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TWO

Among the Lotus Eaters

ARRIVING IN LOS ANGELES in the fall of 1925, Howard Ahmanson discovered a city like Omaha. It was full of progressive, middle-class midwesterners, who had come after selling their farms and businesses. In many ways they had recreated a community they knew and understood, with “state societies” like the Iowa and the Nebraska clubs. They called themselves “Hawkeyes” or “Cornhuskers.” They socialized with others from their home states and attended enormous annual picnics celebrating the history and culture of the Midwest.

Everyone seemed to be a recent transplant. Nine out of ten residents had been in Los Angeles less than fifteen years.¹ Without a rigid social structure—at least for white native-born Americans—the city offered opportunity to the entrepreneur and a boosterish political culture that blended public purpose with private gain and a social setting suited to Howard's ambition.²

Writer Carey McWilliams, who arrived in Los Angeles from Colorado with his mother and brother three years before Ahmanson, became convinced that these midwesterners never really adjusted to life in Southern California. Just as European immigrants in Eastern cities expressed nostalgia for the Old World and clung to tight-knit communities of immigrants in the New, midwesterners in Los Angeles lived within their transplanted communities at the edge of the Pacific.³

As he oriented himself, Howard discovered a community bursting with its own sense of destiny. In quarter-page newspaper advertisements, the Department of Water and Power, which was “owned by the citizens of Los Angeles,” extolled the vision of an earlier generation in building the Los Angeles Aqueduct from the Owens River. The ads touted the promise of Boulder Dam on the Colorado River, which would store more water than all the other dams in the world combined and would ensure water and power for the city “for all times.”⁴ The business section was devoted to news of the booming oil industry. Meanwhile, the flood of newcomers fueled an ever-expanding real estate market. As the Los Angeles Times pointed out, the city was on track to triple its population in a single decade to become the largest city in the West and the fifth-largest city in the country. “More people means that many square miles of new residence districts will spring up—that existing districts must be built more compactly—that many business sections now unknown will come into being—that many a sparsely settled country road will become a city thoroughfare.”⁵

Like Omaha, Los Angeles advertised its commercial success and touted its embrace of the newest technologies and ways of living. The city had more automobiles per capita than any metropolis in the country; Omaha ranked second.⁶ Omaha had more telephones per capita—284 for every 1,000 residents—than any other city, but Pasadena ranked second.⁷ In the arena of home ownership, Omaha led Los Angeles by a substantial margin—48.4 percent compared to 34.7 percent—despite L.A.’s famous suburban expansion.⁸ The two cities also shared a strong commercial link. Oranges and lemons grown in Southern California traveled by rail to Omaha, the headquarters of the Pacific Fruit Express, and were reshipped east to be sold on the streets of New York, Philadelphia, and Boston.⁹

Tourists, retirees, and relatively affluent citrus growers had fueled various boom and bust cycles of real estate speculation and economic growth in Los Angeles. Under the influence of a civic and commercial elite, the city had expanded its public infrastructure for water, power, and transportation ahead of demand, using these investments to attract industry. A vast system of streetcar lines had promoted suburban development of communities that seemed as familiar to Howard as Dundee.¹⁰

At the time of Howard's arrival, industrial growth in Los Angeles had reached the takeoff point. Over the next two years, the city's manufacturing sector expanded more quickly than that of any city in the nation except Flint, Michigan. By 1927, the dollar value of manufacturing output trailed only New York, Flint, and Milwaukee.¹¹ Working together, business leaders and local officials successfully promoted the region's development for public benefit and private gain.¹²

The business networks that fueled L.A.’s growth were often rooted in mid-western communities like Omaha. White-collar, native-born, Anglo-Saxon “men on the make” crowded the sidewalks of Spring Street downtown. According to historian Clark Davis, they were “largely a self-selected class of people willing to relocate far away in order to reap the region's many rewards.”¹³ They changed jobs frequently in search of opportunity, creating a system of loose friendships and business relationships that sparked innovation and growth. For young men, many of these relationships began while they were students at the region's still emerging universities.

