Wednesday, December 19, 2007

It's a Wonderful Life

I love It's A Wonderful Life (Frank Capra, 1946). It's a gorgeous film and a moving story of conflict and redemption. And it's utterly free. Just click here to start the credits rolling in black and white on your laptop. The film was not particularly successful when it opened in theaters. It became a classic years later when it fell into the public domain and TV stations began playing it over and over during the lead up to Christmas.

I love It's a Wonderful Life because it's the greatest financial services movie ever made. Sure, Jimmy Stewart is unforgettable as George Bailey. And Donna Reed as Mary Bailey has permanently blown the curve in the annual competition for ultimate Christmas wife and mom. For me, though, the unsung star of the film is the Bailey Building and Loan.

At the beginning of the 19th century, there was no banking as we know it. Rich people needed safekeeping services to store gold or other forms of wealth, and banks provided secure vaults. The first depositary savings bank is thought to be the the Philadelphia Savings Fund Society, established in December of 1816. It launched an industry that profoundly changed the American economy.

Savings and loans emerged as small businesses that accepted cash deposits from customers and made loans to borrowers in the community. During the nineteenth century, as urbanization and wage income grew, savings and loans encouraged wage earners to save. They replaced extended family as a source of capital. And all in the nick of time to finance the rapidly growing consumer sector. A wage earner needed finance to acquire the "American Dream" consisting of big ticket items like a home and a car. The connection between savings and loans and the emerging consumer middle class was more than skin deep. As a regulatory matter, savings and loans were "of the people" in a way that banks were not. Depositors controlled the investment strategy deployed by savings and loan management. In contrast, equity investors, usually with no connection to the deposit community (e.g., Mr. Potter), controlled the management of banks.

The course of George Bailey's wonderful life, to his great frustration, tracks the fate of the Bailey Building and Loan. Throughout the film, George is the archetypal investor. He saves. He reinvests dividends. He takes the long view while the others around him mock him and snap up short term gains. He puts his core values first and his short term pleasure second. He feels shortchanged and foolish. He longs to escape Bedford Falls and engage in a conspicuous consumption trip around the world. But his father dies unexpectedly. George cancels the trip and instead takes his late father's staff as the shepherd of Bailey Building and Loan.

Just when George seems about ready to reap a return on his investment, life deals him another blow. State regulation prohibited savings and loans from maintaining their own deposit accounts (an odd feature of savings and loan law that persisted through the S&L debacle in the late 20th century). Uncle Billy, who plainly is not cut out for the demands of the financial services industry, walks the Building and Loan's daily deposit envelope across Main Street to the Big Bank which Mr. Potter controls. (I've used this scene many times to explain to clients why they should invest in electronic payment processing). Potter seizes Uncle Billy's mistake as an opening to destroy the Building and Loan.

Coincidentally, the savings and loan examiner is in the house. George feels the double-whammy crush of Potter's political and economic power. He worries he will face criminal prosecution for embezzlement, humiliate his family, and appear as a betrayer to his flock. (All criminal defense lawyers dream of the chance to defend a George Bailey). He considers his most liquid asset, a life insurance policy, with a paltry cash value. He contemplates suicide.

The famous part of the movie involves Clarence the Angel, the bridge, and a film noir look at Bedford Falls and its inhabitants as a kind of 1940's Breezewood, Pa. The Bailey Building and Loan doesn't figure prominently in George's redemption journey. But, in the end, George's twin investment strategies-- short term sacrifice for long term gain, self-sacrifice for the good of the community-- are vindicated. He sees the value of his strategy, and his own worth, as the inevitable and invaluable return on his investment.

The entire script of the film is here.

I've posted here my favorite scene. It takes place in the modest lobby of the Bailey Building and Loan. An economic panic has just swept through Bedford Falls. Depositors are pounding on the door of the Building and Loan demanding cash. Potter is buying claims against the Building and Loan for the proverbial cents on the dollar.

(Camera pans with George as he vaults over the counter quickly, speaking to the people.)

GEORGE: Tom! Tom! Randall! Now wait... now listen... now listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan there'll never be another decent house built in this town. He's already got charge of the bank. He's got the bus line. He's got the department stores. And now he's after us. Why? Well, it's very simple. Because we're cutting in on his business, that's why. And because he wants to keep you living in his slums and paying the kind of rent he decides. (The people are still trying to get out, but some of them have stood still, listening to him. George has begun to make an impression on them.)

GEORGE: Joe, you lived in one of his houses, didn't you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? (to Ed) Here, Ed. You know, you remember last year when things weren't going so well, and you couldn't make your payments. You didn't lose your house, did you? Do you think Potter would have let you keep it? (turns to address the room again) Can't you understand what's happening here? Don't you see what's happening? Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's picking up some bargains.

Now, we can get through this thing all right. We've got to stick together, though. We've got to have faith in each other.

MRS. THOMPSON: But my husband hasn't worked in over a year, and I need money. WOMAN: How am I going to live until the bank opens?
MAN: I got doctor bills to pay.
MAN: I need cash.
MAN: Can't feed my kids on faith.

(Now comes my absolutely positively most favorite part)

During this scene Mary has come up behind the counter. Suddenly, as the people once more start moving toward the door, she holds up a roll of bills and calls out:

How much do you need?

George and Mary, through their steadfast adherence to good, their commitment to each other, and to the value of sacrifice for the good of others, are a literary beacon of hope. The Bailey Building and Loan survives as a stalwart against Mr. Potter's power and greed because George and Mary and all the depositors of Bailey's Building and Loan stick together. We can't feed our kids on faith. We can invest and diversify to smooth out the bumps of life for ourselves and each other. As for Mr. Potter, he'll always be around with a higher salary, a swankier office, and a cigar. Mr. Potter is everywere. His seductive power is especially compelling when the chips are down, and doubt overtakes our confidence in the long term investment strategy. Here's a response to tuck away in your briefcase for when you meet your own Mr. Potter. "In the... in the whole vast configuration of things, I'd say you were nothing but a scurvy little spider." You may have money and the power that goes with it. But you are no match for George Bailey and the Bailey Building and Loan.

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