Mr. Potter vindicated

Finance is not my area. Not even close.

However, the financial crisis has forced a hard second look by many people at the Christmas staple, 1946 film It's A Wonderful Life.

As it turns out, Mr. Potter was right. In the standard reading of the film, generous George Bailey is the good guy and fiscally conservative Mr. Potter is the bad guy. Bailey accepts the risk to lend money to his neighbors regardless of their ability to repay their loans, which indeed fuels growth in Bedford Falls and a higher standard of living for the townspeople. But when Uncle Billy loses the Bailey Savings & Loans reserve a deposit, a run is made on the S&L and it is discovered by the townspeople that too much of the S has been invested into the L and the S&L is insolvent.

In principle, how different were George Bailey's business practices from a Ponzi scheme? After all, like Bernie Madoff, Bailey moved the money entrusted to him by his clients rather than secure it.

Some commentators making the comparison uphold the local and personal nature of the Bailey S&L and blame today's crisis on the unethical practices of large faceless corporate lending organizations. Except for scale, I fail to see the difference. Yes, the corporations took on greater risk by packaging risky loans as assets, rather than simply holding onto the undisguised risk like George Bailey, and the real-life crisis was caused by a downturn in the real estate market rather than the carelessness of Uncle Billy, but it seems to me the root cause shared in the fictional and real-life financial meltdowns is risky lending practices that exceeded the reserve amount needed to back the risk. After all, for all his sense of personal responsibility to his neighbors and his face-to-face accountability with them, George Bailey's only salvation was a bailout, too.

In real life, the bailout has been from the government and financed by astronomical national debt. In the movie, George Bailey is bailed out by a fantastic karmic intervention in which his lifetime of selfless generosity is repaid by wealthy friends. Does that mean the Bailey S&L resumed its risky lending or did Bailey reevaluate his business model and bring it more in line with Mr. Potter's bank? If the movie's conclusion is to be accepted at face value, George Bailey's faith in his neighbors is an effective substitute for Mr. Potter's unsympathetic but sound business model.

I know: life, liberty and the pursuit of happiness, ours is the land of opportunity, Christian charity, and growth necessitates an acceptance of risk. But faith, whether in karma or the perpetually higher value of real estate, is less reliable in real life than in the movies. Without rejecting the better nature of George Bailey entirely, I think we need to revise our view of "warped, frustrated, old" Mr. Potter and open ourselves to what he has to teach us about good financial sense.

Eric