FOOTBALL AND COMMERCE

Howard Ahmanson's enrollment at the University of Southern California (USC) resulted from a casual miscommunication. Newly arrived in the City of Angels in October 1925, he hailed a cab and instructed the driver to take him to the University of California's Southern Branch (later renamed UCLA). When the driver dropped him at USC, Ahmanson, none the wiser, found the registrar's office and enrolled. The mistake would eventually be worth millions to the university.¹⁴

USC catered to the aspirations of L.A.’s white Anglo-Saxon elite in the mid-1920s. Its ambitious president, Rufus Bernhard von KleinSmid, recognized that the city needed a professional elite to run its businesses, courts, and government. He expanded the two-year-old College of Commerce and Business Administration, opened a new law school building in 1925, launched a college of engineering, and in 1929 created the nation's second school of public administration. These changes kindled rapid growth in enrollments. The school became a hotbed for the emerging view of government championed by Progressives and technocrats. To promote alumni loyalty and giving, KleinSmid made football a central part of the USC experience.¹⁵ The team became a national powerhouse. Ahmanson became a lifelong fan.

Howard's enrollment coincided with the university's move to expand the business program. Adding new requirements and classes, the university offered a full four-year degree. A record-setting class of 485 students, including 45 women, fostered a special camaraderie and sense of purpose among the students and faculty.¹⁶ Among his classmates, Ahmanson found friends, including the indefatigable Howard Edgerton, who wrote for the school newspaper and was a class officer, and Joe Crail, who would later create the largest savings and loan in Los Angeles—until Howard Ahmanson entered the business.

In the faculty, Ahmanson also discovered a brilliant mentor and trusted advisor. Thurston Ross was a Signal Corps veteran who had served as a pilot in World War I. An engineer by instinct, he helped develop the timing technology that allowed fighter pilots to fire machine-gun bullets through the gaps between the spinning blades of their propellers. After the war, Ross moved to Los Angeles and earned a master's and a doctorate at USC in economics. Asked to join the faculty, he created the university's first course in real estate appraisal.¹⁷ An efficiency expert, Ross was an advocate for the professionalization of management. In short, he was the kind of social engineer that Herbert Hoover and other Progressives liked.¹⁸

Ross and Ahmanson developed a mutual admiration. According to Ross, Ahmanson dazzled the faculty “with his terrific physical stamina and his brains.” “He worked like a Trojan, taking twice as many courses as the rules allowed” and graduating ahead of schedule, in 1927.¹⁹

When he first arrived at USC, the university had no housing available, so Howard joined a fraternity at UCLA.²⁰ There he met Gould Eddy, a tall, thin fraternity brother who shared exactly the same birthday and year. They became good friends and soon business colleagues. He also met Dorothy “Dottie” Johnston Grannis, a “yell girl” or cheerleader and English literature major.

A HOLLYWOOD ROMANCE

Dottie personified the Jazz Age in Los Angeles. With bright, penetrating brown eyes, finger-wave curled blonde hair, and a diminutive no-pound figure, she vibrated with energy. The daughter of Laura “Johnnie” Johnston and Frank Grannis, a real estate developer and opera devotee, Dottie was president of her class at the Hollywood School. After graduating in 1924, she was admitted to the University of California, Southern Branch.²¹ Over the next six years, she attended the university off and on. Meanwhile, she worked as a social secretary to the young but enormously ambitious Paramount executive David O. Selznick.²²

It's not clear how or when Howard and Dottie met, but by the time he graduated in 1927, they were already in love. The week after graduation, playing tourist in San Diego, he dispatched what he described as his “first written epistle.” It was a chatty note, full of the confidences of young lovers. He talked about visiting scenic points and Southern California missions but complained about being too far from her. Already committed to a postgraduation trip with his mother to Omaha, he dreaded the excursion because it would take him farther away from Dottie.²³

Howard's mother was delighted with his new girlfriend. As he reported from Omaha that summer, “The family would keep you in my mind if I didn't myself. . . . You have their unqualified endorsement from your picture,” which was placed on the mantel of the family home on California Street.²⁴

Howard's letters to Dottie that summer and during the course of his travels for family and business over the next several years evidence the family dynamic that influenced his entrepreneurial career as well as his continuing affection for his hometown. He noted that Florence was wrapped up in Hayden and Aimee's two children: William, who was nearly two, and Robert, who was just five months old. According to Howard, they were “probably the two ‘swellest’ boys in the United States, if not the world.”²⁵ Back among family and old friends, he revealed his continuing attachment to the Midwest and Omaha. It was good “to know the butcher and baker and candlestick maker and all that,” he wrote to Dottie. “What a change from Los Angeles. It does seem after all like home.” In Omaha, he socialized with girls from his past and visited his fraternity brothers in Lincoln. In his letters to Dottie, he described these outings as obligations to old friends. Over and over he wrote that she was the only girl for him.

