FOURTEEN
Breakdown of Consensus
PRESTON SILBAUGH HAD NEVER BEEN POPULAR with the savings and loan industry. In 1962, on the eve of the release of the Shaw report and in the midst of another good year for savings and loans, the commissioner seemed especially gloomy. “You are to be greatly commended for the role you have played in the 40s and 50s in home financing,” he told executives at a thrift industry conference. But Silbaugh was worried about the future. “I do not think you can reasonably expect to grow at such a startling rate in the 1960s. The backlog need for simple shelter has been filled. Growth at such a rapid rate through the 60s might even imply a misallocation of national savings.”1
Silbaugh's conclusions were echoed by New York University professor of finance Paul Nadler, who also declared that the “golden days” were coming to an end. Commercial banks, which had often ignored the savings and mortgage markets before 1957, were actively pursuing these customers. “From now on this industry will probably face the same competitive pressures that are now being experienced by the commercial banks and savings banks of the nation.”2
Indeed, the political economy that had fueled the stratospheric growth of Home Savings was beginning to turn by the early 1960s. After growing at an average annual rate of 6.6 percent in the first decade after the war, the U.S. economy eased to a still strong pace of 5.5 percent between 1955 and 1965. Personal spending growth rates, which had averaged 8.1 percent in the first decade after the war, slowed to 5.9 percent as America's postwar demand for housing, automobiles, appliances, furniture, and a host of consumer goods was finally satiated.3 Ups and downs in the business cycle reappeared. Three brief recessions in 1954, 1958, and 1961 contributed to an increase in the unemployment rate. California followed its own economic path, but it was not immune to national trends. Personal income rose far more quickly than income for the nation as a whole. But the rate of income growth, which had averaged nearly 9.4 percent between 1950 and 1956, slowed to 6.7 percent between 1956 and 1963.4 Most important to entrepreneurs like Howard Ahmanson in financial services, debt increasingly paid for growth in the private and public sectors. Fearing inflation, the Federal Reserve began to raise interest rates in 1961, which had a major impact on the savings and loan industry.
The end of boom times fueled increased competition in nearly all sectors of the economy. With marketplace competition, political competition increased as well. California thrifts faced new challenges in Congress, in the state legislature, in the offices and hearing rooms of the Federal Home Loan Bank Board and the California Division of Savings and Loans, and in the chambers of local government as their interests collided with those of business rivals, increasingly vocal consumers, and minorities who had experienced discrimination. The politics of business were also influenced by changes in the market and consumer taste as the era of tract homes gave way to large-scale planned communities. Developers took advantage of new interstate highways to develop parcels of land far from the central city that included a mix of land uses for commercial and residential purposes. Under the weight of all these historical forces, a fundamental revision of the regulatory approach to the mortgage market posed major challenges for the savings and loan industry and marked the first signs of crisis in the managed economy.
Howard Ahmanson and Howard Edgerton faced these challenges from different perspectives. By 1963, the glad-handing Edgerton presided over the largest federally chartered savings and loan in the country, with more than a billion dollars in assets. Edgerton's California Federal paled by comparison to Ahmanson's nearly two-billion-dollar Home Savings and Loan, which was by far the largest savings and loan of any kind in the country. Edgerton supervised nearly two thousand employees soon to be located in a new twenty-eight-story corporate headquarters on Wilshire Boulevard, complete with a rooftop pad for Edgerton to land his two-seater Bell helicopter. Meanwhile, Ahmanson ran his empire from his home in Hancock Park.
Political fights over issues that affected California Federal's competitive opportunities took place in Washington. Not surprisingly, Edgerton, a former president of the U.S. Saving and Loan League, continued to be active at the national level and served as vice chairman of the League's Legislative Committee. Home Savings, which was primarily regulated by the Division of Savings and Loans in Sacramento, paid far more attention to politics in Sacramento, though Ahmanson delegated most of this sensitive work to the lanky and affable Robert DeKruif.
