SIX

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Scaling Up

THE OLD GUARD was leaving the savings and loan industry in the early 1950s. Managers and owners who had weathered the Depression and the war were ready for retirement. Few had gotten rich. If they had equity in a thrift, they couldn't get it out. Liquidating would hurt depositors, many of whom had personal relationships with the savings and loan managers. Meanwhile, as Robert DeKruif recalls, “No one wanted to buy a savings and loan.”1 Except Howard Ahmanson.

Ahmanson, like A. P. Giannini, the founder of Bank of America, realized that additional branches would leverage his investment in advertising, create efficiencies in lending, and, most of all, provide a bigger pool for aggregating savings, which could be invested in more tract homes. To open branches he had two options: petition the state for permission or acquire an existing savings and loan and merge it with the two thrifts he already owned. If he took the latter route, he needed to find a way to help the current owners exit gracefully.

“All these guys were like my father,” says Richard Deihl, whose father ran the Pico Rivera Savings and Loan. “They were good, honest, hardworking people who were happy with their involvement in their neighborhood and community.” Many of them also depended on the income they made from selling insurance on the side through H. F. Ahmanson & Co. They liked Howard and believed he understood their business.²

Howard and his lawyer Thomas Webster developed a creative way to buy out this older generation. The arrangement cost Home Savings and Loan almost nothing, but it put cash in the owner's pocket and provided Home with a way to grow. Essentially, the liquidating company would transfer its loans and its deposits, which usually were nearly equal on the balance sheet, to Home Savings and Loan. The liquidating company would then be left with its reserves, which included paid-in capital plus accumulated earnings. This amount was then distributed back to the association's shareholders as part of the liquidation.3 These deals gave longtime owners of small stock savings and loans a tax-friendly way to cash out and retire. They also ensured that customers and employees of the liquidating thrift would be taken care of. Meanwhile, Home Savings increased its assets and acquired a new branch without paying a premium. By law, Home Savings had to raise its reserves in conjunction with the increase in deposits, but this was rarely a problem. Because Howard never withdrew profits from the business and earnings kept accumulating, Home Savings and Loan's reserves were already high.

With this strategy, Ahmanson was uniquely positioned to choose which thrifts to buy. He had spent nearly twenty years on the sidelines of the mortgage industry in Los Angeles. He knew which savings and loans had the best customers and locations. He knew which companies had piled up cash during the war. He also knew which local organizations had good managers, who would help Home continue to grow.

Ahmanson began a buying spree in January 1951, when he announced that Home would acquire the Long Beach Building and Loan Association, which had a main office in Long Beach and a branch in Huntington Park. The deal increased the number of Home offices from three to five and expanded the association's total assets to just under $30 million.⁴ At this level, Home still lagged far behind Joe Crail's Coast Federal ($111.8 million) and Howard Edgerton's California Federal ($50.6 million), but it was suddenly the largest of the state-chartered institutions in Los Angeles, and, with five offices, it served more territory than any other thrift in the region.⁵

Ahmanson realized that it made no sense to maintain North American's operations as a separate savings and loan, so he transferred North American's accounts and assets to Home in 1951. He kept North American as a corporate entity to be the conduit for his own real estate investments and to handle proprietary tract development, but he terminated its charter with the state as a savings and loan. With the consolidation, Home's total assets rose to nearly $53 million.⁶ Most important for the ever-competitive Ahmanson, Home edged out Howard Edgerton's California Federal Savings and Loan as number nineteen among the nation's largest savings and loans, up from forty-fifth a year earlier.⁷ Suddenly, in the Los Angeles area only Joe Crail's Coast Federal was larger.

Home continued to grow in 1952, when Howard acquired Occidental Savings and Loan Association. The deal added another $20 million in assets, making Home the largest “capital-stock” savings and loan in the world.8 It also had the most branches in the country—six—a testament to how local the thrift industry was in 1952.⁹ Then, in the first week of January 1953, Ahmanson finalized an agreement to acquire the assets and accounts of Arcadia Savings and Loan, worth approximately $8 million, raising Home's total assets to more than $100 million.¹⁰ Only six years after Howard had acquired the business, Home ranked among the top five savings and loans in the country.¹¹

With continued growth and new acquisitions, Home doubled its size again over the next year. In February, the company acquired the Burbank Savings and Loan Association in the fast-growing San Fernando Valley. The oldest thrift in the valley, Burbank had tripled its assets to $10 million in the early 1950s.¹² The same month, Home announced that it would buy United Savings and Loan of Glendale, a $40 million company with twenty thousand depositors and borrowers. When this deal was completed on March 1, 1954, with $190 million in assets, nearly seventy thousand depositors, and twenty thousand borrowers, Home moved past the Perpetual Building Association of Washington, D.C., to become the largest savings and loan in the United States.¹³

With these acquisitions, Ahmanson challenged the dominant paradigm for savings and loans, most of which did not have branch operations. Older managers bristled at Ahmanson's aggressive tactics, but if state officials were concerned by Home's growth, they failed to show it. On several occasions, Lieutenant Governor Goodwin Knight and California building and loan commissioner Milton O. Shaw were on hand to join in Home's celebrations.