Dottie could understand Howard's Omaha nightlife, even if it made her nervous about his loyalty. She was high-strung, needed the attention of men, and craved the banter and drink of society to avoid what Howard would call “the gremlins” in her head. While he was away, she kept up an active social life, going to parties and nightclubs with friends from college and planning charity events with her sorority sisters. Yet despite the social distractions, Howard and Dottie increasingly depended on each other.

Howard also kept her informed of his efforts to redeem his father's dream. “Whenever he came to call,” she said, “the first thing he'd tell me was that he'd picked up a couple more shares of National American.”²⁶

AN IDEA AS SIMPLE AS A SAFETY PIN

The memory of how his family had been treated following his father's death energized Ahmanson's entrepreneurial initiatives, yet it did not turn him against the company his father had founded and lost. Howard had begun selling fire insurance for National American while he was still at USC. Despite his youth, he knew the business and the institutional players. He knew that big insurance companies on the East Coast and in Britain were sitting on great piles of money. He believed he could persuade these companies to make him their agent.

Some in the industry warned that he was swimming against the tide. Seeking greater operational control over their far-flung businesses, many large fire insurance companies were replacing independent general agents with salaried managers. In January 1926, Pacific Underwriter and Banker predicted that general agents would soon disappear.²⁷

The youthful Ahmanson ignored these warnings. He launched H. F. Ahmanson & Company as a managing general insurance agency in 1927, while he was still enrolled at USC. For working capital, he cashed a check for $588.21 that he had received from selling several insurance policies.²⁸ Renting an office downtown at 315 West Ninth Street, in the Pacific National Bank building, he hired a secretary and recruited his fraternity brother Gould Eddy to join him.²⁹ After receiving permission from the State of California, he issued one thousand shares of stock in the company. With his father in mind, he kept all of the shares to himself.

In Omaha after graduation, Howard tried to convince National American's two senior executives, James Foster and Roy Wilcox, to dump their existing agency and name him as the company's exclusive agent in Los Angeles.³⁰ Wilcox supported him, but Foster was reticent, no doubt disinclined to promote the precocious, if not pushy, twenty-one-year-old spoiled son of his former boss. Nevertheless, Howard was confident. He wrote Dottie that he was “on my way to putting across my ‘big deal.’” Before he left Omaha, National American had agreed to make him the company's general agent in California.

NEVER SIT DOWN

With the National American logo on his stationery, Ahmanson began traveling to San Francisco, San Diego, and other California cities to build his clientele. He went to New York and Massachusetts to establish business relationships with big East Coast insurance companies. His brightest prospects were the brokers who arranged mortgage loans on behalf of the life insurance companies. Howard liked working with these agents. They were the most sophisticated risk managers, so they minimized his own risks of insuring a property.³¹

Nevertheless, the first couple of years in business were challenging. He was spending his own capital, and the volume of business didn't keep pace with expenses. Agents for the old-line fire insurance companies in San Francisco characterized him as a maverick.³² Though he was able to get in the door with the big mortgage lenders, many were already locked into business relationships with other underwriters. As a newcomer to Los Angeles, he tried to recreate the social networks that his father had exploited in Omaha. He joined the Junior Division of the Los Angeles Chamber of Commerce and got himself nominated to the elite and sumptuous downtown Jonathan Club on South Figueroa.³³ But business relationships took time to mature.

