Is Microsoft the quiet villain of global finance?: Microsoft may be the quiet villain of global finance. Excel errors overstated pre-crisis structured finance ratings, dented JPMorgan’s risk management just as banks were on the mend, and tripped up influential fiscal policy ideas. The rest of the Office suite of “productivity” applications - the bulk of a division responsible for $24 billion in revenue in the last fiscal year - seems equally apt to court trouble.
In 2007, the triumph of the spreadsheet-style financial model peaked with so-called constant proportion debt obligations. This piece of structured finance genius managed to garner AAA ratings despite being designed so that as losses started accumulating, the built-in leverage would automatically increase (yes, increase). Sure enough, a coding error at Moody’s Investors Service had inflated the firm’s CPDO ratings.
Then there was JPMorgan’s $6 billion “London whale” trading loss last year. Excel flubs made another appearance. Also, overly flattering input assumptions allowed risk outputs to be understated - the garbage in, garbage out principle. Most recently, a graduate student discovered a spreadsheet error missed by two Harvard economists, undermining part of their widely cited theoretical case for austerity.