BUILDING AN ORGANIZATION

Building an empire by acquisition was one thing. Integrating all of these businesses and making the combined organization a success was something else. Like many entrepreneurs, Ahmanson hired people he trusted as well as talent he encountered. His approach to both reflected his personality as well as his business acumen.

When he met new people, Ahmanson explored their interests and passions, often searching for ideas he could use and an understanding of how their minds worked. He had what David Hannah called “an uncanny ability to seize on a good idea, maybe an idea you had but never implemented. Howard would take that good idea and put it to practice.”14

Ahmanson proudly told reporters that the executives he hired were all younger than he was. Except for Ken Childs, he did not want to pay for experience or expertise. He was always on the lookout for good employees. When he bought a savings and loan, he often promoted its younger managers who were ready for more responsibility. He would also visit the commercial banks in the area. “He stood in the lobby and watched to see which tellers had the longest line,” remembers Bob DeKruif. Those were the tellers that the customers liked. “So he would go and hire them because he was so sold on service.”¹⁵

Generally, Ahmanson proved to be a good judge of talent and disposition. “Howard's genius was in picking people and putting them in the right slots,” remembers John Notter, who managed several offices in the early 1960s.¹⁶ "He said the most damaging thing you can do to a person is get them out of their niche in a business,” remembers DeKruif. “If you get them out of their niche, the first thing they do is damage themselves. The second thing they do is damage the company.”¹⁷

Ahmanson's judgment of character was important because he was not a micromanager.¹⁸ Once he hired someone and gave him directions, he let the employee work. “If you screwed up,” Notter says, “you heard about it.” Ahmanson would want to know why and what you were going to do about a problem. Although he could be tough, manipulative, and even mean at times, he also displayed a gift for empathy.¹⁹

Ahmanson offered good salaries to his key executives but rarely a stake in the business. Instead, he let them participate in his side deals, a real estate development, for example.²⁰ In this way, he cultivated their entrepreneurial and risk-taking sensibilities.

In addition to the talent he recruited, Ahmanson continued to trust the advice of mentors from the 1920s, especially Thurston Ross. During the war, Ross had joined the navy as a captain. He was deployed on special missions in Africa, Europe, and the Pacific. He represented the United States as a logistics expert at the Yalta and Malta conferences.²¹ He was on the U.S.S. Missouri when General MacArthur received Japan's official surrender.²² After the war, Ross did not return to USC but opened his own real estate consulting firm in Beverly Hills.²³ To those he encountered, he was a genius. To Howard, Ross was a weatherman, someone who could anticipate the tornado on the horizon even on a clear blue day.

Howard also made a place for and relied on his family. In Omaha, nearly ten years had passed since Hayden had hit bottom with his drinking. Remarkably, he had turned his life around. He continued to oversee the operations of National American Fire Insurance, although Howard remained president.24 In 1952, however, when Hayden became next in line to be president of the Omaha Chamber of Commerce, Howard decided that the time had come to acknowledge and reward his older brother for his “moral victory.” He made Hayden president, reserving for himself the title of chairman. Hayden's wife, Aimee, wrote to her brother-in-law, “You just haven't any idea what it has done for his ego already. He has had so many flowers and letters of congratulations that he is fairly walking on the clouds these days.”²⁵ In her letter, Aimee also expressed her gratitude for all that Howard and Dottie had done for her sons, William Hayden Ahmanson and Robert Howard Ahmanson.

Married for more than sixteen years with no children of their own, Howard and Dottie had lavished attention on Howard's two nephews. Bill, the older and more difficult of the two, had been born just four months after his grandfather's death in 1925.²⁶ Bob was born on Valentine's Day in 1927. As they came of age during the war years, Howard tried to pull strings to get Bill into an officer training program in the navy. The war ended before he was deployed. Bob, the easygoing nephew, graduated from high school near the end of the war and moved to California to go to college near Howard and Dottie and be mentored by his uncle. Bill joined his younger brother at UCLA when the war was over.

“The kids,” as Howard and Dottie referred to their nephews, introduced a new element to the Ahmanson household that recalled the college days that Howard and Dottie had enjoyed so much. Howard was patient, even after Bill was reprimanded by the university for his “hoodlumism” in engaging in a panty raid on a sorority house.²⁷ To help amuse the young men, Howard and Dottie bought a twenty-six-foot Luder sailboat. Before long the foursome was racing. In 1947, they entered twenty-eight regattas, winning twenty-three and placing second in the other five. After graduating from college, both nephews went to work for their uncle: Bill in the insurance business, Bob on construction projects within Home's growing collection of branches.

