of risk that came from writing many small policies as opposed to the concentrated risk associated with a major liability for a corporate account. Also, corporations always wanted to negotiate their premiums. Ahmanson didn't like negotiating over prices, whether he was buying or selling. Home buyers weren't in a position to bargain. Ahmanson preferred it that way.46
Innovation and self-confidence fueled Ahmanson's success. To impress potential clients and customers, he happily cultivated an image of wealth. He drove a Pierce Arrow automobile and, like his father, dressed in elegant suits. As he traveled around the state to meet with lenders, he would roar into town, slam on the brakes, and come to a stop in a cloud of dust in front of the local bank or building and loan. The manager would look out his plate-glass window and see Ahmanson just getting out of his car. Then Howard would go inside to get the lender's insurance business.47
On the road, Ahmanson stayed at the best hotels—the Palace in San Francisco and the Del Monte in Monterey. At Christmas, he sent lavish gifts to his clients. The child of one manager of a savings and loan remembered, “We all sat around the Christmas tree and opened the gift from Howard Ahmanson. It was always the best gift the family ever got. So I knew the name of Howard Ahmanson long before I ever met him.”48 Established downtown businessmen like Morgan Adams marveled at Ahmanson's acumen and salesmanship. Ahmanson's son would later say that, like Lyndon Johnson, Howard had the ability to see into the heart of whomever he needed to win over and to manipulate him on the basis of his deepest longings and fears.49 Yet he was midwestern enough to use these insights, together with hard work, to satisfy the customer as well as himself. In the years before the start of the Great Depression, his charm and diligence made him successful, and his attention to the world around him made him cautious.50 But his “chicken feed” strategy also alerted him to a fundamental transition taking place in the mortgage industry.
THE CHANGING WORLD OF THE BUILDING AND LOAN
Home ownership was on the rise in the 1920s. Across the country, a building boom was under way and potential home owners needed mortgages. To find these loans, many turned to the kind of hometown building and loan immortalized by Jimmy Stewart in It's a Wonderful Life.
As an institution, the building and loan was also rooted in the rise of cooperative financial institutions in Europe and the United States in the late eighteenth and early nineteenth centuries. An increase in wage labor and the concentration of urban populations during the Industrial Revolution created a demand for financial institutions to serve wage earners new to the market economy. Without productive assets of their own, these wage earners needed to save cash to insure themselves against personal disaster or provide for the construction of a home. Commercial banks did not offer general savings accounts for workers.51 Mutual self-help cooperatives were organized to promote thrift among the working class.52
After the Civil War, in a period of rapid economic expansion, building and loans became increasingly popular in the United States, particularly in capital-poor regions like the Midwest and Far West.53 Most were small and local and run by part-time managers who often had other sources of income. The average institution included about 314 members who owned an average of $303 worth of stock.54 Some served only a single neighborhood or a tight-knit ethnic or religious group.
The building and loan represented a revolution in mortgage finance to the working and middle classes. Prior to this time, home buyers who sought financing from institutional lenders generally had to provide at least 50 percent of the cash needed for the transaction and faced a large balloon payment for the remaining principal after only a few years. The building and loan offered members a way to protect their savings, earn interest on their balances, and access mortgage capital.
Lending money for first mortgages on residential property proved to be a remarkably safe investment, and it paid a relatively high return to the investor. Even during the financial crisis of 1893, building and loans enjoyed a low rate of failure. As a result, they became attractive to a variety of local investors, ranging from workers putting aside small savings each week to widows and merchants with capital to invest. Unlike commercial banks, thrifts offered fixed-rate loans with longer terms (up to twelve years) and higher loan-to-value ratios (60 to 75 percent). These institutions gave millions of Americans their first real chance to own a home. By the mid-1890s, they held nearly a quarter of all the residential mortgage debt extended by financial intermediaries in the United States.55
The spirit of mutualism and thrift that had characterized the building and loan represented a pragmatic, cooperative solution to the lack of mortgage capital available to the middle class. With success, thrifts also reflected a widespread reaction to the negative aspects of large-scale capitalist enterprise that worried many Americans at the end of the nineteenth century. Cooperatives seemed to be more aligned with the idea of community.56
A CORPORATE THREAT
An increasingly integrated national economy, however, posed a series of fundamental threats to the local, mutual ethos of the building and loan. The resolution of these threats would pave the way for a substantial and abiding role for government in the mortgage industry, lead to one of the most important and successful examples of cooperation between business and government in the managed economy, and, in the end, help make Howard Ahmanson rich beyond imagination.
The crisis for the local building and loans began in the 1890s, when a handful of for-profit “national” savings and loans entered the market. These companies believed that by diversifying their lending risk over broad geographies, they could prevent a crisis in one community from jeopardizing the company's health. By being able to look at credit patterns among a larger pool of borrowers, they would also lower their credit risks. By standardizing lending practices and agent-training systems, they would achieve operational efficiencies and diminish the risk that a rogue agent would underwrite a portfolio of bad loans.
Unfortunately for the nationals, in an era when the telegraph still dominated long-distance communication, local associations enjoyed competitive advantages that trumped those that could be generated by a large organization. In an era when credit history was largely by word of mouth, local thrift managers knew which individuals were hardworking, thrifty, and creditworthy. They knew the local economic conditions that might affect the loan's riskiness. And they understood the local politics.57 When the national economy suffered in the late 1890s, the national companies failed while the local building and loans survived.
Building and loans responded to the threat of the nationals by organizing the U.S. League of Building and Loans to campaign for their movement.58 To win political support, they made home ownership a central tenet of the American dream. Seymour Dexter, the league's first president, borrowed from Thomas Jefferson, who had believed that independent farmers, as owners of productive property, would sustain the independence and virtue of the citizenry and the health of the democracy. In Dexter's reconstruction, the home rather than the farm became the locus of this civic virtue.59
Dexter described the enormous economic transition underway in the nation and the challenges it posed to democratic institutions. Industrialization brought centralization and the growth of cities. Forced to live near factories where they were employed, wage earners occupied rented rooms or houses. In Dexter's view, this situation fundamentally corrupted the American political system. “The one and only power to confront and overcome these dangers in the future” was not the return to Jefferson's family farm or Franklin's independent artisan but rather “the American Home.”60 Under Dexter, the league adopted the motto: “The American Home: The Safe-Guard of American Liberties.”
Dexter also saw the nation's salvation in the suburbs. “Rapid transit,” he said, was making it possible for the wage earner to live “fifteen to twenty-five miles from the place where he works.” As a result, families could
go out into the
