The Importance of Excel

Given today’s news on Reinhart & Rogoff’s potential Excel blunder, this February post from The Baseline Scenario seems prescient.

But while Excel the program is reasonably robust, the spreadsheets that people create with Excel are incredibly fragile. There is no way to trace where your data come from, there’s no audit trail (so you can overtype numbers and not know it), and there’s no easy way to test spreadsheets, for starters. The biggest problem is that anyone can create Excel spreadsheets—badly. Because it’s so easy to use, the creation of even important spreadsheets is not restricted to people who understand programming and do it in a methodical, well-documented way.***

The Baseline Scenario

By James Kwak

I spent the past two days at a financial regulation conference in Washington (where I saw more BlackBerries than I have seen in years—can’t lawyers and lobbyists afford decent phones?). In his remarks on the final panel, Frank Partnoy mentioned something I missed when it came out a few weeks ago: the role of Microsoft Excel in the “London Whale” trading debacle.

The issue is described in the appendix to JPMorgan’s internal investigative task force’s report. To summarize: JPMorgan’s Chief Investment Office needed a new value-at-risk (VaR) model for the synthetic credit portfolio (the one that blew up) and assigned a quantitative whiz (“a London-based quantitative expert, mathematician and model developer” who previously worked at a company that built analytical models) to create it. The new model “operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and…

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How would you fix the world economy?

I loved this set of “person on the street” interviews from Russia Today (Fast becoming a favorite news source along with AJE.) which asked for recommendations on fixing our global economic woes.  Plenty of boiler plate feed it and starve it suggestions, but the last interviewee has a couple of interesting comments which are worth the wait.  As for me, I’m thinking euthanasia, but it’s my nature to try to reinvent things.

What’s your suggestion?

Please share your thoughts below in the comments.  This whole thing is way more fun when you jump into the fray!  (I may not agree, but I’ll be on my best behavior.)

Vodpod videos no longer available.

So, what do you think?