He developed a selling strategy. Visit ten potential customers a day. Make sure each is a decision maker, a vice president at least. “When you visit, stand up, never sit down, and never pass the time of day,” he later coached his salesmen. “Always leave them something they can use, and then get out.” Building a relationship was the key to Ahmanson's strategy. He said, “Never ‘point’ a new prospect.” In other words, never make a sales pitch “until you've called on him for at least a year.”³⁴

Ahmanson proved remarkably competent at selling and controlling risk. He reported to National American that premiums earned by his California agency in the first six months of 1929 were double what they had been for the same period in 1928. More astonishing to his former mentors in Omaha, his loss ratio was barely 2 percent in 1928 and 3 percent in 1929, far below the industry average. These numbers suggested that the policies he wrote were far more profitable for the underwriter, as well as the insurance agency.³⁵

Ahmanson also made mistakes. Realizing that his youth was a disadvantage in working with older, more experienced insurance agents, Howard hired a veteran California insurance man in the fall of 1927 to manage his network of agents. Fred Garrigue had worked in insurance in Chicago and then moved to San Francisco to be a fire insurance adjustor. After serving in the Royal Canadian Air Force in World War I, he returned to insurance.³⁶ He worked for Ahmanson for only a short time, but four years later, after he and Howard had parted ways, Garrigue was arrested as the mastermind of a fire and earthquake insurance fraud ring engaged in attempted murder and grand theft.³⁷ Fortunately, H. F. Ahmanson & Co. was not drawn into the conspiracy.

The close call with Garrigue underscored Ahmanson's frustration with his efforts to build his company via head-to-head competition in well-established insurance markets. Searching for greater competitive advantage, Howard focused on residential property insurance. This market was “chicken feed” to most insurance agents. Howard believed he could make it profitable if he kept his expenses low.

Howard also came up with an idea that he later said was “as simple as a safety pin, only no one had ever thought of it before.”³⁸ When lenders foreclosed on a property in the late 1920s, the fire insurance became null and void because insurance companies feared empty houses would become targets for arson. The lenders, however, were still exposed to the risk of fire until they could find a new buyer. Ahmanson believed the insurance companies’ fears were unfounded. He reasoned that lenders, anxious to sell these foreclosed properties, would actually take good care of the buildings and that potential insurance losses would be minimal. He proposed to offer a new product—insurance on foreclosed properties.

To sell this new insurance policy, Ahmanson looked for a partner. Howard went to see Morgan Adams, the president of Mortgage Guarantee, which was the largest mortgage lender in Los Angeles. Curious about both the plan and the salesman's character, Adams said: “You seem like a bright young man. Who are you?"³⁹

Howard explained that his father was president of National American Fire Insurance in Omaha. He may have left the impression that Will was still alive and in that position. Or he may have emphasized the substantial equity the family held in the business, his brother Hayden's role as an executive, or Howard's own experience in fire insurance dating back to the age of thirteen. In any case, Adams was impressed.

He asked Howard if he could find underwriting for his proposed venture. Howard boasted, “Of course.”⁴⁰

Actually, he had no idea if the men who had taken control of National American would go along with this novel concept. Alternatively, he could approach one of the big East Coast insurance firms. Still concerned that his youth was a problem in face-to-face negotiations, he turned to the Northern Assurance Company of England. Conducting the deal by mail, he convinced the Brits and at least one other company to back him. The companies made him their general agent for Southern California and offered him the usual 15 percent commission on each premium, plus 25 percent of the company's profits on any policies he wrote.⁴¹ For Howard, this structure turned out to be lucrative. With a greater volume of business, his loss ratio rose to 8 percent, but this was still far below the industry average of 40 to 45 percent.⁴² Since he shared in the profits on policies written with low loss ratios, he was soon making good money for a twenty-three-year-old entrepreneur.

A year after his initial conversation with Morgan Adams, Howard was summoned back to Mortgage Guarantee. Aware of Howard's success and seeking to bring his business in house, Adams offered Howard a job and a salary of $10,000 a year ($135,000 in 2011 dollars), “which is a lot of money for someone your age.” Howard replied, “Go jump in the lake.” Offended by Ahmanson's impertinence, Adams canceled all of Mortgage Guarantee's policies with H.F. Ahmanson & Co. Undeterred, Howard borrowed $15,000 from a banker friend, made deals with four other mortgage lenders, and was soon back in business.⁴³

Ahmanson continued to innovate in ways that threatened his more established competitors. Most fire insurance companies wrote policies for residential and commercial property. Commercial property had a higher risk, but it was also more competitive, so insurers subsidized discounts for businesses by charging excessive fees to home owners. Ahmanson focused exclusively on residential policies and cut his rates accordingly. Competitors complained that this was “unfair” competition, but they soon followed suit. One prominent Los Angeles insurance agent later quipped, “Residential premiums in this area have gone down by as much as 45 percent since that joker came over the ridge.”⁴⁴