Late at night, Edgerton often visited Ahmanson's home. The two men drank outside by the pool. Occasionally one or the other went for a swim. They talked about business. While Edgerton had shareholders and federal regulators to worry about, Ahmanson was smug in his relative freedom from these interlopers. After Edgerton provided Ahmanson with information on Washington politics, Ahmanson, full of alcohol, pontificated. Frequently they argued. Edgerton put up with Ahmanson's “egotistical” indulgences because, in the end, Ahmanson was “brilliant” and shed uncommon light on the market, the industry, and the politics.5
Through the 1950s, the friendship between the two men reflected a critical characteristic of the era of the managed economy—policy making built around personal relationships between competitors and regulators anchored in mutual systems of trust and obligation. In the 1960s, these relationships came under attack as consumers, minorities, journalists, and others who had been left outside the arenas of power challenged the status quo and as economic interests increasingly turned to the political arena to seek competitive advantage. Under the stress of this new era, the friendship between the two Howards would be tested, and in their response to crisis much of the future of the managed economy would be revealed.
COMPETITION
Threats to the savings and loan industry emerged first in the broader economy. At the beginning of the postwar era, most American families kept their nest eggs in savings accounts or invested in life insurance. Stocks were for the rich. Mutual funds, discredited by the Crash of 1929, had not yet come back into favor. Pension funds were just beginning to exercise influence on the investment community. While inflation was low, many investors who had lived through the Depression focused primarily on security and safety.
From Wall Street to Main Street, the lines within the carefully compartmentalized financial system began to blur by the early 1960s. Insurance companies developed policies to supplement Social Security or private pensions and moved into the market for the savings of the average household. After Congress established new rules that protected investors, Wall Street entrepreneurs proffered new mutual funds as an alternative to fixed-rate savings deposit accounts.6 As early as 1950, the president of the California Savings and Loan League warned his peers: “The stock and bond houses are now after the man with $25 per month to invest in securities by offering him a systematic savings program for securities investment.”7 Meanwhile, commercial banks mounted a new assault on the savings and mortgage markets.
Political competition also posed a threat to the savings and loan industry. In the early 1960s, commercial banks gained a powerful ally when James J. Saxon, the former general counsel of the American Bankers Association, became U.S. comptroller of the currency. Saxon encouraged the Federal Reserve to let banks into a variety of businesses from which they had been barred, including insurance and credit cards.8 He also pushed to level the playing field in the competition for savings deposits. Banks and other financial services institutions decided the time was ripe to challenge some of the competitive advantages given to thrifts by legislators in Sacramento and Congress.
As they rallied to resist the banks, some thrift executives were stunned to discover that politicians and the general public no longer associated them with the communitarian values celebrated in It's a Wonderful Life. After a trip to Washington in August 1961, Howard Edgerton's right-hand man, Oliver Chatburn, reported that “in the minds of some members of the Congress, there is no longer such a thing as a ‘mutual’ association. . . . Many of those to whom we talked stated frankly that they regarded us as an integral part of ‘big business.’"9 As some in the industry pressed politicians and regulators for opportunities to expand geographically and enter other lines of business, including commercial real estate and consumer loans, they reinforced this perception.
Consumers increasingly shared this perspective. According to one leading survey, the public now regarded savings and loan people as “shrewd businessmen out to make a profit” compared to other financial services companies, which were staffed with “serious, community-minded professionals devoting their lives to specialized training in banking and investment practices.”10
Many people in the savings and loan industry blamed entrepreneurs like Ahmanson and the new holding companies for tarnishing the image of the thrift in America. These tensions led to political divisions within the industry. At odds with the majority in the U.S. League of Savings and Loans, several leading Los Angeles–based stock and holding companies joined together in 1963 and 1964 to hire law firms in Los Angeles and Washington to lobby for them in the legislature and Congress. In June 1965, they created their own trade association, the Council of Savings and Loan Financial Corporations, and hired former California assemblyman Tom Bane from the San Fernando Valley to represent them.11
Ahmanson resisted the direction of his peers. He proclaimed that he was “dead set” against the idea of savings and loans moving into the banking business. His primary objection went to the heart of his view of the managed economy. If thrifts tried to become banks, they would lose many of the competitive advantages provided to them by the legislature and Congress. Moreover, harkening back to the lessons learned from the White Spot hamburger joint in Lincoln, he argued that thrifts would lose focus if they tried to diversify their services. “We run a specialty shop and banks run a department store,” he said. Diversification of services would lead to greater overhead and therefore more risk—something he didn't want.12
Ahmanson proved to be right. On the political front, thrifts were big losers in 1962 when Congress imposed new taxes that had a major effect on some California savings and loans. According to one investment advisor, they “wiped out most of the pre-tax gains in 1963” for publicly traded savings and loan holding companies.13 Meanwhile, in the regulatory arena, the comfortable relationship with regulators that had been a hallmark of the golden era of the industry and of the managed economy became noticeably more uncomfortable.
