Is Microsoft’s Excel the most dangerous software in the world?
There’s two parts to this. One is that we’ve got the regulators trying to warn banks on the dangers of using it badly.
Both the Switzerland-based Basel Committee on Banking Supervision1 (BCBS) and the Financial Services Authority2 (FSA) in the UK have recently made it clear that when relying on manual processes, desktop applications or key internal data flow systems such as spreadsheets, banks and insurers should have effective controls in place that are consistently applied to manage risks around incorrect, false or even fraudulent data. The citation by the BCBS is the first time that spreadsheet management has ever been specifically referenced at such a high level, a watermark in the approach to spreadsheet risk.
That’s all fairly dry but that massive loss at JP Morgan was actually driven by someone getting the Excel spreadsheet wrong. Just one little error in one equation and it made that vast “London Whale” position look half as risky as it was. And thus did JP Morgan lose $4 billion or whatever it was.
So there’s good evidence that using the software badly can lose a lot of money. But that’s not all folks, that’s not all at all.
There’s actually a good argument that we simply wouldn’t have had a financial crash is Excel didn’t exist. OK, is the spreadsheet itself perhaps, meaning Visi-Calc, Lotus 1 2 3, Open Office and all the rest. But Excel is the only one anyone uses in any formal business application.
You see, the thing is, without a spreadsheet no one at all could have traded those CDOs. Or created a CDS. Even, in fact, created a CDO. Nor swaps, futures, options, the whole gamut of this hyper-trading that has been rising as a tide to swamp us these last 30 years. Without spreadsheets there simply wouldn’t be the ability to calculate (whether correctly or wrongly) the value of these instruments. Thus they wouldn’t be traded.
And without all those instruments, without all of the trading of them, we wouldn’t have had the boom and thus could not have had the crash.
Yeah, I know, it’s a bit odd. But it really is possible to make the case that Excel is the most dangerous piece of software ever.