so dire that Iowa farmers banded together to prevent foreclosure auctions. In Howard Ahmanson's home state of Nebraska, thousands of singing and shouting farmers marched on the legislature demanding an end to foreclosures and evictions.32 A rebellion against the entire credit system seemed to be in the offing.
For home owners the picture was also bleak. According to the federal government, 43 percent of all first mortgages were in default. On average, borrowers were fifteen months behind in their payments. Lenders were foreclosing at a rate of twenty-four thousand homes a month. Even this rate was held down by the fact that many lenders, already “suffocated with foreclosed property,” were reluctant to take action against delinquent borrowers because it would mean they would have to book a loss on their own shaky balance sheets.33
In his inaugural address on March 4, Roosevelt tried to reassure the nation: “The only thing we have to fear is fear itself.” The calamity of the Depression did not reflect any inherent flaw in the people's character or America's productive potential, nor did it evidence any inherent weakness in the system of government. The crisis, he said, should be laid at the feet of the money changers. “The rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence.” The money changers “have admitted their failure and abdicated,” he said. Fortunately, they had been driven from “the high seats in the temple of our civilization,” their practices “indicted in the court of public opinion, rejected by the hearts and minds of men.” In the collective effort to restore the nation's economic health, he called for “safeguards against a return of the evils of this old order: there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money, and there must be provision for an adequate but sound currency.”34
Roosevelt made it clear that he would act. In the hundred days that followed, he and his administration pushed for sweeping reforms that included strong federal regulation of the financial system, with various financial services divided from one another. The Banking Act of 1933, sponsored by Senators Carter Glass and Henry Steagall, separated investment banking from commercial banking to protect deposits from speculators. The Home Owners Loan Act established federally chartered savings and loans that could only collect savings and make loans for homes.35
The following year, Congress created the Federal Housing Administration (FHA) and empowered that agency to provide mortgage lenders with insurance against default on loans that met FHA standards. To encourage savers to deposit their money with savings and loans, the government guaranteed the safety of these funds by creating the Federal Savings and Loan Insurance Corporation (FSLIC) in 1934.36 State-chartered as well as federally chartered thrifts were eligible for this deposit insurance. With Roosevelt's encouragement, Congress also created the Federal National Mortgage Association (later known as Fannie Mae) to promote the development of a secondary market for home loans.37 In theory, a government-sponsored secondary market made it easier for banks and savings and loans to sell long-term mortgages for cash and a quick profit. With this liquidity, they would be able to offer new loans to their customers. An amendment to the National Housing Act that year also eased credit terms for newly constructed small homes.
Overall, the establishment and expansion of federal housing programs under Hoover and Roosevelt reflected bipartisan support for a federal role in promoting home ownership in America through the institution of the savings and loan. Within the new financial system, stability and security for savers, lenders, and home buyers was the overriding goal.38
Many bankers, insurance company presidents, stock brokers, mortgage dealers, and corporate leaders complained about the new managed economy that emerged from the crisis of the Depression, but they gradually adapted to the new regime. Historians Louis Galambos and Joseph Pratt have characterized the new relationship between business and government as a “corporate commonwealth” that served business and the public alike by fostering greater economic stability.39
With regard to savings and loans, the new laws reflected a secondary theme in much of the New Deal's lawmaking. Suspicious of private capital, Congress strengthened the competitive hand of the nation's producer and consumer cooperative and mutual organizations. Savings and loans were not the only institutions to benefit from this new regime. Agricultural cooperatives received exemptions from antitrust rules, credit unions were given tax exemptions, rural electric cooperatives were empowered to deploy public capital to build electrical grids. In the grand spirit of American cooperation, savings and loans would make home ownership possible for millions of Americans.
Ironically, the government's effort to support building and loans as cooperatives created a framework in which these institutions could become enormously profitable. In the middle of the Great Depression, that wasn't obvious to many people. In fact, many state-chartered savings and loans in California took out federal charters and became mutuals under the umbrella of the new federal laws. But after World War II, when demand for housing skyrocketed, a handful of entrepreneurs would amass extraordinary wealth within this system. No one benefited more than Howard Ahmanson.
AHMANSON’S PERSPECTIVE ON REFORM
As an undertaker at a plague, Howard Ahmanson did not sit around the kitchen table with home owners struggling to keep up with their mortgage payments as a doctor might attend a patient at her bedside. He listened to building and loan managers, mortgage lenders, and bankers talk about their efforts to minister to the growing ranks of hopelessly indebted families, but he had no responsibility for trying to save the patient. He arrived after the foreclosure, like the undertaker dressing the lifeless body, to offer lenders insurance on the empty house. Undoubtedly he had thoughts on the plague, but his views have not survived.
Some sense of his perspective on the role of government is revealed in a speech he gave in 1933 after joining the newly formed Economic Round Table of Los Angeles. A group of leading businessmen and academics organized to discuss the issues of the day, the Round Table represented the emerging power elite of a new generation in Los Angeles. Over breakfast at the University Club, men like “Bud” Haldeman, John McCone, Reese Taylor, Preston Hotchkiss, Emerson Spear, and Frederick Warren Williamson shaped their perspectives on the future of the region's growth and the policies and leadership that would realize their vision.40
Howard's speech was titled “Buyer Beware,” and it focused on the need to strengthen the Pure Food and Drug Act of 1906. Divided into two sections, the talk blasted the advertising industry for misleading consumers in a variety of industries and criticized lawmakers for succumbing to the interests of manufacturers in the food, drug, and cosmetic industries. He didn't spare Congress, the president, or his administration.
Ahmanson began by making it clear that he was on the side of the consumer. “New deals, old deals or what-not,” he said, “to an ever increasing degree we seem to be plucking our greatest benefactor, good old John Consumer. And inasmuch as we are all both producers and consumers, we go madly forward giving ourselves a bad break.” In Ahmanson's view, advertising had played an enormously beneficial role in the development of national companies by allowing economies of scope and scale that lowered production costs for the consumer and increased profits for the shareholder. Without advertising, these companies would not have been able to expand their manufacturing processes and distribution networks. But advertising, he said, “appears to have become a veritable Frankenstein and has taken a firm hold upon his former master, Production.”
Ahmanson detailed the ways in which the advertising profession misled rather than informed. He criticized the tobacco industry, which had the temerity to pretend that it was reducing prices when it actually was shrinking the amount of tobacco in a cigarette. He blasted the cosmetic industry for its insidious efforts to insinuate that a woman would lose her man if she used the wrong soap or failed to apply the right makeup. He took on the makers and advertisers of toothpastes, automobiles, antiseptics, laxatives, and Jell-O.
