IT’S A WONDERFUL LIFE (ALT VERSION)

The quintessential Christmas movie, “It’s A Wonderful Life” provides an excellent opportunity to understand the current credit crisis. Mr. Henry Potter operated a successful commercial bank in Bedford Falls. His lending practices were judicious and his institution was well capitalized, surviving the Great Depression. Mr. Potter, at one point in the movie, offers a position to George Bailey, the operator of the Bailey Building & Loan, an undercapitalized financial institution offering home loans to those who can barely afford them. Now let’s assume that the movie turned out differently, that George took the job with Potter’s bank and that Mr. Potter died shortly thereafter leaving George in control of the bank and he hires his Uncle Billy as a key executive. Bailey engages in the same risky loan practices that he engaged in when he was at the Building & Loan and this, in combination with Uncle Billy’s negligence, leads to the failure of Potter’s formerly viable bank. Desperate to avoid default, he sends his brother Harry, a Medal of Honor winner to Congress to plead for a bailout.