Dan Appleman: Kibitzing and Commentary

My personal blog

One of the major criticisms I’ve heard over the administration’s plan to regulate the financial industry is that it might “stifle innovation”. This puzzled me, as it seems excessive “innovation” is what got us into this recession in the first place. But if innovation in the financial industry is, in fact, a good thing – it seems logical that said industry should be run not by bankers, and not by government bureaucrats, but rather by an organization that has expertise in managing innovation. Following this logic one can’t help but wonder what the economy would be like if it were a Microsoft product….
There are no sub-prime loans in the Microsoft economy. Nothing sub-prime would ever be shipped. True, many customers would end up with version 1.0 loans that would occasionally run into problems – payments might mysteriously fail to get recorded or interest rates change without logical reason. But don’t worry – everyone could get their loan upgraded for a nominal cost when a new version comes out – refinancing would go smoothly for 99.5% of customers, only a small number would crash into spontaneous foreclosure.
Microsoft loans will come with legal agreements as long and incomprehensible as any we see today. And just like today, nobody would read them. Unlike today, it would never matter.
Derivatives and Credit Default Swaps
Microsoft has extensive experience creating incredibly complex products that almost nobody understands (COM, WCF, etc.), which makes it the ideal organization to take over the development and marketing of financial derivatives. However, unlike today’s financial products, Microsoft derivatives would undergo extensive testing both internally and through a massive pre-release beta and preview program to customers ranging from individuals to the largest banks.
With thousands of amateurs and experts able to download and examine every derivative and credit default swap before release, most potential problems will be discovered long before they are actually deployed. Sure, they will ship with some bugs, but the odds of bugs significant enough to crash the economy will be very small. Any such serious bugs discovered after release will be quickly patched using the Microsoft automatic update service for financial instruments, that will be included with every copy.
Executive Bonuses
Microsoft licenses products generally by machine or user. Microsoft doesn’t care if you are using Word to write a 3rd grade paper or a billion dollar contract, so it won’t care if a Microsoft fund has a thousand dollars or a trillion. From loans to hedge funds, once you’ve bought the product, there are no further charges (other than support or upgrade fees). Fees for financial products will be based on number of customers, but not the size of the product. Fees and costs will drop – and large bonuses and salaries will vanish. Of course Microsoft product managers will be paid a decent salary, and will have some company stock options that might become worth something someday. But the days of huge executive bonuses at institutions that are losing money will be over.
The overall economy
Our existing economy is a complex and bloated system with a long history of solid growth and productivity punctuated by booms and crashes. Microsoft Windows is also a complex and bloated system with a long history of solid growth and productivity punctuated by booms and crashes.
However, unlike the real economy, when the Windows run economy stutters, most of the time it can be fixed in short order with a quick reboot. Those rare crashes that occur are typically also solved by a reboot, and only occasionally need a complete reformat and restore.
Imagine an economy that can be rebooted in hours instead of years. One with extensive documentation and transparency as provided by MSFN (Microsoft Financial Network).
The mind boggles at the possibilities. The Bernie Madoff’s of the world would have no chance in an economy where dozens of vendors sell SAV (Securities anti-virus) software. Hundreds of thousands of developers will build financial products for the new economic system (run your own bank, publish your own credit card). And there would be no secrets – anything you ever wanted to know about the economy or any financial product or institution would be instantly available to view – on Google of course…