Howard's relationship with his nephews was close, but they were not the executives at the center of the business. The organization of the late 1940s traced its roots to Howard's two years at USC. The first of his key lieutenants was his longtime friend Gould Eddy, who had done an outstanding job in the insurance business.28 Nearly twenty-five years after the founding of H. F. Ahmanson & Co., Eddy and his wife, Lucia, were still good friends with Howard and Dottie, and Eddy continued to play a key role in the insurance business. Thomas Webster, Howard's personal attorney, was a direct, low-key, and extremely creative lawyer who was not afraid to challenge Howard.

Evelyn Barty was equally bold. She joined H. F. Ahmanson & Co. in 1942 and soon became the masterful, if often irascible, secretary who managed the details of Howard's life. Born with the last name of Bertanzetti, she had come to Hollywood from Pennsylvania with her family in 1928. Musically inclined, she and her sister Dolores ("Dede") toured in a vaudeville act in 1934 with Billy, a “little person” who reached three feet nine inches as an adult. Billy had already become a Hollywood star at the age of ten, and his parents had shortened his last name to “Barty.” The act was known as “Billy Barty and Sisters.”²⁹ As an adult, he appeared on television and in nightclubs. Evelyn gave up her performing career in 1942 to go to work for Ahmanson, but she sometimes joined Howard at the piano for employee events.

As his businesses grew, Ahmanson recruited a whole generation of leadership right out of college. Robert DeKruif had been born in Iowa and brought to California as an infant “in a clothes basket.” He grew up in the mid-Wilshire District, attended Los Angeles High School, went to college at USC, and graduated with a degree in business administration in 1941. His older sister and her husband were friends with Howard and Dottie. One night, shortly before graduation, he had dinner with the four of them. Characteristically, Howard quizzed DeKruif on what he was studying. Then he offered DeKruif a job. Ineligible for the military because of ear problems, DeKruif stayed with the insurance business through the war. Rising early in the morning, he worked in the shipyards until midafternoon and then made insurance calls.³⁰ Eventually, DeKruif would become president of H. F. Ahmanson & Co. and play a key role as Howard's political liaison.

The most important contributor to Ahmanson's success, however, was Ken Childs. A teetotaler and practicing Christian Scientist, Childs ran the day-to-day operations of Home Savings and Loan.³¹ Like Ahmanson, Childs was not typical of the managers described by William Whyte in The Organization Man. He ignored the world of organization charts and frequently disrupted the chain of command, but his commitment to Home gave Ahmanson the ability to focus on the strategic needs of the business and to manage his overall portfolio, including his insurance company, his oil investments, and real estate.32

Both men worked feverishly. Eighteen-hour days were the norm, as Ahmanson left the house in the early morning and rarely came home before ten at night. Ken Childs kept pace. North American and Home Savings underwrote hundreds of tract loans for builders like Milton Kaufmann and Sandee Seness. Ahmanson and Childs shifted cash and equity between various corporations and legal entities in a constant effort to keep income away from the tax man and available as capital for continued growth. In his letters to Howard, Childs referred to himself jokingly as “your man Friday.” Childs's leadership proved critical when Ahmanson suddenly became very ill and his doctors advised him to get away for a while. While Howard and Dottie and his nephew Bob embarked on an extended vacation through North Africa and Greece and then went on to Norway in February, 1951, Childs kept the money rolling in.³³

A FETISH FOR COST CONTROL

Ahmanson and Childs also exhibited a near fetish for cost control.³⁴ Ahmanson organized the sales staff so that he paid almost exclusively for production. He compensated his salesmen with commissions paid by the borrower. These “solicitors,” as John Notter remembers, “were like a mortgage broker, except they were working for us. They would go to all the real estate offices and hustle business for us. We did the underwriting.”³⁵ The commission system drove loan sales and kept costs in line with production. Under Ahmanson's system, an ambitious salesman could make good money. When Richard Deihl became a salesman, for example, he earned $30,000 a year in the early 1960s ($224,000 in 2011 dollars). “I worked Saturdays. I worked nights,” remembers Deihl, “because I was on commission and this was the only way I got paid.”³⁶

Ahmanson also leveraged the time of these commissioned agents by having them do most of the work that an appraiser would do. A certified appraiser would then follow up, but since he was only checking the information provided by the loan agent, it took him far less time to complete his appraisal. Deihl laughs when he remembers wondering why Ahmanson organized the work this way. “Then it dawned on me,” he says. “It wasn't because we were so bright. It was because we were doing it on our own time. We were on commission. The appraisers were getting paid by the hour.”37

Although Ahmanson built an aggressive loan sales organization by using commissioned salespeople, he and Childs protected Home's balance sheet by relying on loan officers to approve all mortgages. In other associations, the function of the sales agent and the loan officer were often combined in one individual. This created a potential conflict of interest. The loan officer had a financial interest in making the loan no matter how risky the borrower. At Home Savings, “It was a separation of church and state,” Deihl recalls.³⁸

All of these cost containment strategies helped keep Home's overhead among the lowest of all its competitors—according to some analysts, 50 percent lower than the average stock savings and loan.³⁹ With this kind of advantage, Home could be far more aggressive in the marketplace.