Howard recognized another unfilled niche in the insurance market in 1933 when a 6.4 magnitude earthquake slammed the Long Beach area, killing 115 people and causing forty million dollars’ worth of property damage. Many mortgage lenders were forced to take a loss when borrowers failed to pay back loans on properties without earthquake insurance. To meet this market need, Howard developed a special “single-interest” policy defined to cover only the lender if a mortgaged property was damaged by earthquake. Cleverly, Howard wrote the policy so that it required the lender to foreclose to activate the insurance. He reasoned that rising land values in the Los Angeles area guaranteed that much of the loss on the structure would be mitigated by the appreciated value of the land. Thus his insurance risk was minimal.⁴⁵

Ahmanson refused to write commercial insurance. He preferred the inherent diversification of risk that came from writing many small policies as opposed to the concentrated risk associated with a major liability for a corporate account. Also, corporations always wanted to negotiate their premiums. Ahmanson didn't like negotiating over prices, whether he was buying or selling. Home buyers weren't in a position to bargain. Ahmanson preferred it that way.⁴⁶

Innovation and self-confidence fueled Ahmanson's success. To impress potential clients and customers, he happily cultivated an image of wealth. He drove a Pierce Arrow automobile and, like his father, dressed in elegant suits. As he traveled around the state to meet with lenders, he would roar into town, slam on the brakes, and come to a stop in a cloud of dust in front of the local bank or building and loan. The manager would look out his plate-glass window and see Ahmanson just getting out of his car. Then Howard would go inside to get the lender's insurance business.⁴⁷

On the road, Ahmanson stayed at the best hotels—the Palace in San Francisco and the Del Monte in Monterey. At Christmas, he sent lavish gifts to his clients. The child of one manager of a savings and loan remembered, “We all sat around the Christmas tree and opened the gift from Howard Ahmanson. It was always the best gift the family ever got. So I knew the name of Howard Ahmanson long before I ever met him.”⁴⁸ Established downtown businessmen like Morgan Adams marveled at Ahmanson's acumen and salesmanship. Ahmanson's son would later say that, like Lyndon Johnson, Howard had the ability to see into the heart of whomever he needed to win over and to manipulate him on the basis of his deepest longings and fears.⁴⁹ Yet he was midwestern enough to use these insights, together with hard work, to satisfy the customer as well as himself. In the years before the start of the Great Depression, his charm and diligence made him successful, and his attention to the world around him made him cautious.⁵⁰ But his “chicken feed” strategy also alerted him to a fundamental transition taking place in the mortgage industry.

THE CHANGING WORLD OF THE BUILDING AND LOAN

Home ownership was on the rise in the 1920s. Across the country, a building boom was under way and potential home owners needed mortgages. To find these loans, many turned to the kind of hometown building and loan immortalized by Jimmy Stewart in It's a Wonderful Life.

As an institution, the building and loan was also rooted in the rise of cooperative financial institutions in Europe and the United States in the late eighteenth and early nineteenth centuries. An increase in wage labor and the concentration of urban populations during the Industrial Revolution created a demand for financial institutions to serve wage earners new to the market economy. Without productive assets of their own, these wage earners needed to save cash to insure themselves against personal disaster or provide for the construction of a home. Commercial banks did not offer general savings accounts for workers.⁵¹ Mutual self-help cooperatives were organized to promote thrift among the working class.⁵²

After the Civil War, in a period of rapid economic expansion, building and loans became increasingly popular in the United States, particularly in capital-poor regions like the Midwest and Far West.⁵³ Most were small and local and run by part-time managers who often had other sources of income. The average institution included about 314 members who owned an average of $303 worth of stock.⁵⁴ Some served only a single neighborhood or a tight-knit ethnic or religious group.

The building and loan represented a revolution in mortgage finance to the working and middle classes. Prior to this time, home buyers who sought financing from institutional lenders generally had to provide at least 50 percent of the cash needed for the transaction and faced a large balloon payment for the remaining principal after only a few years. The building and loan offered members a way to protect their savings, earn interest on their balances, and access mortgage capital.

