“It’s A Wonderful Life” made its now traditional holiday season appearance on network television, and naturally, I watched it. The movie is one of the great ethics movies of all time, as well as being one of the great American movies of all time, perhaps director Frank Capra’s masterpiece. One of the markers of a classic film is how one can find new things in it upon every viewing, and that is certainly true of “It’s A Wonderful Life.” I was struck this time around by how many ethics issues are raised in the screenplay, some, no doubt, unintentionally.
1. “If It’s About Ethics, God Must Be Involved”
The movie begins in heaven, represented by twinkling stars. There is no way around this, as divine intervention isat the core of the fantasy; heaven and angels were big in Hollywood in the Forties. Nevertheless, the framing of the tale advances the anti-ethical idea, central to many religions, that good behavior on earth will be rewarded in the hereafter, bolstering the theory that without God and eternal rewards, doing good is pointless.
We are introduced to George Bailey, who, we are told, is in trouble and has prayed for help. He’s going to get it, too, or at least the heavenly authorities will make the effort. They are assigning an Angel 2nd Class, Clarence Oddbody, to the job. He is, we learn later, something of a second rate angel as well as a 2nd Class one, so it is interesting that whether or not George is in fact saved will be entrusted to less than heaven’s best. Some lack of commitment, there—then again, George says he’s “not a praying man.” This will teach him—sub-par service!
2. Extra Credit for Moral Luck
George’s first ethical act is saving his brother, Harry, from drowning, an early exhibition of courage, caring and sacrifice. The sacrifice part is that the childhood episode costs George the hearing in one ear. He doesn’t really deserve extra credit for this, as it was not a conscious trade of his hearing for Harry’s young life, but he gets it anyway, just as soldiers who are wounded in battle receive more admiration and accolades than those who don’t. Yet this is only moral luck. A wounded hero is no more heroic than a unwounded one, and may be less competent as well as less lucky.
3. The Confusing Drug Store Incident
George Baiiley’s next ethical act is when he saves the life of another child by not delivering a bottle of pills that had been inadvertently poisoned by his boss, the druggist, Mr. Gower. This is nothing to get too excited over, really—if George had knowingly delivered poisoned pills, he would have been more guilty than the druggist, who was only careless. What do we call someone who intentionally delivers poison that he knows will be mistaken for medication? Murder, that’s what. We’re supposed to admire George for not committing murder. Mr. Gower, at worst, would be guilty of negligent homicide. George saves him from that fate when he saves the child, but if he really wanted to show exemplary ethics, he should have reported the incident to authorities. Mr. Gower is not a trustworthy pharmacist—he is also the beneficiary of moral luck. He poisoned a child’s pills through inattentiveness. If his customers knew that, would they keep getting their drugs from him? Should they? A professional whose errors are potentially deadly must not dare the fates by working when his or her faculties are impaired by illness, sleeplessness or, in Gower’s case, grief.
4. The Uncle Billy Problem
As George grows up, we see that he is loyal and respectful to his father. That’s admirable. What is not admirable is that George’s father, who has fiduciary duties as the head of a Savings and Loan, has placed his brother Billy in a position of responsibility. As we soon learn, Billy is a souse, a fool and an incompetent. This is a breach of fiscal and business ethics by the elder Bailey.
5. George’s Speech
When his father dies, George delivers an impassioned speech to Mr. Potter, the owner of the only other financial institution in town who proposes that the Bailey Savings and Loan be closed down. George says,
“Just a minute. Now, hold on, Mr. Potter!”
“You’re right when you say my father was no business man. I know that. Why he ever started this cheap penny-ante Building and Loan, I’ll never know. But neither you nor anybody else can say anything against his character, because his whole life was… Why, in the twenty-five years since he and Uncle Billy started this thing, he never once thought of himself. Isn’t that right, Uncle Billy? He didn’t save enough money to send Harry to school, let alone me. But he did help a few people get out of your slums, Mr. Potter. And what’s wrong with that? Why…here, you are all businessmen here. Doesn’t it make them better citizens? Doesn’t it make them better customers?”