MARKETING PEACE OF MIND

Howard once described Home's business as 90 percent lending and 10 percent promotion. “He was a salesman,” Richard Deihl remembers. “Selling was in his blood. He was always selling somebody something—a job, a low salary, whatever.”⁴⁰ The public face of Home's sales campaign, however, was almost entirely devoted to depositors. They were the customers who provided the working capital to invest. They were the ones who needed to trust the institution with their life savings.

Fortunately, deposit customers were plentiful. As the nation prospered in the early 1950s, Americans enjoyed the best of both worlds: consumer spending rose dramatically and so did savings and investments. Even as middle-class families bought refrigerators, furniture, and automobiles, they stashed money into savings accounts. By 1954, savings and loans spent $20 million a year on advertising, while commercial banks, with seven times the assets, spent just $45 million. To cultivate the children of the baby boom, savings and loans offered special accounts for children and delivered lessons in thrift to local schools. In 1954, three hundred savings and loan associations promoted television's first western series, Hopalong Cassidy, to attract youngsters to their doors. While the adults in the family appreciated the attention lavished on their children, they also liked the interest paid on their accounts. In 1954, the average savings and loan paid 2.8 percent on savings deposits, compared to 1.75 percent paid by banks.⁴¹

These advertising campaigns helped drive a major shift in the way middle-class Americans invested their savings. At the end of the war, 31.5 percent of all savings in the United States were invested in government bonds and only 5.4 percent were in savings and loans. A decade later, only 21.4 percent of savings were invested in government bonds, while savings and loans had increased their share of the national piggy bank to 13.8 percent.42 Nationally, savings and loans steadily took market share from commercial banks. Between 1952 and 1961, savings and loans increased their share of savings deposits held by commercial banks and thrifts from 23.7 percent to 40.9 percent. In California, the shift was even more significant. Thrifts moved from 22.0 percent of savings deposits to 49.7 percent in the same period.⁴³ Meanwhile, in Southern California, the success of the savings and loans was nothing short of astonishing. By 1962, Los Angeles County thrifts held a 59.9 percent market share compared to banks; in Orange County it was 63.3 percent.⁴⁴

Savings and loans captured this larger market share because they advertised more, created more customer-friendly environments, and offered better returns than commercial banks. Ahmanson and Home, in particular, stressed customer service. In everyday life, he noted, most people were friendly. In the office or retail environment, however, they seemed to lose their natural conviviality. He blamed the boss. “When you find rudeness in any business institution, look for the boss, and you will find an autocratic fat head carefully insulated from the outer world by a maze of push buttons and crisp, insolent secretaries.” As early as 1956, he noted that the average savings and loan spent eighteen dollars on advertising to get a new customer to walk in the door or pick up the phone. That investment was squandered if the customer didn't receive good service when he or she walked in or called.⁴⁵

Home Savings and Loan spent heavily to get that customer to walk through the door. With characteristic ironic self-deprecation, Ahmanson told one reporter that his company's advertisements were “dull as dishwater, but they work.”⁴⁶ Home emphasized stability and security. Almost every ad in the Los Angeles Times noted the company's founding in 1889 and the fact that deposits were insured by the federal government. One display ad in January 1951 featured a photograph of Los Angeles’ city hall in 1898 and reported that Home's account holders had already received eighteen earnings payments by that date.⁴⁷ Other ads proclaimed: “No One Ever Lost a Penny” and “There's No Place Like Home.”⁴⁸ Around 1952, Howard began adding the slogan “Peace of Mind since ‘89” to Home's promotional materials and advertising.⁴⁹

After Home acquired Occidental Savings and Loan later in 1952 and the company became the largest capital stock thrift in the nation, advertisements included a new tagline: “One of America's oldest, largest, strongest financial institutions.” With more branches than any other savings and loan, the company also highlighted the convenience of access.50

Howard frequently told the press that he didn't buy other savings and loans simply to increase the company's asset base. “We've never made an acquisition just to get size,” he said. “We only want branches in exactly the right location.”⁵¹ To him, location encompassed a number of factors. He wanted communities where people were likely to be savers. In Ahmanson's judgment, those were the middle-class families in the flatlands of the Los Angeles region. “You can't get savers from the mountainsides,” he said. Those people had stockbrokers. Ahmanson also saw location in terms of its advertising value. He watched where the billboard companies put their signs. He thought the billboard company Foster and Kleiser was particularly savvy about traffic and eyeballs. He favored corner locations or spots with special advantages. In Pasadena, he bought a savings and loan, in part, because it offered a particularly good view of the Rose Parade. He then used the venue to throw a major party every New Year's Day for H. F. Ahmanson's insurance brokers and agents, politicians, and other business associates.⁵² In Glendale, Ken Childs urged him to buy a site downtown, but Howard preferred a location alongside the proposed Ventura freeway. “The advertising is worth millions to Home Savings,” he said.⁵³

Ahmanson did not tout Home's dividend rate in the early years. Commercial banks weren't allowed to advertise their rates, so rather than focus on price competition, which might lower his margins, Ahmanson sold security, safety, and service.