Lending money for first mortgages on residential property proved to be a remarkably safe investment, and it paid a relatively high return to the investor. Even during the financial crisis of 1893, building and loans enjoyed a low rate of failure. As a result, they became attractive to a variety of local investors, ranging from workers putting aside small savings each week to widows and merchants with capital to invest. Unlike commercial banks, thrifts offered fixed-rate loans with longer terms (up to twelve years) and higher loan-to-value ratios (60 to 75 percent). These institutions gave millions of Americans their first real chance to own a home. By the mid-1890s, they held nearly a quarter of all the residential mortgage debt extended by financial intermediaries in the United States.⁵⁵

The spirit of mutualism and thrift that had characterized the building and loan represented a pragmatic, cooperative solution to the lack of mortgage capital available to the middle class. With success, thrifts also reflected a widespread reaction to the negative aspects of large-scale capitalist enterprise that worried many Americans at the end of the nineteenth century. Cooperatives seemed to be more aligned with the idea of community.⁵⁶

A CORPORATE THREAT

An increasingly integrated national economy, however, posed a series of fundamental threats to the local, mutual ethos of the building and loan. The resolution of these threats would pave the way for a substantial and abiding role for government in the mortgage industry, lead to one of the most important and successful examples of cooperation between business and government in the managed economy, and, in the end, help make Howard Ahmanson rich beyond imagination.

The crisis for the local building and loans began in the 1890s, when a handful of for-profit “national” savings and loans entered the market. These companies believed that by diversifying their lending risk over broad geographies, they could prevent a crisis in one community from jeopardizing the company's health. By being able to look at credit patterns among a larger pool of borrowers, they would also lower their credit risks. By standardizing lending practices and agent-training systems, they would achieve operational efficiencies and diminish the risk that a rogue agent would underwrite a portfolio of bad loans.

Unfortunately for the nationals, in an era when the telegraph still dominated long-distance communication, local associations enjoyed competitive advantages that trumped those that could be generated by a large organization. In an era when credit history was largely by word of mouth, local thrift managers knew which individuals were hardworking, thrifty, and creditworthy. They knew the local economic conditions that might affect the loan's riskiness. And they understood the local politics.⁵⁷ When the national economy suffered in the late 1890s, the national companies failed while the local building and loans survived.

Building and loans responded to the threat of the nationals by organizing the U.S. League of Building and Loans to campaign for their movement.⁵⁸ To win political support, they made home ownership a central tenet of the American dream. Seymour Dexter, the league's first president, borrowed from Thomas Jefferson, who had believed that independent farmers, as owners of productive property, would sustain the independence and virtue of the citizenry and the health of the democracy. In Dexter's reconstruction, the home rather than the farm became the locus of this civic virtue.⁵⁹

Dexter described the enormous economic transition underway in the nation and the challenges it posed to democratic institutions. Industrialization brought centralization and the growth of cities. Forced to live near factories where they were employed, wage earners occupied rented rooms or houses. In Dexter's view, this situation fundamentally corrupted the American political system. “The one and only power to confront and overcome these dangers in the future” was not the return to Jefferson's family farm or Franklin's independent artisan but rather “the American Home.”⁶⁰ Under Dexter, the league adopted the motto: “The American Home: The Safe-Guard of American Liberties.”

Dexter also saw the nation's salvation in the suburbs. “Rapid transit,” he said, was making it possible for the wage earner to live “fifteen to twenty-five miles from the place where he works.” As a result, families could

go out into the suburbs of the city, where land can be had at a reasonable price and homes erected at a reasonable cost. There [the wage earner] can rear his family in pure air, have a grass plot in his front yard, with its flower-beds and shrubbery. There he can have a home; there he can have true family life and comfort and see his children, away from the din, the dirt, the scenes and foul influences of the busy mart. There during the week the free school shall open to them its doors, and on Sundays, the influences of the church surround them.

In Dexter's view, the pillars of society would be solid: “true family life,” “the free school,” and “the church” would sustain the American republic.

Leaders in the savings and loan movement also believed that increased home ownership, enabled by mutual building and loans, could mediate “the growing conflict between capital and labor” that posed the most “vexing economic question” of the day and the most serious threat to the American republic. As property owners, workers would take pride in their neighborhoods and communities and be less inclined to violently oppose the interests of business owners. As members of a mutual, these workers, like stockholders, would also earn dividends on their invested capital.