“You…you said that uh… what’d you say just a minute ago… They, they had to wait and save their money before they even thought of a decent home. Wait! Wait for what? Until their children grow up and leave them? Until they’re so old and broken-down that they… Do you know how long it takes a working man to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you’re talking about… they do most of the working and paying and living and dying in this community. Well, it is too much to have them work and pay and live and die in a couple of decent rooms and a bath? Anyway, my father didn’t think so. People were human beings to him, but to you, a warped, frustrated old man, they’re cattle. Well, in my book, he died a much richer man than you’ll ever be.”
Capra, as was his habit, stacks the deck by casting the advocate for fiscal responsibility as Potter, whom the heavenly spokesperson has already identified as “the meanest man in Bedford Falls.” But George’s speech, delivered by Jimmy Stewart in his best “Mister Smith Goes to Washington” fervor, is pretty close to the philosophy that set up U.S. for the housing and mortgage meltdown in 2008 that wrecked the economy, and could probably have been recited with equal sincerity by Barney Frank as he and Congress were pressuring financial institutions to hand out mortgage loans to hundreds of thousands of aspiring homeowners who would never have qualified for them under well-established banking principles.
Peter Bailey’s “plan,” if one can call it that, was to give mortgages to people who couldn’t afford them, and then not press the good people to keep up with payments when they couldn’t afford them. In short, he was irresponsible, fiscally and otherwise, and his poor business sense, matched here to generosity and a compassion as if one justifies the other, was guaranteed to be ruinous to investors, the unqualified homeowners, and ultimately the Savings and Loan. Ethical borrowing means committing to pay back the loan on the terms of the loan. The greater the risk of a loan not being paid back, the more proof of collateral is needed. Neither Peter Bailey, nor George, nor Frank Capra knew how to somehow loan money to people who can’t pay it back, not foreclose on the property, and yet keep the altruistic loaner solvent. (Neither does Occupy Wall Street.) They just know it’s “the right thing to do.” The problem is that a plan that can’t possibly work is never ethical. It is by definition irresponsible, and thus not the right think to do.
(You can read Part 2, taking the story up to Christmas Eve, here, and Part 3 here. )
Ethics Alarms 
A few notes in reply:
4. In George Bailey’s speech, he says that Uncle Billy started the Savings & Loan with his father. Maybe George couldn’t get rid of Uncle Billy because Uncle Billy owned a large part of the Savings & Loan.
5. I also thought of the 2008 financial crisis when I watched It’s a Wonderful Life. I think that there is a crucial difference between what George Bailey was doing and what the mortgage agencies did in the years up to 2008. Bailey owned the Savings & Loan (possibly along with his Uncle Billy). When he lent money, he was risking his own money. If his business failed, he would suffer (just look at what happened to him when there was a run on the Savings & Loan) but the suffering would be limited to him and his family. Taking risks to help out poor people is not unethical, in fact, it is admirable (look at the popularity of microcredit institutions, for example).
If George Bailey had been packaging the mortgages from the Savings & Loan into complex financial instruments with a AAA rating and selling them on to investors at a hefty profit so that he reaped all of the benefits but bore none of the risk from his loans, then he would be more like the mortgage agencies.
Eric:
4. Maybe Uncle Billy wasn’t such an idiot when the institution was founded. I always assumed that in the speech George was being kind to Uncle Billy, since nobody on the board seemed to believe that without Peter Bailey, Billy was even an option, but that’s just me. The issue is less nepotism than Peter’s breach of fiduciary duty by allowing a dolt to have any responsibilities where people’s life savings are involved at all—clearly, the board did what Peter wanted, clearly, if he had asked, they could have freed Uncle Billy to go to a home. That he didn’t is a pure fiduciary breach that can’t be ducked.
