Once upon a time, the ultimate put-down to a bright spark was to say, 'well, if you're so smart, how come you're not so rich?'. Wall Street Crash 2.0 has rather undermined this ploy, by making it clear that an awful lot of very rich folks were anything but smart. It turns out that we were unduly dazzled by the Masters of the Universe, but we had to wait until they had vaporised the US economy before getting wise to the fact.

Actually, this was just a special case of a more general human weakness - our tendency to lose all capacity for critical thought when confronted by great wealth or power. This 'aphrodisiac effect' seems to be ubiquitous. One saw it, for example, in the way leggy females used to throw themselves at Henry Kissinger, a stumpy troglodyte who just happened to be US Secretary of State. And we see it in the way even hardened hacks go weak when offered an audience with Bill Gates, Warren Buffett or even, God help us, Steve Ballmer, chief of Microsoft.

Ballmer was in town last week, graciously granting audiences and genially talking through his hat. Yet his every word was reverentially chronicled. The BBC's Rory Cellan-Jones reported Ballmer's metaphorical comparison of Microsoft (annual revenues, $60bn; 90,000 staff) as 'David' in comparison to Google's 'Goliath' (annual revenues $20bn; 19,000 staff). Commenting on Google's just-launched Android platform for mobile phones, Ballmer declared that 'an open-source solution would not be attractive to phone manufacturers, and predicted that Windows mobile phones would stay ahead of BlackBerry, Apple's iPhone and Google Android in the smartphone market'. And he went on to say that Windows Vista had been 'the most popular operating system that Microsoft had ever introduced'.

This hooey was conscientiously relayed by Cellan-Jones, who was too polite to ask why, if Vista is such a success, Ballmer is to unveil its successor, Windows 7, to the Microsoft developers' conference at the end of this month. Microsoft is such a powerful company that it never seems to occur to reporters that its leaders might be fantasising. It's the aphrodisiac effect again.

But Microsoft has become an embarrassing shadow of its former self. Once it was a lean, mean, agile and ruthless. Now it is a middle-aged, bloated, sluggish company having difficulty keeping up with internet-driven change. Watching it trying to play catch-up with Google, social networking and 'cloud computing' is a bit like watching one's maiden aunt trying to be cool on Facebook.

The company's response to cloud computing - the provision of email, word-processing, spreadsheets and presentation software via the browser - is especially interesting. From the outset, this presented a clear threat to Microsoft's core businesses - the Windows operating system and the Office software package which generate the bulk of its revenues. If people could do their word-processing using a free service provided by Google, say, why would they bother paying for Microsoft Word? So Ballmer & Co pooh-pooed cloud computing as unreliable, insecure and unduly dependent on network connectivity.

But then it became clear that cloud computing was rather popular with punters, who liked the idea of being able to access their documents from anywhere. So the Microsoft strategy changed. What was needed - its executives explained - was a blend of Microsoft software running on the user's PC, plus a cloudlike service run by Microsoft. And so Windows Live was born. All of this was reported deadpan by reporters - apparently hypnotised by the belief that Microsoft is too big to make silly mistakes: the aphrodisiac effect again.

But then last week it transpired that Microsoft has concluded that cloud computing is the Coming Thing after all. During his whistle-stop visit to London, Mr Ballmer announced that the company would unveil its own 'cloud operating system' at the forthcoming developer conference. 'We need a new operating system designed for the cloud,' he said, 'and we will introduce one in about four weeks, we'll even have a name to give you by then. But let's just call it for the purposes of today "Windows Cloud". The last thing we want is for somebody else to obsolete us; if we're gonna get obsoleted, we better do it to ourselves.'

This is not a company that knows what it's doing. Ballmer and Gates were once masters of their universe. But nothing lasts forever. Ask Lehman Brothers.