Most important, Home Savings focused on projecting an image of strength. In some industries, being the biggest makes a company a target for competitors. Size can discourage customers who think they will receive poor service. “That doesn't apply to a saver,” says Deihl. “A saver equates size with strength.”⁵⁴ Shortly after Home Savings became the largest in the country, Home began stressing this size and strength message. Full-page newspaper advertisements featured dramatic images of Mt. Whitney, “the largest in America,” linking Home to this tallest mountain in the lower forty-eight states. Other ads incorporated images of Hoover Dam, the Golden Gate Bridge, the Grand Canyon, Niagara Falls, the General Sherman giant sequoia, the U.S.S. Midway aircraft carrier, and the Los Angeles Coliseum—all the “largest in America.”⁵⁵

Being the “largest in America” also gave Home other advantages. In any financial category that would offer reassurance to the saver, Home was bound to be the largest. The most assets. Highest reserves. Richest aggregate payment of dividends.56 For these reasons, Ahmanson aggressively protected the company's position as the front-runner. “We would have gone through fire to remain America's largest,” says Richard Deihl.⁵⁷

While many savings and loans focused on attracting the accounts of relatively high-income households, Ahmanson cultivated the man in the street. Most depositors, in Ahmanson's mind, hadn't learned the lesson offered by George Bailey in the movie classic It's a Wonderful Life. "I'm not sure that everybody knows that [savings deposits] go into somebody's house,” Ahmanson told his staff.⁵⁸ So he didn't want a lot of advertisements focused on lending. Loans were to be sold by salespeople.

To the saver Ahmanson offered reassurance even in the design of the company's facilities. “We built fortresses,” says Deihl, describing Home's “mausoleum-style” branches. “They looked like they were going to be there for not just a hundred, but a thousand years.”⁵⁹ Ahmanson reinforced this sensibility sometimes by incorporating enormous bank vault doors into the interior design of a branch. Often, there was no big vault on premises, remembers Rufus Turner, who worked on the architecture. “It was just for show.” Everything in the design was meant to suggest to savers that their money was safe and available.⁶⁰ The greater irony from a public policy-making point of view was that in reality the bank vaults and imposing architecture were far less important to the safety of a customer's deposits than the little sign in the window: “Insured by FSLIC.”

THE MASS PRODUCTION OF MORTGAGES

As Howard Ahmanson recognized, standardization and advertising were critical to mass production. Standardization allowed the manufacturer to make millions of cigarettes, boxes of cereal, or cans of soup that were all alike. Advertising generated the outsized demand for a product that justified the investment in enormous factories or facilities. With this large-scale production, the cost of producing each unit dropped. These economies of scale enhanced profits that turned companies like American Tobacco, Quaker Oats, and Campbell Soup into corporate behemoths at the beginning of the twentieth century.⁶¹ Howard believed these same mass production and distribution techniques, anchored in the idea of standardization, could generate economies of scale for Home Savings as well.

Ahmanson and Childs understood that the government had taken the first step in standardizing home loans with the creation of the Federal Housing Administration (FHA). FHA's regulations stipulated construction and design guidelines that frustrated many architects and home buyers but benefited the mortgage lender as well as the builder. As long as the design and construction techniques were approved at the front end to avoid a systemic design flaw affecting all the homes in a development, these rules and techniques eliminated uncertainties for the lender. Without the need to check the design of each home in a development and with the knowledge that all or most of the loan was guaranteed by the federal government, lenders could spend less time reviewing and processing loan applications.62

Under Ahmanson and Childs, Home Savings capitalized on all of these market conditions and focused relentlessly on lowering the costs of lending. Other thrifts wrote loans from each of their branches under the time-honored assumption that the lender closest to the borrower would be best able to understand the borrower's creditworthiness. Ahmanson and Childs understood that with mass production and government guarantees, credit reviews were less dependent on personal knowledge of the borrower. Therefore, Home centralized its lending operations in two primary facilities where Ahmanson and Childs employed their most capable loan officers. This strategy minimized risks and maximized efficiencies.⁶³

Home was sometimes criticized for this strategy because it often meant that the company collected deposits in a community but failed to make loans in that area. California Federal had a deeper commitment to the communities in which it operated, according to Howard Edgerton. CalFed's branches “become part of the community,” Edgerton said. He encouraged his managers to join local civic organizations. “This boosts our overhead a little,” he said, backhandedly painting Ahmanson as a scrooge. Ahmanson was unabashed. In the first place, “Civic affairs and religion are a man's own business.” In the second place, “If a bad downturn comes the only thing our depositors are going to be interested in is whether they can get their money. They'll forget about all this community-chest stuff.”⁶⁴

