evaluations of the Economy
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An amazing inadequacy in the architecture of financial markets
Dialogue with the Alter Ego on the Paul Tucker hearing in Britain’s Select Treasury Committee, drafted and
published on July 10, 2012

Question by the Alter Ego of Noah denkt™ (AE): Yesterday, the British parliament’s Select Finance Committee
cross-questioned the Bank of England’s Deputy Governor Paul Tucker on allegation that the Bank of England
may have been involved in the manipulation of the Interbank short-term lending rates which are being reflected in
the semi-official Libor-rate. Did Noah denkt™ follow the deposition which was broadly televised?
Answer by Noah denkt™ (Nd): Yes, we did.

AE: And what do you make of it?
Nd: Well, given that the Libor-rate apparently is the basis for a wide range of financial products whose total
volume is said to reach more than 500 trillion $, it is actually quite astonishing that the Bank of England (BOE)
never seems to have taken it all
that serious.

AE: Why do you say this?
Nd: In his testimony, Paul Tucker mentioned that while taking into consideration the Libor-Rate, the Bank of
England never views it as a stand-alone piece of importance for its own analysis. Instead he point out that the
Bank prefers to look at the rates which are actually being paid in the interbank market rather than rely on the
estimates which occasionally form the basis of the Libor calculations. In other words, the Bank of England was
quite aware of the flaws that go into the Libor-rate fixing process but didn’t deem them relevant enough to go
front-page with their scepticism towards that supposedly all important indicator.

AE: But isn’t it understandable that the Boe wouldn’t feel a larger responsibility for that Libor-rate given that the
latter is indeed being calculated by the British Banking Association (BBVA) and not by the Bank itself?
Nd: Well, the Bank of England’s prime responsibility is to watch for the stability, the viability and balance of the
country’s financial and economic system. One should, hence, assume that it must concern it somewhat if there is
a trillion dollar financial service sector whose valuations are apparently anchored in a flawed base-rate.

AE: Well, first of all, it has to be said that the Libor rate with all its low balling strayed all that far away from reality.
And secondly, we also have ti acknowledge that the Bank did raise its concerns with the BBVA, didn’t it?
Nd: Yes, they discussed these things in private meetings but they didn’t make a huge effort to educate the public
about all that. And transparency would have demanded that they do so given the fact that even the most minimal
percentage point Libor variation from reality will cost quite a bit of money in that large sum capital market.

AE: But it is also true that private financial institutions which calculate their own interest rate offerings should have
sufficient financial expertise to understand that it is inadequate to view the Libor-rate as a Word-of-God
measuring stick.   
Nd: Well, hopefully, they know now. And hopefully, the general public finally understands that its financial
infrastructure is a lot less sound-proof, and a lot less water-tight than the system’s representatives would have us
believe with all their expert talk and expert salary.

AE: In other words, you should always form your own, independent judgment and never kowtow to reputation and
standing just because it is reputation and standing that is trying to impress you?
Nd: Correct?

AE: And is it truly feasible for your average Joe to form an independent judgment on all these complex issues
when you really need to have a lot of information to be able to put them into the right perspective?
Nd: Well it’s certainly a lot to ask, but there is no other way out of this. And that is why
it is so very important that
the media would finally provide more first hand access to relevant events such as the deposition of Paul Tucker,
Bob Diamond and others in our respective national parliaments.
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fragile financial infrastructure, inadequate financial infrastructure, architectural errors in
financial infrastructure, questionable financial infrastructure, delicate financial
infrastructure, inadequate financial markets, overly complex financial markets