Thursday, December 25, 2008
The messages in this classic Christmas-time heart-warmer are so inescapably appropriate for where we are in the economy it's simply astounding. When you watch it this year, pay attention to the elements surrounding the Bailey Building & Loan.
In a nutshell; Small local building & loan company lending to people within the community, knowing people by name, knowing their character so that the loans will be paid back...amazing. Imagine if we were doing more of that instead of packaging debt instrument vaporware for sale thirty times over?
The film reinforces our ownership society; "owning" your own home is something the Bailey business supports. Bailey Park, a small suburban development featured in the movie populated with modest homes financed by the Bailey Building & Loan is the perfect example of this ideal. Of course the Bailey's were helping lower income families get out of the awful conditions and exorbitant rent of Potter Flats (Potter is the old curmudgeon banker that would prefer to own the entire town of Bedford Falls where the movie takes place). Were they making sub-prime or alt-A mortgages in the 40's? Neither I assume...
There is an interesting scene that we can learn from, it's when George & Mary are trying to leave for their honeymoon and a run on the banks starts (it's the early 1930's). George goes into the building & loan and convinces the customers (he knows them all by name, imagine that!) to only withdraw the money they need to tie them over; most of the customers heed his advice. George explains that the money is not really there, the money deposited has been lent to other members of the same community to help them buy houses. The members of the community are supporting each other, the building & loan is merely acting as the agent connecting them all.
This is exactly the opposite of what happened with the packaging of mortgage backed securities. People were far, far removed from the origin of the loan, and therefore their assessment of the risks associated with the loans (especially the high risk ones that probably should never have been written) was practically impossible to determine.
So, taking a comment from Michael Shuman speaking to the Commonwealth Club of California on November 5, 2008; one of the solutions to the extraction of capital from communities is to keep lending connected to place. Makes sense to me.
So at this happy time of year, surrounded by friends and family, watch "It's a Wonderful Life" with a slightly different set of lenses and see what you might learn about community finance.