VANGUARD OF A NEW POLICY ELITE
As thrifts and other financial institutions pushed for new opportunities, they were sometimes supported and sometimes inhibited by economists and other academics who began to question the fundamental compartmentalization of financial services embedded in the New Deal structure. These academics, including several based at the University of Chicago, asked questions about the impact of this regulatory system on the overall performance of the economy. Unlike their predecessors, who were primarily concerned with issues of stability and security, these new pundits focused on economic efficiency. They were also concerned that regulatory systems were too often “captured” to serve private, rather than public, interests.
As sociologist Marc Allen Eisner describes it, these new ideas established themselves broadly within the regulatory environment in the early 1960s and began to reshape the policy framework.14 In 1961, for example, the Commission on Money and Credit suggested that “safeguarding small depositors and the money supply, until now a main objective of investment regulation, may be better accomplished in other ways.”15 The commission wanted to lower the burden of “a multitude of regulations promulgated by the states and the federal government.” It also wanted to let commercial banks, savings banks, and savings and loan associations “direct their lending into areas and uses where more profitable opportunities exist.”16
The regulation of the California savings and loan industry also reflected shifting ideologies. Governor Brown's appointment of the controversial Preston Silbaugh marked the beginning of this transition. When Silbaugh commissioned Professors Edward Shaw (Stanford University) and Frederick Balderston (University of California, Berkeley) to study the industry, he explicitly urged them to consider issues related to economic efficiency as well as security and stability.
The industry resisted this new theoretical approach to regulation and called for a return to the cooperative approach of the past. The CEO of one of the state's largest savings and loan holding companies wrote Silbaugh that he was “deeply concerned that the academic approach” would fail to produce the results the regulators were looking for. “As I ponder the problem,” he wrote, “it seems that a new tack might be in order. We in the industry could continue to spend countless hours commenting on reports by college professors—or we could spend the time drawing on the best knowledge and experience available in the industry and put it to work, along with the help of your advisors and qualified research organizations, to engage in a cooperative effort which might more quickly and efficiently serve the public interest.”17
Unfortunately for the thrifts, at the state level, regulators were no longer interested in cooperation. Politically they were suspicious of the savings and loan industry. Intellectually, they were focused on creating a regulatory system that would promote economic efficiency and let the marketplace do its work. Even when the thrifts scored an apparent victory, it only seemed to deepen the regulatory crisis.
Governor Brown, for example, had responded to the uproar over the Shaw Report by replacing Preston Silbaugh. The new commissioner, Frederick E. Balderston, was a tall, thin man with a long face and a big smile who often sported a bowtie. Raised in a suburb of Philadelphia with a passion for baseball and learning, he was the son of the dean of the Wharton School at the University of Pennsylvania. After attending a Quaker prep school, he had come to California in 1940 to attend Deep Springs College. Balderston served with his brother as a conscientious objector during the war, driving an ambulance with the British Eighth Army in North Africa and Italy. He had received a British medal for bravery. After the war, he completed his undergraduate education at Cornell and then earned a PhD in economics from Princeton. He joined the faculty of the University of California in 1953. Under contract with the Division of Savings and Loans, Balderston had played a substantial role in the revision of the state's rules regarding new charters and branches in 1963 before being tapped to become commissioner.