In construction lending, Home Savings continued to rely on Ken Childs's superior knowledge of the industry and the community to avoid making loans for flawed developments. It was rumored in the industry that when Childs went on vacation, Home Savings didn't lend money. “That was brilliant,” says Warren Buffett, who was keeping track of the industry in those days. “If you've got low-cost money [deposits] and you don't get in trouble on the asset side [loans], the sky is the limit.”65

Ahmanson also strategized savings on the service side on the basis of his observations of human nature. He determined that it cost Home eight times more to accept a loan payment over the counter in a branch than by mail. Part of the difference was the cost of employee time spent chatting with the customer. So he took loan servicing out of the branches and centralized it in a location away from most of his customers, making it difficult for borrowers to pay in person.⁶⁶ All of these initiatives contributed to Home's very low cost of operations.

LENDING PHILOSOPHY

If there was a core element to Howard Ahmanson's strategy in the 1950s, it was his single-minded focus on single-family homes. “His theory of lending was on homes always, always,” remembers Robert DeKruif.⁶⁷ Ahmanson remembered his family's move from the north side of Omaha to the idyllic suburb of Dundee. He knew that home ownership was more than a financial transaction; it had everything to do with an individual's standing in the community. Americans would sacrifice greatly before they failed to make mortgage payments.

In the insurance business, Ahmanson had seen how people protected their homes. Risks were lower for residential property than for commercial buildings. Fires, tornados, and earthquakes didn't go away, but if pride of ownership lowered the percentage of negative outcomes—fires or foreclosures—it could make a huge impact on profits.

Ahmanson was also aware that widespread political support for home ownership reduced his risk as well. Politicians protected the institutions that promoted home ownership because home ownership had become essential to how Americans measured the health and vitality of their communities. These factors made single-family homes a conservative bet, safe enough that he could afford to bet big.

Often Ahmanson was encouraged to diversify, but he resisted commercial lending, which cost more and carried more risk. “You had to hire much more expensive people,” says John Notter, “and you didn't make as much money. So why go into something you're not really good at?"⁶⁸ Always the memory of the White Spot restaurant in Nebraska stayed with Ahmanson: a limited menu done well could bring enormous success. Ahmanson and Childs kept the menu at Home extremely limited. By the end of 1955, 99.7 percent of the loans in Home's enormous $270 million real estate portfolio were for single-family residences.69

Although borrowers were critical to Ahmanson's sense of the safety of mortgage lending, he also emphasized the quality of the property. “He wanted homes in good areas because he figured everybody wanted to move up,” says DeKruif.⁷⁰ He was often willing to bet on the house over the borrower. “That doesn't mean ‘no-doc’ or ‘low-doc’ loans,” says Richard Deihl, “but he wanted a good house because the house was the security.” If a borrower ran into trouble, a good house could always be resold. As a result, Ahmanson was often willing to make loans to people who had been marginalized by the industry. The first loan Richard Deihl made as a junior loan officer in 1960, for example, was to a divorcee with two children who had a sales job where she was paid on commission. In those days, single women had a hard time getting banks to lend to them. “Nobody would touch her,” Deihl remembers, “but the house was good.” So he made the loan.⁷¹

Ahmanson was also more than willing to look at a high loan-to-value ratio. He did not try to undercut the competition on price (lower interest rates) but preferred to win the borrower by offering a bigger loan. Although this meant taking more risk because the borrower had less of his or her own money in the house, Ahmanson had confidence in the abiding and constantly increasing value of California real estate.

As he often told reporters when he was sharing his big ideas about the world, the managed economies of democracies tended toward inflation. Under political pressure, democratic governments always printed more money, and when the economy boomed they didn't have the discipline to tax enough to pay down their debts.⁷² It was an idea he had picked up in college and subscribed to all his life. “Years ago, you couldn't get any financier or hard-money man to say anything in favor of an unbalanced budget,” he said, “but times have changed.”⁷³ Lenders were vulnerable to interest rate risks in this political economy since the value of their assets would be eroded by inflation while the price of the debtor's asset, the home, rose. Ahmanson hedged this equation by betting on the property rather than the borrower and offering a larger loan as a percentage of the total value of the house. If housing values were rising, the slight additional risk on the larger loan would be balanced by the greater profit.

Like most lenders, Ahmanson avoided neighborhoods where values were not rising. In the “war room” of the main office of Home Savings in the late 1950s, a huge map of the Los Angeles area hung on the wall. A red line bounded hash marks drawn over certain neighborhoods, Richard Deihl remembers. When he was a loan agent, “we were told not to lend in those areas.”74 Those areas were affected by poverty and real estate values were considered unstable. In the segregated society of the era, many of these neighborhoods had higher concentrations of African and Mexican Americans.

