Howard Ahmanson reflected many of the characteristics of the government entrepreneur in the era of the managed economy. After purchasing Home Building and Loan in 1947 (later renamed Home Savings and Loan and then just Home Savings), he understood and embraced the government's policy goals, particularly the central effort to promote home ownership. He cultivated relationships with legislators and regulators to protect the policy-driven business environment that made him and his companies successful. He invested part of his profits back into the community to reinforce the civic qualities of his entrepreneurial endeavors.
SHAPING POSTWAR LOS ANGELES
The success of Home Savings reflected the remarkable achievements of the savings and loan industry in Southern California. During the era of the managed economy, when savings and loans made the majority of loans to home owners throughout the country, thrifts in Southern California dominated the mortgage market far more than they did in any other region.19
The extraordinary success of the savings and loan industry in Los Angeles was anchored in a number of factors: the city's explosive growth in the postwar era, the underlying opportunities created by government programs for returning GIs and middle-income families, and a cadre of industry leaders who capitalized on these opportunities to propel their businesses. Through its real estate development entities and its lending practices, Home Savings and Loan and other thrifts in Southern California played a leading role in the postwar suburban explosion that made Los Angeles the quintessential postmodern city.
With their personal fortunes and egos so intertwined with the city's development, it's not surprising that Ahmanson, Edgerton, and other savings and loan executives exerted an important influence on the cultural development of Los Angeles as well. Through the unique art and architecture of its branches, Home Savings and Loan reflected a specifically Southern California perspective on the American dream. Through his philanthropy, Howard Ahmanson contributed to Los Angeles's transformation from a cultural backwater to a world-class city for the arts.
THE END OF THE MANAGED ECONOMY AND THE CONSENSUS SOCIETY
From the Great Depression to the Great Society, a majority of the nation's citizens and its leaders believed in government's efficacy and the idea of the managed economy. In 1964, for example, three out of four Americans agreed that the government would “do what's right” always or most of the time. Nearly two-thirds (64 percent) said that the government was run for the benefit of all. As the memory of the radio broadcast on December 7, 1941, faded, however, public trust and confidence in government declined dramatically. Civil rights and antiwar demonstrations in the mid-1960s reflected growing social unrest. Two years after Howard Ahmanson's death in 1968, barely half of the country was confident that the government would do the right thing and six out of ten people believed that the government primarily benefited special interests.20
The decline in public confidence in government was mirrored by a growing intellectual attack on the idea of the managed economy. Economists at the University of Chicago and other institutions highlighted inefficiencies in the regulatory system. These theorists, along with consumer advocates, charged that regulators were too often “captured” by the industries they were supposed to regulate.21 As a result, these agencies reached decisions outside of the core democratic framework embedded in the Constitution.22 Meanwhile, business leaders chafed at rules that prevented them from pursuing opportunities tied to their core assets or skill sets. Their voices added to a rising tide of popular antigovernment sentiment as the consensus forged by the war years faded in the nation's collective memory. In this political economy, a sweeping movement toward deregulation, or what one scholar has called “contrived competition,” reshaped the landscape of many industries, including mortgage lending and financial services.23
The high tide of the deregulatory movement came in the late 1990s with the repeal of major elements of financial regulation that had been the centerpiece of New Deal reforms in the 1930s. Massive consolidation in financial services followed, with commercial and investment banks merging with insurance companies and brokerage firms. In 1998, long after Ahmanson's death, Home Savings was sold to Washington Mutual, and the combined entity instantly became one of the largest banks in the country. Washington Mutual's success in this new environment was short-lived. When the housing bubble burst in 2007, the value of mortgage-backed securities plunged. Weakened by these collapsing asset values, in 2008 the company was acquired by JPMorgan Chase in a fire sale that brought a sad end to an institution that had once epitomized Southern California success and stability in the era of the managed economy.
The collapse of Washington Mutual and the mortgage market challenged fundamental elements of both the managed economy and deregulation. Conservatives blamed policy makers, insisting that the drive to extend home ownership to more and more lower-income Americans had gone beyond the bounds of prudence and reason.24 Others suggested that elaborate new strategies for risk analysis had encouraged overconfidence on Wall Street.25 Demand for mortgage-backed securities grew so large that it led to dramatic declines in credit standards as lenders practically threw money at borrowers, knowing that mortgages could be quickly securitized and sold to investors. Much of this problem could be tied to the transformation of mortgage lending brought on by securitization and deregulation. As finger-pointing began and calls for a new regulatory framework in financial services grew, the history of the managed economy and the mortgage market in the postwar era seemed strangely forgotten.26
OVERVIEW
In the context of the mortgage market's collapse and of widespread disenchantment with the pattern of deregulation over the past three decades, this book offers a look back at a different era. It weaves together three stories. It is one part corporate and industrial history, using the evolution of mortgage finance as a way to understand larger dynamics in the nation's political economy. It is another part urban history, since the extraordinary success of the savings and loan business in Los Angeles reflects the cultural and economic history of Southern California. Finally, it is a personal story, a biography of one of the nation's most successful entrepreneurs of the managed economy—Howard Fieldstad Ahmanson.
Unlike tycoons of an earlier era, Ahmanson evidenced neither inventive genius nor the ability or desire to oversee a great technological enterprise. He did not control some vast infrastructure like a railroad or an electrical utility. Nor did he build his wealth by pulling the financial levers that made possible these great corporate endeavors. Instead, he made a fortune by financing the middle-class American dream.
Perceived as a risk taker by outside observers, Ahmanson was actually extremely careful. He studied problems—in business and on the high seas—and devoted himself to limiting risk. In his initial field of endeavor, insurance, he found the safest of all markets and profited by minimizing losses. In lending, he focused exclusively on single-family homes, believing that the American dream of home ownership was so powerful that it offered the lender an extra margin of safety. In a racist era when even the federal government officially countenanced segregation, he avoided neighborhoods of color, preferring to lend to the aspiring white, middle-class home buyers that he knew and understood.27 He succeeded by sticking to the basics as he understood them: sound lending, low-cost operations, and economies of scope and scale.
In an era famous for faceless corporate control and organization men, Ahmanson evidenced numerous contradictions. He refused to sell stock in his various companies, maintaining total personal control. Yet he was also a delegator—assembling a close circle of lieutenants who managed the company's day-to-day operations according to his vision so that he could work from home and take a dip in the pool whenever he felt like it. Though he clearly wanted the limelight, he was reluctant to be inconvenienced by public attention. Despite owning the largest and most successful savings and loan in the country, he had little to do with his industry's trade associations. With his great wealth, he contributed substantially to the expansion of the cultural institutions in Los Angeles and was pleased