Under Balderston's leadership, the California Division of Savings and Loans worked to brighten the light on the industry and let the market discipline performance.18 Like Silbaugh and others, Balderston believed the golden era of the savings and loan was over. Market conditions would put more pressure on management to manage risk and contain costs. “Price inflation no longer provides an automatic bail-out for over generous loans,” he told industry leaders in a speech in San Diego shortly before Christmas in 1963.19 To strengthen management decision making and to hold the industry more accountable to the public and policy makers, the Division of Savings and Loans collected and published more data. Balderston was in search of the Holy Grail for the industry—a way to assign ratings to mortgage risk that would be comparable to ratings used by analysts of corporate bonds and other debt securities. In this sense, he anticipated the rise of mortgage securitization, which would transform the industry in the 1980s.20
Balderston continued the department's unique practice of conducting a field reappraisal of 7 to 10 percent of the properties for which a thrift held loans.21 As provided by state law, he forced lenders making risky loans to set aside greater reserves, which constrained a thrift's working capital and ability to grow. In 1964, he made it more difficult for thrifts to sell their loans, requiring that they retain half the value of the loan on their own books to ensure high-quality underwriting.22 He worked with Governor Brown to write and pass the Savings & Loan Holding Company Disclosure Act, which required corporate and individual holders, like Ahmanson, of more than 10 percent control in savings and loan associations to report on their transactions with the affiliated associations. Balderston also announced that the department would conduct more surprise examinations of the books of the state's savings and loans. To accomplish this increased workload, commission staff increased dramatically, from 87 to 147 employees in three years, and the commission's budget rose to $1.5 million.23 Because of Balderston's academic background and because the savings and loan industry was far more entrepreneurial and mattered more to the California economy than it did in any other state or even to the nation as a whole, it's not surprising that Balderston's approach to regulation differed significantly from that of his peers at the federal level.
Ironically, despite President Kennedy's support for the role of economic theory in macroeconomic policy making, the appointments he and President Johnson made to the Federal Home Loan Bank Board struggled to define their regulatory philosophy. Joseph P. McMurray and his successor John Horne were policy advocates but not academic theorists. Although McMurray had worked as an economist, he had spent most of his career as a housing advocate. Horne, an Alabama native, had worked for the Small Business Administration in the 1950s before joining the staff of Alabama senator John Sparkman. He became a political operative for the Kennedy campaign and was appointed head of the Small Business Administration in 1961 before succeeding McMurray at the FHLBB in 1963.24 Both men were skeptical of the innovations introduced by California regulators in the savings and loan industry. They defended the traditional mutualist concept, and they remained committed to Herbert Hoover-style “associational” cooperation with business and the New Deal policy-making emphasis on stability and security over competition.
For academics and a growing crowd of consumer advocates, minority groups, and community organizers, the cooperative approach to regulation gave too much power to business leaders and industry insiders. Even if they were made with the public interest in mind, backroom deals corrupted the democratic process and paved the way for self-serving arrangements that betrayed the public trust. As the chorus of opposition to the practices of political entrepreneurs grew, Howard Ahmanson was once again drawn into the limelight he did not seek.
TWO CRISES OF THE OLD POLITICAL ORDER
In the 1950s, Ahmanson's success in the managed economy depended heavily on understanding the opportunities embedded in government programs and building a business that delivered on the government's goals. Relationships were at the heart of this kind of political entrepreneurship. Ahmanson's friendships with Commissioner Milton Shaw and Governor Goodwin Knight played an important part in the development of Home Savings, as well as the state's oversight of the savings and loan industry. In the political arena, in an era when campaign finance laws were weak, these personal relationships were often accompanied by direct infusions of cash for campaign support.
In May 1963, the San Jose Evening News ran a series of reports on money, power, and politics in California written by Harry Farrell. The series focused on the ways in which cash was funneled by various organizations to members of the legislature.25 Farrell zeroed in on Ahmanson, showing how he had bankrolled Republican and Democratic legislators and governors.
“If the name means nothing to you,” Farrell wrote to the reader, “you have plenty of company. In Northern California it is seldom heard, save in the worlds of finance, fine arts, and yacht racing and in the most informed circles of politics.” The man himself was less known than his name, even in Sacramento, because, as Farrell pointed out, Ahmanson had visited the city only twice in his fifty-six years. Farrell suggested, however, that Ahmanson's influence with Unruh and his support for Governor Brown had helped to buy Home Savings and National American Fire Insurance many favors. An exclusive contract to provide fire insurance to veterans taking advantage of the state's Cal-Vet home-buying program seemed to reek of an insider deal.