For many years, with the encouragement of the federal government, lenders, appraisers, real estate agents, and developers subscribed to the theory that homogeneity was the key to reducing mortgage risk. In the 1930s, the Home Owners Loan Corporation (HOLC) had institutionalized the practice of racial and economic segregation in housing development and residential lending. HOLC's “property security maps” classified neighborhoods on the basis of the average age of the structures, the maintenance of the homes, the number of rentals, and the presence of “undesirable elements,” which included members of racial minorities.⁷⁵ Social segregation continued to permeate public policy during and after the war, and the FHA explicitly perpetuated racial discrimination in mortgage lending. When the Community Homes cooperative in Reseda sought FHA approval to finance 280 single-family homes in 1947, for example, it was turned down by the government because the cooperative refused to adopt racial restrictions. Responding to the group's appeal of his staff's decision, FHA commissioner Raymond M. Foley explained that if racial integration increased the financial risk to the lender, then “we are not warranted in accepting the risk.”⁷⁶

In the immediate postwar years, federal officials, builders, and lenders sought to show their support for communities of color by promoting a separate-but-equal ideology that was friendlier than the outright ostracism that had characterized race relations throughout the history of the Golden State. In January 1945, the National Housing Agency announced that it would build twelve hundred houses for Negro war workers in Los Angeles and planned to develop communities for Chinese, Mexican, and Japanese American residents as well.⁷⁷ In December 1948, the California Savings and Loan Journal highlighted the first-ever VA tract development for Mexican Americans. But by the late 1940s this separate-but-equal ideology was already under assault.

African Americans had organized chapters of the National Association for the Advancement of Colored People (NAACP) and the Urban League as early as 1913 and 1921 to battle against employment and housing discrimination. These efforts were generally unsuccessful through the 1930s. In 1930, seven out of every ten black residents of Los Angeles lived in one assembly district.78 As the black population nearly tripled during the war, growing from 4 percent to 9 percent of the total population in Los Angeles, discrimination became a bigger issue.⁷⁹ During the war, this growing black community fought to end employment and housing discrimination, but victories were limited.⁸⁰

After the war, the NAACP and other civil rights organizations in Los Angeles challenged racial covenants in court.⁸¹ In October 1947, in a case involving three African American families seeking to buy homes in the mid-Wilshire District, Los Angeles Superior Court judge Stanley Mosk ruled that racial covenants were unenforceable. He likened these covenants to the racist policies of the Nazi regime and noted that one of the defendants in the case had fought in World War II and earned a Purple Heart. “This court would indeed be callous if it were to permit him to be ousted from his own home by using ‘race’ as the measure of his worth as a citizen and a neighbor.”⁸²

The California cases broke legal ground for the NAACP's arguments before the U.S. Supreme Court. Seven months later, in May 1948, the Court ruled in Shelley v. Kramer that government enforcement of private racial covenants violated the equal protection clause of the Fourteenth Amendment to the U.S. Constitution. When that ruling was amplified by further decisions, the concept of racial covenants seemed doomed.⁸³ The Los Angeles Sentinel proclaimed that “Jim Crow is just about dead in California.”⁸⁴

The Supreme Court's decisions foreshadowed the end of overt racial discrimination in housing developments, but its impact was blunted by the lack of laws proscribing discrimination. Months after U.S. Supreme Court's decision, when singer Nat King Cole paid $75,000 for a home at 401 S. Muirfield, blocks away from where Howard and Dottie lived, the Hancock Park Property Owners offered him $100,000 for his home. When Cole refused the offer and moved in, the word “nigger” was burned into the lawn and someone poisoned the family dog.⁸⁵

Howard Ahmanson defended Nat King Cole's right to live in the tony Hancock Park community, but without Home Savings lending records from the 1950s, it's impossible to know whether his defense of an individual black family reflected any change in the pattern of Home Savings’ treatment of nonwhite applicants for loans. The growth of savings and loans owned and operated by African Americans, however, provides powerful evidence of the unmet market need in Los Angeles. By 1958, thrifts like Broadway Federal, Liberty, Safety and Watts savings and loans were among the top twenty-five African American thrifts in the country.86

As the civil rights movement swelled in the early 1960s, many California thrifts insisted that they did not discriminate; at the same time, they rationalized policies that prohibited making certain loans to people of color. When one Los Angeles savings and loan surveyed its customers in the early 1960s, for example, it received an inquiry asking whether the institution would ever make a loan to a black home buyer who wanted to move into an all-white neighborhood. “We would definitely not consider such a loan application,” a spokesperson for the company wrote back, “for the reason that it would be extremely disturbing to existing property owners and initially at least would tend to cause a deterioration of property values due to distressed selling.” But according to the author, “We should like to make it clear however, that our attitude is not based in any sense upon racial prejudice, but solely on sound economics and a desire to preserve existing community attitudes and values. In areas where the residents are predominantly those from minority groups we have no hesitancy in considering loans.”⁸⁷

