Saving Bedford Falls

I watched "It's a wonderful life" last week. As much as I like the show I believe the character Mr. Potter is at least a little bit misunderstood.

Granted Potter is a bad guy. He's evil and selfish and seeks to use illegal means to destroy his enemies. But many of the points he makes about business and financial management are valid. He is, for example, correct in his criticism of George Bailey for having no personal savings or investments despite having a decent job and a family counting on him.

"What are you but a warped, frustrated young man? A miserable little clerk crawling in here on your hands and knees and begging for help. No securities, no stocks, no bonds. Nothin' but a miserable little $500 equity in a life insurance policy. "

We are never told what George did with all of his salary but the implication of the movie is that he is a kind soul who could not say no to a friend in need. Admirable, at first but in reality George puts the needs of strangers and friends ahead of his family.

Potter is probably correct in his view that George is managing the building and loan improperly by lending to several people whose credit worthiness is questionable. The Bailey building and loan specialized in subprime loans, with a key difference from firms of the real estate boom was that this lender knew the customers quite well, such as the Martini family. George's main criteria for lending is that his customer be a friend and have a job, any job will do.

One thing Potter misses about Bailey is that George's effort are providing a meager stimulus to the Bedford Falls economy and strengthening the working class. By doing so George is making the town more attractive to industrialists such as Sam Wainright who moves a plant to the town at his urging.

Potter provides an overlooked benefit to the community via a means of escape for those caught in a run on the bank. Yes, and by agreeing to buy shares in the bank at half the previous market price. As the buyer in a panicked market, he is speculating that the mass is wrong and providing liquidity for their shares. The masses on the other hand are speculating that Potter is wrong and they will take advantage of his greed by dumping what they think is soon to be worthless stock in his lap. "Better half than nothing" one character says.

Absent Potter, there likely would have been no market for the shares at all. Once he established this floor price, George Bailey was able to convince others that there was value in the institution based on the actions of Potter. Even though acting on his own greed, Potter's offer combined with Bailey's appeal restored a modest level of confidence in the Building and Loan. In shattered markets it is often the speculator who steps in and begins to restore confidence by causing those panicking to slow down just a bit and rethink a rash exit from the market.

Note: it is possible Potter actually started the run on the bank. This would change him from a market speculator, a good guy, to a market manipulator, or bad guy.

Like the story "Wicked", a good tale could be told re-examining these characters, their history, and impact on Bedford Falls.