When interviewed by Farrell, Ahmanson was characteristically nonchalant. He downplayed his role in politics. On the Cal-Vet program, he said H. F. Ahmanson & Co. simply offered the state a better deal. The company's Cal-Vet bid on a five-year renewal basis was $11.8 million, about $5 million less than the combined charges of roughly 238 companies serving the state at the time. According to Ahmanson, it was the other companies who “were caught with their hand in the cookie jar.”26 Farrell looked into it and agreed. So did a special investigation by the state legislature.27
Ahmanson also suggested that Governor Brown's administration had showed even less favor when it came to savings and loans. “I've been turned down on 34 consecutive applications for new branches,” Howard said. “His commissioner doesn't believe in big companies.”28
Despite Howard's protests, Farrell determined that Ahmanson had gained a great deal from his relationship with Unruh and other lawmakers. According to one state senator who had seen one of his bills killed by Ahmanson's opposition, he was “the top man of the three most politically powerful men in the state of California.”29 If Ahmanson needed a bill moved through the legislature, Unruh made sure that it happened.
Farrell's stories created a public relations crisis for Ahmanson and Unruh. According to longtime political reporter Lou Cannon, they were able to convince the San Jose Evening News‘s editors to change the tone of the reporting. After Governor Brown offered a “purity of elections” bill to strengthen campaign finance laws, Unruh was able to kill the proposal. To repair the damage to his public image, Unruh embarked on a statewide speaking tour while Ahmanson retreated even further from the political limelight.
A second money and influence story that broke later that year in the nation's capital had a much greater impact on the comfortable relationships between lobbyists and legislators that characterized the managed economy. Once again, Howard Ahmanson was in the middle of it.
With Democrats in control of the U.S. Senate in 1962, Robert G. “Bobby” Baker was one of the most powerful staffers on Capitol Hill. Dubbed “Little Lyndon” by some Senate staffers, he had become Senate majority leader Lyndon Johnson's top aide by the age of thirty. Weighed down by personal debt, Baker decided to leverage his political position to pay his bills, and savings and loans were an easy target.30 In September 1962, President Kennedy's tax reform bill would have ended the thrift industry's longtime exemptions from federal taxes. Ken Childs went to Washington to lobby against the bill on behalf of Home Savings and other large, state-chartered savings and loans. Baker suggested that Childs and his business allies should help their cause by raising $100,000 in cash for several key political races. Childs later passed on Baker's comments to Howard Ahmanson, who organized a meeting at his home that included Mark Taper and Charles Wellman, Taper's number two man. After the meeting, Childs discussed the request with Bill Ahmanson and Stuart Davis, a director with Great Western Financial Corporation. These executives and others in the industry in California gave the money to Baker in unmarked envelopes.31
The Washington Post revealed these transactions on September 12, 1963 (four months after Harry Farrell's series in the San Jose Evening News), and Baker resigned from the Senate staff soon afterwards.32 Indicted by the federal government, Baker was able to delay his trial for years. Childs eventually testified and Baker was convicted of tax evasion, conspiracy, and larceny.33 Howard Ahmanson was not drawn into the case, though his nephew Bill had played a key role in raising the money Baker wanted. Ken Childs, Mark Taper, Stuart Davis, and John Marten were all embarrassed by the headlines.34
The Baker case reopened a national debate over campaign finance that had been quiet since the muckraking days of the Progressive Era.35 In the wake of the scandal, Congress established new financial disclosure requirements for people who worked for or served Congress. None of these reforms ended the influence of business money in government. In the years to come, personal lobbying by men like Ahmanson and Childs would certainly continue, but in the 1960s it became increasingly professionalized as large corporations and trade associations began to open Washington and Sacramento offices staffed with full-time lobbyists who institutionalized the processes of influence.
INSIDERS AND OUTSIDERS
Public outrage over the money spent by executives like Ahmanson to influence public policy grew in the 1960s and reached a peak in the Watergate era. Investigative news stories by reporters like Harry Farrell contributed to a sense that the interests of many Americans were not being represented in the hearing rooms, council meetings, and legislative chambers of government and coincided with the beginning of a significant drop in public trust in government. The growing civil rights movement furthered a national sense of unease, underscoring the idea that large segments of the American populace were excluded from the benefits of the managed economy.