NATIONAL LEADER IN A TRANSFORMED INDUSTRY

With Thomas Webster's help, Ahmanson developed an elaborate corporate structure to maximize his legal and tax advantages. The master holding company until the mid-1960s was H.F. Ahmanson & Co., which controlled Home Savings and Loan and National American Insurance. Occasionally, Ahmanson also bought thrifts that he did not merge with Home Savings and Loan. If he could not acquire 100 percent ownership, he kept these companies separate and used them as a training ground for talented young managers. John Notter, for example, got to run a business on his own when Ahmanson moved him from Home Savings to run Victory Savings and Loan in Van Nuys.

With this corporate structure, Ahmanson operated with a great deal of freedom. He was uninhibited by partners or shareholders. He could make decisions on his own, which was the way he liked it. Someone once asked him what his ideal corporate board would look like. His response spoke volumes about his attitudes toward race and class in America. He said he would prefer four colored porters and himself. When they asked him where he would have his board meetings, he replied: “In a phone booth.”

Ahmanson was also extremely conservative financially. The company's reserves were sometimes double that of other savings and loans. His good friend Howard Edgerton was far more aggressive and at times ran into problems with regulators because of it. When California Federal sought permission to open two new branches in the fall of 1953, regulators at the Federal Home Loan Bank Board rejected the plan because the company had not made sufficient progress on an agreement to strengthen its liquidity.88

As a strategist, Ahmanson kept his eye on the horizon. Already an accomplished yachtsman by the mid-1950s, in business as well as on the open ocean he had the ability to change direction, “to go where the wind was,” if things weren't going as he wanted.⁸⁹

Although many people saw the profit possibilities in various aspects of the home ownership industry in Southern California, Ahmanson bet more aggressively and his timing was superior. As it turned out, the best entrepreneurial opportunities in the savings and loan industry were available in the first ten years after the end of the war. Those who waited found their growth and profits constrained by higher prices for land and capital, increasing regulatory barriers and costs, and growing competition for management talent and customers.

By the late 1950s, many of Ahmanson's rivals had come to appreciate Home's enormous competitive advantages. Some called Ahmanson “the octopus,” a reference to the title of Frank Norris's 1901 novel about the Southern Pacific Railroad, which dominated the state's economy and politics in the late nineteenth century. Bill Ahmanson defended his uncle: “The worst that can be said about ‘Unc’ is that he lives to build capital—and to run his own show.”⁹⁰ Howard Ahmanson didn't mind his jealous rivals. “I could be wrong,” he said with characteristic false modesty, “but I'm probably accumulating money—and by money I mean cash and easily converted assets, not debts—at a faster rate than any other man in America.”⁹¹

In many ways, Home's growth reflected the national success of the postwar savings and loan industry and the spectacular characteristics of the Los Angeles market. At the beginning of the war, savings and loans held only 24.4 percent of the total residential mortgage debt on one- to four-unit buildings in the United States.⁹² By 1955, they had emerged to play the leading role in residential mortgage credit in the United States, especially in the market for middle- and working-class families and among borrowers taking advantage of the government's home loan programs.

The success of the savings and loans nationally was amplified in California, and especially in Southern California. At the end of the war, the savings accounts in commercial banks were ten times greater than the deposits in savings and loans.93 In 1947, banks held about 45 percent of all residential mortgages in California. Their market share fell dramatically over the next ten years to 19 percent. Meanwhile, savings and loans in the Golden State increased their residential mortgage market share from 17 percent to 36 percent in the same period. This was exactly the era when Home Savings and Loan engineered its dramatic growth to become the nation's largest thrift.⁹⁴

The rise of savings and loans helped the nation achieve a significant increase in the rate of home ownership. Nationally, nonfarm home ownership rose from 43.6 percent to 61.9 percent between 1940 and 1960. Although California did not keep pace with the nation, it produced very significant gains: from 43.4 percent in 1940 to 58.4 percent in 1960.⁹⁵ In the Los Angeles-Long Beach metropolitan area, given the success of the savings and loans, one might have expected an even more dramatic increase, but this was not the case. With a 56.4 percent rate of home ownership in 1960, the region lagged the state, the nation, and even the average of all metropolitan regions. Some speculated that higher mortgage rates in the area kept some buyers from being able to afford a home, but Orange County reported a home ownership rate of 71.8 percent.⁹⁶

Many factors affected the increases in home ownership: smaller and more affordable homes, new technologies and materials that lowered the costs of construction, incomes that rose faster than the cost of housing. As we have seen, not all segments of the population benefited from these policies. But there was no denying that in many communities across the country, including Los Angeles, the transformed Jeffersonian vision that home owners would make up the majority of citizens had become a reality, and it was this dream that had made Howard Ahmanson rich.