The transformation of the home into the centerpiece of a new republican ideal was ironically assisted by builders and real estate agents who made the home the focus of consumer culture and consumption the ideal civic act. Modern advertising and merchandising promoted a new democracy in America—the democracy of desire—with its promise of equal access, not to power, but to consumer goods and a complicated vision of happiness based on consumption.⁶¹ As retailers plastered “Buy Now, Pay Later” banners across their store windows and developed installment plans for major purchases, debt was no longer associated with the improvident and the poor but was increasingly a marker of middle-class respectability.⁶² Going into debt to buy a home brought the consumer status and a sanctuary.

Building and loan officials were often ambivalent about the changing attitudes toward thrift and consumption. The rise of the consumer society and especially consumer credit threatened to undermine the basic value of thrift on which the building and loan movement had been built. “We are being educated to be a nation of spendthrifts,” some building and loan leaders complained.⁶³ A “wave of extravagance prevails,” complained a writer in the American Building Association News in 1923, as men sacrificed the dream of owning their own home for the pleasures of an automobile.⁶⁴ “When we reflect upon the comparative value of the home and the automobile to our citizenship,” another writer wrote, “we wonder if the quality of American character is deteriorating.”⁶⁵

Traditionalists in the building and loan movement fought to preserve the small-scale, cooperative character of the institution. They were often dismayed to discover proponents of the new approach to consumption and credit within their own midst. These modernists embraced professional management, marketing, consumerism, and above all growth. If larger associations could achieve economies of scale that would benefit borrowers and investors alike, then “it is right, proper and our duty to enlarge our usefulness by increasing our assets.”⁶⁶ To build those assets, manager L.L. Rankin suggested, building and loans should employ the tools of modern advertising.⁶⁷

As some thrifts grew large enough to demand permanent, full-time staff managers, Rankin insisted that he and his peers “should give all their time, thought and energy to the companies they serve and for such services they should receive abundant compensation.”⁶⁸ In essence, he argued that building and loan managers should join the growing ranks of business executives who looked upon their work as a profession with skills that could be taught and an ethic that could be cultivated over the course of a university education.⁶⁹

These tensions in the building and loan movement were at their peak in the late 1920s as Howard Ahmanson visited thrift managers to convince them to place their property insurance with his company. Large fire insurance companies often ignored these local institutions. The small profits didn't seem to be worth the effort. But Ahmanson saw something different. Across the country, thrifts were enjoying unprecedented success. By 1930, they managed the savings of more than ten million Americans and underwrote two-thirds of all the residential mortgages in the country.⁷⁰ In California, they were growing even faster. From 1920 through 1928, total assets climbed from $47.9 million to $297 million.⁷¹ The largest of these institutions wrote two hundred first mortgages a month, which meant two hundred fire and hazard insurance policies.⁷² In this market there was room for Ahmanson and the thrift managers to make a little money.

INSURANCE ON THE SIDE

Ahmanson knew that many managers of these savings and loans were paid very little. If they ran a mutual, all the profits flowed to the depositors. Quite often, however, thrift managers found a way to supplement their salaries by selling property hazard insurance to their mortgage customers.

These side insurance businesses generated controversy. While many building and loan boards of directors countenanced the practice because it meant they didn't have to pay their managers as much, independent insurance agents protested. They argued that lenders with the power of credit could strong-arm customers into paying too much for insurance. At a large meeting of the Los Angeles Fire Insurance Exchange in 1925, for example, attendees voted to deny membership to banks, building and loans, and building and loan officials.⁷³

In direct opposition to the majority in his industry, Ahmanson chose to make it easy for thrift managers to write fire insurance policies. All the manager needed to do was create an insurance agency and staff it with a clerk or a secretary. H. F. Ahmanson & Co. did most of the paperwork. Howard's one-day turnaround on new policies helped the lender finalize the loan, lock in the customer, and build goodwill for everyone involved.⁷⁴ H. F. Ahmanson & Co. frequently produced the invoices for the premium payer and recorded the payments. If the premium buyer had a particular issue that required insurance expertise, the lender/agent's secretary called the offices of H. F. Ahmanson & Co. to find out what to do. Howard's lieutenants would often go to an agent's office once a month to add up the receivables and close his books for him. No other insurance company would provide that kind of service, in part because it operated in a gray area of the law, especially regarding the qualifications of the secretaries who were the “agents” of record in the transaction. Because all of these services kept the savings and loan/insurance manager's overhead low, they stuck with Ahmanson.⁷⁵

