Building Home. Eric John Abrahamson
churches, Hoover continued, the nation's ideals and character were formed. They were part of the promise of America, “and those promises must be fulfilled.”25 Roosevelt echoed this ideology of home ownership. As many Americans worried about whether they could keep a roof over their heads, he asserted that “a nation of homeowners, of people who own a real share in their own land, is unconquerable.”26 Home mortgages, he said, were the “backbone of the American financial system.”27
Unfortunately for Hoover, the country, and America's home owners, the crisis grew worse. Many thrifts failed to take advantage of their new ability to borrow from the FHLB and refused to refinance troubled home loans. Real estate agents in California were furious. Hayden Jones, the president of the California Real Estate Association, blasted the thrift industry for lobbying for the creation of the bank and then failing to use it. “They are not keeping faith with the citizens of their communities,” he said.28 Herbert Hoover undoubtedly agreed.
In November, Hoover was overwhelmingly defeated by Franklin Roosevelt. During the four-month interregnum between the election and Roosevelt's inauguration, Hoover continued to advocate banking reform, urging Congress to take action in his December State of the Union address. He especially wanted to federalize the banking system and override state regulations that promoted the proliferation of small and weak local banks, but Roosevelt refused to cooperate.29
The nation's economy crumpled. Bank failures reached unprecedented levels. By 1933, more than nine thousand banks had collapsed since the stock market crash.30 Trading on Wall Street slowed to a trickle as the number of investment and brokerage firms that had been forced out of business by the crisis rose to two thousand.31 Meanwhile, unemployment skyrocketed to 25 percent. Farm foreclosures in the Midwest grew so dire that Iowa farmers banded together to prevent foreclosure auctions. In Howard Ahmanson's home state of Nebraska, thousands of singing and shouting farmers marched on the legislature demanding an end to foreclosures and evictions.32 A rebellion against the entire credit system seemed to be in the offing.
For home owners the picture was also bleak. According to the federal government, 43 percent of all first mortgages were in default. On average, borrowers were fifteen months behind in their payments. Lenders were foreclosing at a rate of twenty-four thousand homes a month. Even this rate was held down by the fact that many lenders, already “suffocated with foreclosed property,” were reluctant to take action against delinquent borrowers because it would mean they would have to book a loss on their own shaky balance sheets.33
In his inaugural address on March 4, Roosevelt tried to reassure the nation: “The only thing we have to fear is fear itself.” The calamity of the Depression did not reflect any inherent flaw in the people's character or America's productive potential, nor did it evidence any inherent weakness in the system of government. The crisis, he said, should be laid at the feet of the money changers. “The rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence.” The money changers “have admitted their failure and abdicated,” he said. Fortunately, they had been driven from “the high seats in the temple of our civilization,” their practices “indicted in the court of public opinion, rejected by the hearts and minds of men.” In the collective effort to restore the nation's economic health, he called for “safeguards against a return of the evils of this old order: there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money, and there must be provision for an adequate but sound currency.”34
Roosevelt made it clear that he would act. In the hundred days that followed, he and his administration pushed for sweeping reforms that included strong federal regulation of the financial system, with various financial services divided from one another. The Banking Act of 1933, sponsored by Senators Carter Glass and Henry Steagall, separated investment banking from commercial banking to protect deposits from speculators. The Home Owners Loan Act established federally chartered savings and loans that could only collect savings and make loans for homes.35
The following year, Congress created the Federal Housing Administration (FHA) and empowered that agency to provide mortgage lenders with insurance against default on loans that met FHA standards. To encourage savers to deposit their money with savings and loans, the government guaranteed the safety of these funds by creating the Federal Savings and Loan Insurance Corporation (FSLIC) in 1934.36 State-chartered as well as federally chartered thrifts were eligible for this deposit insurance. With Roosevelt's encouragement, Congress also created the Federal National Mortgage Association (later known as Fannie Mae) to promote the development of a secondary market for home loans.37 In theory, a government-sponsored secondary market made it easier for banks and savings and loans to sell long-term mortgages for cash and a quick profit. With this liquidity, they would be able to offer new loans to their customers. An amendment to the National Housing Act that year also eased credit terms for newly constructed small homes.
Overall, the establishment and expansion of federal housing programs under Hoover and Roosevelt reflected bipartisan support for a federal role in promoting home ownership in America through the institution of the savings and loan. Within the new financial system, stability and security for savers, lenders, and home buyers was the overriding goal.38
Many bankers, insurance company presidents, stock brokers, mortgage dealers, and corporate leaders complained about the new managed economy that emerged from the crisis of the Depression, but they gradually adapted to the new regime. Historians Louis Galambos and Joseph Pratt have characterized the new relationship between business and government as a “corporate commonwealth” that served business and the public alike by fostering greater economic stability.39
With regard to savings and loans, the new laws reflected a secondary theme in much of the New Deal's lawmaking. Suspicious of private capital, Congress strengthened the competitive hand of the nation's producer and consumer cooperative and mutual organizations. Savings and loans were not the only institutions to benefit from this new regime. Agricultural cooperatives received exemptions from antitrust rules, credit unions were given tax exemptions, rural electric cooperatives were empowered to deploy public capital to build electrical grids. In the grand spirit of American cooperation, savings and loans would make home ownership possible for millions of Americans.
Ironically, the government's effort to support building and loans as cooperatives created a framework in which these institutions could become enormously profitable. In the middle of the Great Depression, that wasn't obvious to many people. In fact, many state-chartered savings and loans in California took out federal charters and became mutuals under the umbrella of the new federal laws. But after World War II, when demand for housing skyrocketed, a handful of entrepreneurs would amass extraordinary wealth within this system. No one benefited more than Howard Ahmanson.
AHMANSON’S PERSPECTIVE ON REFORM
As an undertaker at a plague, Howard Ahmanson did not sit around the kitchen table with home owners struggling to keep up with their mortgage payments as a doctor might attend a patient at her bedside. He listened to building and loan managers, mortgage lenders, and bankers talk about their efforts to minister to the growing ranks of hopelessly indebted families, but he had no responsibility for trying to save the patient. He arrived after the foreclosure, like the undertaker dressing the lifeless body, to offer lenders insurance on the empty house. Undoubtedly he had thoughts on the plague, but his views have not survived.
Some sense of his perspective on the role of government is revealed in a speech he gave in 1933 after joining the newly formed Economic Round Table of Los Angeles. A group of leading businessmen and academics organized to discuss the issues of the day, the Round Table represented the emerging power elite of a new generation in Los Angeles. Over breakfast at the University Club, men like “Bud” Haldeman, John McCone, Reese Taylor, Preston Hotchkiss, Emerson Spear, and Frederick Warren Williamson shaped their perspectives on the future of the region's growth and the policies and leadership that would realize their vision.40
Howard's speech was titled “Buyer Beware,” and it focused on the need to strengthen the Pure Food and Drug Act