For some background research on a new short film, I'm doing an excellent Yale MOOC course, The Global Financial Crisis, led by Tim Geithner and Andrew Metrick. It details the mechanics of the sub-prime mortgage crisis, why the mortgage products blew up, how this turned into a bank run, and then how the run turned into an economic crisis.

In one of the lectures I was struck by Andrew Metrick’s claim that though financial institutions have built up expertise in stock analysis, they have no expertise in analyzing bonds that are rated as "safe assets" (by rating agencies). (Creating "safe assets" to meet huge demand from international and US investors was a big part of the pre-crisis dynamic.) I was also reminded of the film "The Big Short" based on a book about the crisis by Michael Lewis.

Metrick's claim also reminded me of a paper by Andrew Haldane, chief economist at the Bank of England, about measuring finance-sector value added to calculate the sector's contribution to GDP. Because many services offered by financial institutions don’t have an explicit fee, the value-added is estimated by a "formula" that equates it with the degree of risk-taking. Even as the crisis was underway in 2007, sector value-added, according to this formula, was at its peak - which is clearly wrong. And as Haldane argues, a banking system that does not accurately assess price risk is not adding much value to the economy. So I have made a short film touching on this issue - accessible on my film page.