By 1960 it was clear that U.S. Supreme Court decisions like Shelley v. Kramer and Brown v. Board of Education might have destroyed the legal basis for the separate-but-equal doctrine in housing and education but they had not ended discrimination. The results of the U.S. Census in 1960 showed that for many nonwhite citizens the American Dream was only a reverie. While nearly two-thirds of all white households in the United States owned their own homes in 1960, fewer than 40 percent of nonwhite households were home owners. When they did own their home, four in ten nonwhite households were living in substandard housing, compared to one in ten white home owners.36
Efforts by civil rights reformers to end housing discrimination waited first for basic civil rights legislation. In California, this effort moved forward dramatically in 1959, when Jesse Unruh and others pushed through the Civil Rights Act, a sweeping reform measure that barred discrimination in business. Courts later held that the law applied to real estate sales and development.37 In 1963, Assemblyman Byron Rumford introduced a fair housing law to strengthen the rules against discrimination. With Unruh's support, the bill passed the legislature in June after bitter debate.38 Opponents of the Rumford Act dubbed the measure “forced housing” instead of fair housing. They argued that it interfered with the private property rights of owners. Led by the California Association of Real Estate, they qualified a referendum to overturn the Rumford Act. Voters approved the measure by a two-to-one margin in 1964.
At the national level, the struggle for equality, civil rights, and fair housing continued in the early 1960s. The U.S. Commission on Civil Rights issued a report in October 1961 asserting that mortgage credit was often denied to members of minority groups “for reasons unrelated to their individual characters or credit worthiness, but turning solely on race or color.” It called on President Kennedy to issue an executive order requiring that all lenders participating in federal loan guarantee programs sign a statement that they did not discriminate on the basis of race, creed, or color. The commission was not unanimous in these recommendations. Vice Chairman Robert G. Storey objected to increasing federal control in the private sector.39 The following year, President Kennedy issued Executive Order 11063, which prohibited lenders using federal guarantee programs from discriminating on the basis of race.40
In California, thrifts came under particular pressure in 1963 as the Congress for Racial Equality (CORE) took action against builders, developers, and lenders who they believed were discriminating. The California Savings and Loan League responded by adopting a policy encouraging members to make loans to qualified lenders regardless of race, color, or creed.
Meanwhile, ever sensitive to the signals coming from policy makers, Home Savings’ leaders adjusted to the changing political winds, but not without difficulty. Early in the 1960s, the company tossed its redlined map. But in the summer of 1963, CORE accused Don Wilson, a major builder in the Torrance area and longtime customer of Home Savings, of refusing to sell a home in his Southwood Riviera Royale tract to Lloyd Ransom, an African American chemist. When CORE threatened to picket Home Savings’ offices in Torrance, Ken Childs helped organize a meeting of the largest home builders in Los Angeles.41 Childs understood that many builders believed if they opened up their developments to African Americans they would be competitively disadvantaged vis-à-vis builders who continued to discriminate. He believed the problem could be solved if he could convince the building community to end discrimination in unison. “The public would either have to accept this fact or not buy houses.” But while Childs was able to get a handful of major builders to go along, he could not extract a similar pledge from enough small builders, so the effort collapsed.42
CORE continued to demand that Home Savings sever its relationship with Wilson, dubbed “Mr. Torrance” by the Los Angeles Times and others. Childs responded that Home could not unilaterally break its contracts. At an impasse, CORE began picketing, handing out leaflets in front of the company's Beverly Hills branch that encouraged customers to withdraw their accounts. Childs was clearly frustrated. He noted that CORE had never accused Home Savings of discriminating and that in fact Home was providing financing for a nearby tract development in Torrance that was “openly integrated.” Privately, he complained that CORE's negotiators were “completely without logic and reason, or even common sense.” He objected to the presumption that African Americans deserved “overpayment” to “balance the injustices of the past.” But he was also clearly conflicted, confessing his sympathy for CORE's goal “to secure social and economic justice.”43
Attorney General Stanley Mosk, who had issued a pathbreaking housing discrimination decision as a judge in 1947, eventually filed a suit against Wilson. And in the meantime, the Ransoms quietly bought the home they wanted through a third party and moved into the community without fanfare.44 The entire episode signaled, however, that policy goals long neglected in the articulation of the American Dream would become increasingly important in the relationship between regulator and regulated in the housing and home mortgage industries.
