Conclusion

HOME OWNERS HAD TAKEN THE PLACE of yeoman farmers as the virtuous citizens of America's increasingly urban democracy by the early 1960s. The rhetoric of the building and loan industry of the late nineteenth century had been translated into government policies. As the yeoman farmer rose early in the morning to tend the fields and the livestock to put food on his family's table, the suburban home owner, as Walter Russell Mead has pointed out, got in his car and went to work to pay the mortgage on his house. The mortgage and property taxes forced the citizen and taxpayer to weigh the value of government services against the cost to his pocketbook, and these considerations kept him or her engaged in the processes of governance.1

In the postwar era, these federal and state policies that favored home ownership framed the market for home loans. Undoubtedly, the historical moment for home buyers, builders, lenders, and policy makers in Los Angeles and across the country was extraordinary. Unprecedented and widespread prosperity and the mass production of homes and loans contributed substantially to the increase in home ownership. To be sure, not everyone realized the dream. Systemic racism, sexism, and poverty prevented many people from owning a home. But the partnership between government and private enterprise at the heart of the managed economy had incorporated huge numbers of Americans into the property-owning ideal at the heart of the nation's democracy.

In the years that followed Howard Ahmanson's death, the challenges to the savings and loan industry were greater. The pent-up middle-class demand created by depression and war had been satisfied. Increasingly inflation, declining productivity, and global competition threatened the basis of American prosperity. To continue to raise the rate of home ownership, builders and lenders needed to innovate to reach further down the economic ladder. Policy makers created new subsidies to encourage these innovations and in some cases make them possible. Along the way, many of these innovations undermined the institutional basis for the savings and loan.

Increasingly, savings and loans struggled with a fundamental structural problem. They depended on two kinds of customers: savers and borrowers. Savers wanted access to their cash on demand. Borrowers wanted long-term mortgages. The creation of the Federal Home Loan Bank had provided a way for thrifts to borrow when the balance between savers and borrowers tipped too far one way or another, but the FHLB was not designed to be the fundamental source of mortgage capital. As savings and loans struggled to compete for deposits, regulators and industry leaders clung to the old regime. Widespread failure to adapt is not unusual, but then thrifts were hit from another direction.

A second wave of financial innovations affected the lending side of the savings and loan concept. The sellers of mortgage-backed securities bypassed the traditional savings and loan depositor and went straight to Wall Street to raise mortgage capital. Low-overhead mortgage brokers operating out of small offices in suburban strip malls didn't need the expensive infrastructure of Millard Sheets buildings and faux vault doors to attract capital. Borrowers cared more about low mortgage rates. In Southern California in the 1980s Angelo Mozilo, the co-founder of Countrywide Home Loans, represented the most successful entrepreneur of the new regime.

With increased competition for savers and borrowers, savings and loans struggled to redefine their role in the financial system. They joined with other financial services industries to lobby for an end to their historic place in the compartmentalized system of financial services. Some survived and thrived. Others collapsed. The growing disconnect between the regulatory regime and the market misaligned incentives and created fertile opportunities for bad behavior. In the aftermath of the federal bailout and crisis, the institution of the savings and loan became stigmatized. No longer associated with Jimmy Stewart's George Bailey and It's a Wonderful Life, the trade association known since Seymour Dexter's days as the U.S. League of Savings and Loans became America's Community Bankers. The Federal Home Loan Bank was renamed the Office of Thrift Supervision.

Home survived and thrived despite the turmoil, though it shortened its name to Home Savings of America. While other thrifts sought to succeed by taking greater risks and entering new markets, Richard Deihl, like Ahmanson, was an innovator, but he also maintained Home's conservative lending practices. He was so successful at managing operations that Time suggested Howard Ahmanson was still running the company from the grave. As regulators opened the door for interstate expansion, Deihl moved aggressively into twenty states. The company's assets grew from $2.5 billion at the time of Ahmanson's death to $54 billion in 1994. By then, Home was lending more than $1 billion a month to home buyers across the country.2 Deihl retired at the mandatory age of sixty-five. Soon afterwards, Home was swept up in a wave of consolidations that anticipated the repeal of Glass-Steagall and was sold to Washington Mutual in 1998. The deal helped create one of the largest banks in the country.

In 2008, the real estate bubble that helped fuel the growth of Washington Mutual burst. Overwhelmed by falling asset values, Washington Mutual was acquired by JPMorgan Chase. Journalists, politicians, and academics searched for the cause of the financial disaster. Some blamed the Federal Reserve for monetary policies that had fueled asset inflation. Others argued that federal policy makers, in their effort to extend home ownership to lower-income Americans, had pressured banks to weaken their underwriting standards. The rating agencies were criticized for failing to recognize the weaknesses of complicated mortgage-backed securities tied to subprime mortgages. Others asserted that the success of “the quants,” highly mathematical approaches to investment and risk analysis, had lulled Wall Street into a belief that the risks in lending, no matter what the borrower's credit profile, had been eliminated by the creation of credit default swaps and collateralized debt obligations. In their elaborate algorithms, however, the quants had ignored the kinds of risks that Howard Ahmanson's insurance executive father had understood—the tornado that appeared suddenly on a cloudless spring day.

In the financial crisis that followed, home values fell across the country for the first time since the Depression. Widespread foreclosures in some parts of the country, including the more recently developed suburbs of the Los Angeles megalopolis, recalled the days when Howard Ahmanson had gotten rich as the undertaker at a plague. For the first time in generations, many people questioned the essential virtue and wisdom of buying a home.

Policy makers confronted the reality that the mortgage market had changed dramatically. The ethos of home ownership was so deeply embedded in the American psyche that most people still believed in the American Dream, and so did the politicians who represented them, but there was no clear consensus, as there had been in the 1930s, on government's role in supporting private efforts to sustain this American ideal.

Howard Ahmanson, Howard Edgerton, and Charlie Fletcher had played a pivotal role in the transformation of the local mutual savings and loan into a highly profitable corporate entity. Despite the success of their endeavors, they were always profoundly influenced by the history of their industry and the legacies of the Great Depression and World War II on their generation. They leveraged the opportunities that government had created for home owners to reap rich rewards for themselves, but they understood their relationship with government to be a kind of partnership where each side knew and understood its role.

Ahmanson did not agree with every law or regulation that was adopted in Sacramento or Washington. Nor did he gladly hand over his wealth to the State of California or the federal treasury. Risking his own capital over and over during the course of his career, he deserved to think of himself as an entrepreneur—albeit the kind of political entrepreneur who succeeds by fulfilling the ambitions of the nation as represented by his elected officials.

Ahmanson died just as this grand partnership between business and government was beginning to break down. A series of cultural, political, and economic forces combined to recharacterize the managed economy as an era in which the state was corrupted by big business and government ultimately overreached in its efforts to make the American Dream possible for everyone. As men in uniform in the World War II era, Ahmanson, Edgerton, and Fletcher were as cynical as any other GI about the wisdom of the bureaucracy, but they never doubted the goal. A democratic government working hand in hand with the free enterprise system could realize national dreams as well as private ambitions.