Building Home. Eric John Abrahamson
Чтение книги онлайн.
Читать онлайн книгу Building Home - Eric John Abrahamson страница 4
![Building Home - Eric John Abrahamson Building Home - Eric John Abrahamson](/cover_pre667462.jpg)
The mortgage industry and home ownership grew tremendously in the era of the managed economy. Government loan guarantees and mortgage insurance provided by the Veterans Administration and the Federal Housing Administration lowered lenders’ risk. With less risk, lenders could afford to make loans at affordable interest rates to younger borrowers with less savings and lower incomes.17 New home construction exploded. By the end of the 1950s, a quarter of the nation's single-family homes were less than ten years old. Middle-class savers provided much of the capital to finance the mortgage market with their life insurance premium payments as well as their savings accounts, and their companies provided more with their pension fund investments.
Among all the institutions shaped by the managed economy, the savings and loans—or thrifts—were especially important for economic, cultural, and political reasons. They represented the blended ambitions of businessmen, regulators, and politicians. Regulators wanted to rationalize the financial system to create stability in the marketplace. Politicians saw in thrifts a return to cultural ambitions rooted deep in the Jeffersonian ideal. By extending the opportunity of home ownership to a majority of the nation's households, Congress and various presidents sought to reaffirm the roots of an independent citizenry in the rich tradition of property ownership. Although leaders in the savings and loan industry—including Ahmanson, Fletcher, and Edgerton—shared this belief in the social value of home ownership, they also saw the entrepreneurial opportunity that the American dream created and appreciated how government intervention limited their business risks.
During the era of the managed economy, entrepreneurs like Howard Ahmanson in industries ranging from communications to transportation to financial services succeeded because they understood the social contract between business and government. They took advantage of competitive opportunities, subsidies, or protections created by government. They artfully managed their relations with politicians and regulators to protect their state-created advantages and opportunities. At the same time, they deployed traditional entrepreneurial skills to create products, services, and organizations that fit the markets circumscribed by policy makers.18
Howard Ahmanson reflected many of the characteristics of the government entrepreneur in the era of the managed economy. After purchasing Home Building and Loan in 1947 (later renamed Home Savings and Loan and then just Home Savings), he understood and embraced the government's policy goals, particularly the central effort to promote home ownership. He cultivated relationships with legislators and regulators to protect the policy-driven business environment that made him and his companies successful. He invested part of his profits back into the community to reinforce the civic qualities of his entrepreneurial endeavors.
SHAPING POSTWAR LOS ANGELES
The success of Home Savings reflected the remarkable achievements of the savings and loan industry in Southern California. During the era of the managed economy, when savings and loans made the majority of loans to home owners throughout the country, thrifts in Southern California dominated the mortgage market far more than they did in any other region.19
The extraordinary success of the savings and loan industry in Los Angeles was anchored in a number of factors: the city's explosive growth in the postwar era, the underlying opportunities created by government programs for returning GIs and middle-income families, and a cadre of industry leaders who capitalized on these opportunities to propel their businesses. Through its real estate development entities and its lending practices, Home Savings and Loan and other thrifts in Southern California played a leading role in the postwar suburban explosion that made Los Angeles the quintessential postmodern city.
With their personal fortunes and egos so intertwined with the city's development, it's not surprising that Ahmanson, Edgerton, and other savings and loan executives exerted an important influence on the cultural development of Los Angeles as well. Through the unique art and architecture of its branches, Home Savings and Loan reflected a specifically Southern California perspective on the American dream. Through his philanthropy, Howard Ahmanson contributed to Los Angeles's transformation from a cultural backwater to a world-class city for the arts.
THE END OF THE MANAGED ECONOMY AND THE CONSENSUS SOCIETY
From the Great Depression to the Great Society, a majority of the nation's citizens and its leaders believed in government's efficacy and the idea of the managed economy. In 1964, for example, three out of four Americans agreed that the government would “do what's right” always or most of the time. Nearly two-thirds (64 percent) said that the government was run for the benefit of all. As the memory of the radio broadcast on December 7, 1941, faded, however, public trust and confidence in government declined dramatically. Civil rights and antiwar demonstrations in the mid-1960s reflected growing social unrest. Two years after Howard Ahmanson's death in 1968, barely half of the country was confident that the government would do the right thing and six out of ten people believed that the government primarily benefited special interests.20
The decline in public confidence in government was mirrored by a growing intellectual attack on the idea of the managed economy. Economists at the University of Chicago and other institutions highlighted inefficiencies in the regulatory system. These theorists, along with consumer advocates, charged that regulators were too often “captured” by the industries they were supposed to regulate.21 As a result, these agencies reached decisions outside of the core democratic framework embedded in the Constitution.22 Meanwhile, business leaders chafed at rules that prevented them from pursuing opportunities tied to their core assets or skill sets. Their voices added to a rising tide of popular antigovernment sentiment as the consensus forged by the war years faded in the nation's collective memory. In this political economy, a sweeping movement toward deregulation, or what one scholar has called “contrived competition,” reshaped the landscape of many industries, including mortgage lending and financial services.23
The high tide of the deregulatory movement came in the late 1990s with the repeal of major elements of financial regulation that had been the centerpiece of New Deal reforms in the 1930s. Massive consolidation in financial services followed, with commercial and investment banks merging with insurance companies and brokerage firms. In 1998, long after Ahmanson's death, Home Savings was sold to Washington Mutual, and the combined entity instantly became one of the largest banks in the country. Washington Mutual's success in this new environment was short-lived. When the housing bubble burst in 2007, the value of mortgage-backed securities plunged. Weakened by these collapsing asset values, in 2008 the company was acquired by JPMorgan Chase in a fire sale that brought a sad end to an institution that had once epitomized Southern California success and stability in the era of the managed economy.
The collapse of Washington Mutual and the mortgage market challenged fundamental elements of both the managed economy and deregulation. Conservatives blamed policy makers, insisting that the drive to extend home ownership to more and more lower-income Americans had gone beyond the bounds of prudence and reason.24 Others suggested that elaborate new strategies for risk analysis had encouraged overconfidence on Wall Street.25 Demand for mortgage-backed securities grew so large that it led to dramatic declines in credit standards as lenders practically threw money at borrowers, knowing that mortgages could be quickly securitized and sold to investors. Much of this problem could be tied to the transformation of mortgage lending brought on by securitization and deregulation. As finger-pointing began and calls for a new regulatory framework in financial services grew, the history of the managed economy and the mortgage market in the postwar era seemed strangely forgotten.26
OVERVIEW
In the context of the mortgage market's collapse and of widespread disenchantment with the pattern of deregulation over the past three decades, this book offers a look back at a different era. It weaves together three stories. It is one part corporate and