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 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 everywhere. 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.

Multimedia bonus: It's a Wonderful Life


Blogger Kim Scarborough said...

I never totally understood the bit with the bank run. Why was it so important that they stay open until their posted closing time? How could the bank just call in their loan to the Savings & Loan with no notice? And I assume Potter would have taken over the S&L had more people sold their shares to him, but how would that have worked, exactly?

12/22/2007 10:26 PM  
Blogger Marie T. Reilly said...

Hi Kim. Thanks so much for asking.

I'd love to see the loan documentation between Potter and Bailey Building and Loan. Here's what I imagine was going on. I think Potter lent money to the BB&L as a kind of working capital line of credit. A lender like Potter would have wanted a lot of discretion to call the loan in default on a hair trigger. Based on how the characters behave in the story, I think that the loan between Potter and BB&L specified as an event of default: closing of the BB&L during a banking day to deposits or withdrawals (aka a "liquidity event").

As for Potter's acquisition strategy, I'd really need to see the organizational charter of BB&L and the loan agreement to be sure how it was that Potter planned to acquire control of the BB&L. Clearly he wanted to buy depositor's shares for 'cents on the dollar.' Depositors in the BB&L may have held equity interests in the BB&L (with voting rights on management, etc.). I think, though that Potter wanted BB&L without George Bailey, and do do that, he'd have to find a way to acquire Bailey's interest (George would never sell to Potter voluntarily). I always imagine that George Bailey pledged his shares in BB&L as collateral for his personal guarantee of the loan from Potter to BB&L. I like this hypothesis because it adds considerable drama to the story for me. Anyway, if BB&L defaulted, Potter would be entitled to pursue George's guaranty including recourse to George's shares in the BB&L.

Big fun for me. Thank you.

Merry Christmas!

12/23/2007 4:25 PM  
Anonymous Anonymous said...

Don't forget the lost ending!

12/23/2007 8:33 PM  
Anonymous Anonymous said...

Sadly, it's no longer true that the film is public domain:

[Republic Pictures restored its copyright claim to the film in 1993, with exclusive video rights to it. Currently, it can be shown only on the NBC-TV network, and its distribution rights belong to Paramount Pictures.]

12/23/2007 9:44 PM  
Anonymous Anonymous said...

As a humorous aside: the scene in which Uncle Billy departs off to the left side of the screen and sounds as though he stumbled into a cluster of metal trash cans was ad-libbed. Someone backstage had knocked over an empty stack of film cans, but the Billy actor was quick on his feet and yelled "I'm all right! I'm all right!" The worker had expected to be fired for ruining the scene but was instead paid a $10 bonus.

Thanks for your nice article.

12/23/2007 10:26 PM  
Anonymous Anonymous said...

As a kid, I watched this film on TV many times but always picked it up when George was on the bridge. It wasn't until years later that I realized it was a much longer movie. The interesting thing is how well that last part stands on its own, I never felt lost as to what had gone before.

12/23/2007 10:45 PM  
Anonymous Anonymous said...


You blog is pretty good but I think you've missed your true callling. You should have been a screenwriter. I never could sit through an entire airing of that movie, but I enjoyed your blog article very much.


12/24/2007 4:16 AM  
Anonymous Anonymous said...

One of the greatest movies EVER!

It is great in that no faith is involved. George, in the end, is confronted with rationality (even it is in the form of a cherubic old man) and looks at the facts

It is heart-warming, inspiring and uplifting without being saccharine

I would like to see amovie these days that can do that!

12/24/2007 11:26 AM  
Blogger sharinlite said...

anonymous, the cherubic old man, as God's angel there to help George out! The movie is, at its base, about love and trust, commodities that are almost completely lost on a great portion of Americans. I have the original on DVD.

12/24/2007 12:05 PM  
Blogger Mitchell J. Freedman said...

Thank you for highlighting an important collective or community aspect of this film as it relates to the financial side. I love that scene when the bank is taken over by Potter, and George Bailey has to keep everyone's panic from selling out the B&L.

Just one question: Isn't Tom Randall a prototypical modern Republican--and by "modern" I mean Gingrich era through today? He's obviously stupid about how institutions actually work and has no clue about the consequences to the community if the B&L fails. He just wants his money (tax cuts) now and that's it.

In some ways, Wonderful Life is also the first alternative history from a Hollywood studio and gives a mature Marxist perspective of the interplay between culture and economics that Daniel "The Cultural Contradictions of Capitalism" Bell and the late Michael Harrington would and may already have appreciated.

Still, the gender and race roles are embarrassing to our 21st Century sensibilities. Yet it remains my favorite film of all time.

12/24/2007 3:01 PM  
Anonymous Anonymous said...

I've never understood why the bank examiner is okay with the donated money being used by the building and loan. Doesn't he still need to know where the B&L's own money went?

12/26/2007 4:01 PM  
Blogger Marie T. Reilly said...

That the bank examiner would just look the other way in the spirit of Christmas is the most unsettling part of the movie for me. I don't have an answer for that one other than a total breakdown of the rule of law.

Happy New Year.

12/30/2007 3:35 PM  
Blogger Unknown said...

The banks have confused me so much as I tried to get the loan for my business. I thought this would be an easier process to avail than the Grants but things are no less complicated here too. Maybe am missing out on some reliable people who could have helped me with their expert advices. But there is not much I can do now.

9/29/2008 8:47 AM  
Anonymous Anonymous said...

In response to Mitchell J. Freedman...

"Isn't Tom Randall a prototypical modern Republican...He's obviously stupid about how institutions actually work and has no clue about the consequences to the community if the B&L fails. He just wants his and that's it."

Actually, he reminds me of the United Auto Workers union.

"the gender and race roles are embarrassing to our 21st Century sensibilities."

One of the best parts of this movie is escaping to a time prior to our deplorable modern society ushered in by Liberal "sensibilities". Only a leftist could think that the Jerry Springer society is an improvement over Bedford Falls.

1/21/2009 10:29 AM  
Anonymous Federal Government Grants said...

I enjoyed your blog article very much.
It's a wonderful life ;)

6/05/2009 7:58 PM  
Anonymous Anonymous said...

Thank you for your insightful analysis - I couldn't agree more! I teach real estate finance and always make my students watch this because it quickly gives them a sense of how mortgage finance used to work.

1/22/2010 12:27 PM  
Anonymous Ken aka NightHawk said...

I always watch the movie “It’s a Wonderful Life” with my girlfriend during Christmas. She is a server and I am still in University. A homeless man came near the entrance where she was smoking outside during her break. He asked her if he could have just a sandwich, because he was very hungry. This was during winter; we live in Calgary, Alberta, Canada so it gets very cold. She took him inside, let him sit in her section and gave him a chicken sandwich, fries and a drink out of her own pocket. Her co-workers thought what she did wrong. He came back a couple of months later and thanked her for her kindness. He was working and had just moved into an affordable place. What she did reminded me, so much of the movie. It was near the End of the movie where pretty much the whole town helped him out of his financial difficulty. I am very materialistic, but I am changing my view on life. I believe if everyone, no matter what nationality or where one lived, helped the ones that needed help. I do not mean money, but actually going out of your way to help that person. This would be a better world. ;)

6/19/2010 11:04 AM  
Anonymous Anonymous said...

I show this movie to my 4th graders every year. It teaches so much- economy, life during a war, connections and influences we have on others. My favorite in line in movie- economics-wise is:
Mr. Potter, that this rabble you're talking about... they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?

12/07/2012 7:27 PM  

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