Sunday, December 12, 2010

Common Sense

Common sense ain't common - Will Rogers.

It's a Wonderful Life starring Jimmy Stewart was on TV again last night. Jimmy plays George Bailey, a hopeless dreamer and idealist who takes over as President of the Bailey Home and Loan, after the death of his father. George gives up his personal dreams to insure that the Home and Loan continues to provide mortgages to the working men and women of Bedford Falls.

The time is during the worst of the Depression when banks and savings and loans failed by the dozens. Bank examiners fanned out across the state to insure that financial houses maintained sufficient collateral to survive a run by depositors.

George's Uncle Billy misplaces an $8,000 deposit just as the examiner shows up to look at the books of the Bailey Home and Loan. It looks like financial ruin for George and the end of all his hopes and dreams, and so he contemplates suicide.

Well, if you have watched the movie, then you know that it is a wonderful life after all. George's friends, the working men and women of Bedford Falls whose houses were financed by George Bailey, turn out and make up the short fall.

The point is - banks only made loans to those who worked and provided security for the loans. bank examiners actually examined the books and records of the financial institutions to make sure that there was money behind the cashier window. Whatever happened to this common sense approach to finances?

Securitzed mortgages, loans wrapped up like a hoagie, unregulated fiancial markets, no wonder it all came crashing down.