RUNNING THE COMPANY AGAIN
Ken Childs may have been especially frustrated by the situation with CORE because while he responded to reporters and negotiated with the protest leaders, Howard Ahmanson was vacationing in the Middle East and Europe, touring with his son, Howard junior, and UCLA chancellor Franklin Murphy and his family. With the San Jose Mercury stories and the Bobby Baker scandal, it had been a tough year for Home Savings in the public eye. It's not clear from what little remains of Home Savings archives or Howard Ahmanson's personal papers how Ahmanson or Ken Childs personally reacted to the accumulation of this negative news, but in January 1964 Childs chose to leave Home Savings and seek his own fortune.
For nearly fifteen years, Childs had been the steady hand behind Home Savings’ growth. He was the face of the company to the rest of the industry and often to the politicians. He was the executive who motivated employees and met with senior managers. Childs may have decided that he wanted to be an owner rather than an operator. Though he and Ahmanson remained friends, Childs left Home Savings and bought a major stake in Southern California Savings and Loan.45
Back in charge, Howard didn't change his routine or his decentralized style of management. Instead of going to Home Savings headquarters, he assembled his top executives in his home office on South Hudson. “It was the only time during the week that the men saw one another,” says Richard Deihl. These were hardly team meetings. “He wanted to have you look at him and have allegiance to him, not to any group or any philosophy or anything else. He was a great believer in dealing with an individual.”46
For the executives, these were tense encounters. They sat in Ahmanson's wood-paneled home office looking out through the leaded windows at the garden and the white balustrade in the distance. On the credenza behind his desk, Ahmanson's medley of framed pictures and yachting trophies offered the story of his life: his well-dressed, dignified, midwestern father; his wondering-eyed son; and his boat on a glassy sea. As Ahmanson reviewed the papers in front of him, they never knew what kind of a mood he would be in or whom he had decided to target. Alcohol was always served while they worked. “A clipboard was passed around,” Richard Deihl remembers, “and we would mark our drinks and the waiter would go out and get them.”
Ahmanson sometimes “laid a bear trap” for his managers. He studied some element of a manager's operations ahead of time and then would quiz him in detail, feigning innocence at first and then moving in with greater detail until the manager felt he was being interrogated. Sometimes, if someone rebelled or crumbled under the interrogation, Ahmanson would call Robert DeKruif or Bill Ahmanson to have the individual fired.
Ahmanson also communicated his values in these meetings. He expected loyalty and absolute attention to the competitive environment. Once, when one of his managers gave a speech at the annual meeting of the California Savings and Loan League, Ahmanson asked about it. With some measure of pride, the manager began to talk about the content of his speech. “Now let me make sure I understand,” Ahmanson said. “These people are in the savings and loan business, the same business we're in.” At that moment, according to Richard Deihl, the manager's expression began to change as he realized he'd stepped into a terrible trap. “You mean you spent time telling our competitors how we do business?” As the man's head hunglower and lower, Howard kept driving the point home. “He'd drive it through your heart,” Deihl remembers. “He had a mean streak. On the other hand, he could make you feel so damn important.”47
In many ways, the mean streak derived from Ahmanson's continuing need to feel like he was the most important person in the room, because in reality, he was a master delegator. Asked why his employees stayed loyal, Howard told a reporter in 1967: “They'd rather work for me because I don't get in their hair. They see me only if they come over to the house. I won't override an executive—even if he's wrong. But I may have a discussion with him later. You can't delegate authority with a string on it.”48
Board meetings were also held at Ahmanson's house, but these events were largely social occasions, since the only real stockholder was Howard. The business meeting would be short and perfunctory. By the time the meeting was over, the coals on the built-in barbecue on the patio were glowing red and waiters were serving a fresh round of drinks.
Despite this socializing, Ahmanson and Home Savings remained in the vanguard of change with ever more ambitious projects. Yet at other times, the man and the company seemed blindsided by the cacophony of voices in city and county meeting rooms determined to disrupt the comfortable relationships between policy makers and private interests in the managed economy. As the policy environment began to shift away from the favorable framework that had allowed him to build his financial empire, Ahmanson was resolved that if he could not challenge the new generation of policy makers in their offices and hearing rooms, he would do so in the marketplace.