5. The way I understand it, the unethical packaging occurred down the chain, at the investment houses, not the banks themselves. Either way, that’s not germane to the movie—what is is that the ideals George is spouting is irresponsible. It wasn’t only Peter Bailey’s money that was being put at risk by his unsound lending practices—if it were, I’d agree with you to that extent. He had other interest holders and stake-holders, and wasn’t free to be reckless with his charity. Second, it is not ethical to induce someone into a serious obligation they are unlikely to meet. You can’t have it both ways: that’s part of the indictment of current U.S. institutions—they “tricked” poorer people into mortgage loans the couldn’t possibly meet. Well, so did Peter and George. So Ernie’s a good guy…why does that make him a good risk for a loan? Is there a tacit understanding, not in the loan papers, that the bank will never foreclose? And I don’t see any way out of the point that constructing a fataly flawed system that is guaranteed to fail is unethical. With the system then in place, the Bailey Savings and Loan was as much a part of the conditions that caused the Greta Depression as the current banks were a part of the 2008 meltdown.
I had never picked up on Uncle Billy’s alleged role in starting the Savings and Loan before last night’s showing…on my 287th time through the film.
I caught the flaw about the depositors as well. I wrote my correction before I saw your reply.
I would disagree that the Building & Loan necessarily makes unsound loans. The Baileys’ method of operating was different from the way mortgage agencies operate today. The Baileys operated by knowing their customers. They knew their reputations, their abilities, their prospects, etc. They could judge whether someone was a good credit risk based on what they knew of him (or her). If someone had trouble paying, they could consider the reason for it and act accordingly (if people were having trouble due to an economic downturn, foreclosing would just make things worse because it would worsen the downturn). While this method of banking works, it is probably less profitable (at least during good times) than lending based only on a few factors like income, credit score, etc. because if you lend based on a formula to a lot of people, the law of large numbers says that you will not lose money, and lending to more people means more profits.
The mortgage institutions lent indiscriminately to a lot of people who could not pay because they didn’t really care whether they paid their mortgage or not. They were selling them on to banks, so they did not bear the risks. The banks bought because they believed that the odds of anyone defaulting were fairly low because house prices, on average, were rising. By the law of large numbers, this would imply that their losses would be small. Unfortunately, the law of large numbers breaks down when the probability of individual failures ceases to be independent. When housing prices start to go down in general, they no longer were. There is no evidence the Baileys were operating anything close to this sort of business.
They Baileys were operating irresponsibly and recklessly, and that’s the main similarity. Knowing someone is of good character still doesn’t justify a loan without the necessarily financial prospects and resources. Banks that operated like the Bailey’s went under in droves during the Depression, and their patrons were ruined. How can you say the business model “worked”? They made exactly the same mistake the banks did recently–they believed that an economic boom would never end, and bet on that inherently and historically irrational belief. There’s a reason why Potter’s customers were better off when the crash came.
Very few business models “work” during a global Depression. When demand plummets, even prudent business suffered because they could not sell their produce at profitable prices. Banks were even harder hit because of the possibility of contagion. If one bad bank failed, depositors would withdraw their deposits from otherwise solvent banks. The banks were illiquid so they had to sell their claims on their loans. If all banks do this, the value of the claims drops and the banks do become insolvent. This is not really the “fault” of the otherwise solvent banks.
Another factor that led to the failure of many banks both before and during the Depression was a slump in the prices of agricultural produce. During the War, the prices of agricultural produce skyrocketed and may farmers used the opportunity to take out a mortgage to buy more land. Shortly after the War ended, the price of produce plummeted and the farmers could not pay their loans. The Bailey’s Building & Loan was not an agricultural bank, however, so they should not be lumped in to this category.
After some thought, I realize I made a mistake. If the Savings & Loan failed, the depositors might take a hit as well (at least before deposit insurance was introduced). I would argue, however, that they know how the Baileys operate (at least outside of the hysteria of a bank run) because they also tend to be the people borrowing from the Savings & Loan. Also, George Bailey has made it clear that he is willing to use his personal wealth to cover the losses of his depositors.
The main accusation of the Bailey B&L’s over-lenient lending practices comes from Mr Potter, and perhaps his standards are exceptionally draconian. Just because Bert the cabbie wouldn’t qualify for a home loan from him doesn’t necessarily mean that he’s incapable of meeting the demands of a modest, low-APR mortgage. Also, the economics of the time are different, and maybe you could shed some perspective on the matter. What kind of a house would $5,000 get you in the late 1930’s in upstate New York anyway? Certainly not today’s typical 2000+ square footer, but surely a step up from the slums. And is it within the means of the typical working class one-income family?