Planet Money Podcast - It's a Wonderful Life

I just heard the NPR Planet Money Wonderful Life podcast which reviewed the famous Christmas movie "It's a Wonderful Life" from an economics perspective. Rather than present any ideological criticism, as commentators sometimes do, I feel this podcast did a decent job. 

The one area that could have been explained a little better was the podcast's description of the workings of the Building and Loan and the bank run in the film. A Building.& Loan is a Savings and Loan bank. Nothing more, nothing less.

People make deposits, but, unlike a typical bank of the time which records deposits in a bank book, depositors receive ownership shares equal to their deposit amount. Depositors own the bank. 

Also, in the movie, the shares had a provision where you have to wait 60 days to withdraw funds. This is very unlike the typical bank today. The 60 days wait gave the Building & Loan time to raise cash. As explained in the movie by George Bailey played by Jimmy Stewart, deposits are not in the bank vault, they were lent out for mortgages on homes. Only a fraction of the total deposits were in the vault to meet normal withdrawal needs. 

So, when Uncle Billy's $8,000 deposit is misplaced and stolen by evil banker Mr. Potter, the Building & Loan has almost nothing left for withdrawals. Potter, knowing this, calls the authorities accusing the bank of malfeasance and Bailey of embezzlement. Potter spreads rumors of the bank's problems precipitating the bank run seen in the movie. 

When depositors adamantly demand to withdraw their deposits, George Bailey accurately explains that their money is not in the vault. Instead, their money is in Bailey Park-all the houses built with their mortgage loans. He even asks if they want the bank to call in the loans to meet withdrawals. And finally, Mr. Potter, offers to buy shares for 50 cents on the dollar in order to gain control of the Building. & Loan, which is the thorn in his side and his nefarious goal throughout the movie. 

Of course, Ðonna Reed saves the day by offering up their $2,000 honeymoon cash to pay withdrawals. Just to clarify, the shares do not equal the mortgage loan amount, they equal the amount of the deposit. And typically, the borrower's loan was much larger than the borrower's deposits, if any. 

In the end, when the authorities come to arrest Jimmy Stewart on bank fraud, Donna Reed, brother Sam and the Bedford Falls townspeople save the day with their contributions to the Building & Loan.

In fact, this is a bit fictitious. When Uncle Billy lost the $8,000, a crime was committed.  Or maybe Potter committed the crime. In any case, restitution does not remove the crime. 

This is a great movie, great life lesson and a good banking lesson.

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