Ahmanson cultivated his relationships with the lenders to get their insurance business. When lenders brought him their insurance business, he benefited. But lenders also made him aware of investment opportunities, and at the age of twenty-three, Ahmanson was already a savvy investor.

A TIMELY EXIT

Throughout his career, Howard Ahmanson displayed an uncanny ability to observe the economic landscape and understand how trends were likely to shape opportunities. During his senior year at USC he interviewed a number of workers about their personal finances and then wrote a senior thesis titled “The Coming American Debacle.” He concluded that the average skilled worker was overspending his income by about 22 percent. This trend toward debt was likely to result in trouble for the worker and for the economy.⁷⁶

After he graduated in 1927, several small events added to Ahmanson's concern. Sometimes when he traveled, for example, he empowered his secretary to trade stocks for him. After one trip he discovered that she had approved the purchase of shares in a new fire insurance company. “Now here was a business I knew a lot about,” Ahmanson later recalled, and he knew that it took several years to begin making money. So he was surprised when his $30 shares rose quickly to $50 even before the company had opened its doors. “If people were acting crazy about a business I knew about,” he thought, “maybe they were acting just as crazy about a business I knew nothing about.”⁷⁷

The last straw came when an elevator boy stopped the lift midway between two floors to pitch Howard on another insurance stock. If elevator boys were investing in stocks, Howard reasoned, it was time to get out. In the middle of 1929, months before the great crash, he sold all of his holdings except for National American Insurance, netting nearly forty thousand dollars. He had doubled his money in four years and was now “beautifully liquid.”⁷⁸

After the crash in October 1929, with cash in a depressed market, Howard bought Chrysler shares and searched for other bargains. He became part owner and an officer and director in Victor Oil.⁷⁹ He acquired property, invested in oil, and continued to grow his insurance business.⁸⁰ Between 1930 and 1935 he also acquired nearly a half million dollars’ worth of real estate. Many of these properties he later sold for four or five times what he had invested. With his increasing wealth he bought a new home at 203 North Rexford Drive in Beverly Hills.⁸¹ Having consolidated his financial position in the world, he was at last ready to formalize another longtime partnership.

A LONG COURTSHIP

Howard and Dorothy Grannis had dated for nearly seven years by 1933. It's unclear why they didn't marry earlier. Certainly it wasn't because of Howard's financial situation. Both of them were smart, headstrong people. Howard's surviving letters evidence his tendency to imperial egotism. She lashed out at him when he neglected her. They were both opportunistic, and perhaps there was a part of each that was waiting for someone more perfect to come along. But in the end, they also needed and loved each other. Howard paid attention to Dottie's feelings and fears and strove to protect her, something she longed for. Dottie supported the part of Howard's workaholic and sometimes reticent personality that embraced the sybaritic lifestyle of L.A.’s beaches, clubs, and night life.

Perhaps Howard wanted to wait until he had become a millionaire ($17.5 million in 2011 dollars). As others throughout the nation struggled to feed their children or keep from losing their homes, Howard approached this financial milestone toward the end of 1932. That Christmas he traveled to Omaha without Dottie, but he made special arrangements. On Christmas morning, a messenger delivered an engagement ring to her home. She accepted.

The subsequent wedding invitation reflected the couple's sense of humor and disdain for formality. Designed to look like a court summons, it was signed by “Dan Cupid, Clerk of the Courts.” Guests were to appear on Saturday, June 24, 1933, at the La Venta Inn at the end of the Palos Verdes Peninsula. The mission-style complex with gardens designed by the Olmstead brothers offered a commanding view of the Pacific. With a black-tie restaurant for Hollywood stars, the place was home to the Los Angeles elite. After the wedding, Howard and Dottie drove to San Pedro. Her parents and his family waved good-bye as the honeymooners stood on the deck of the Grace liner Santa Elena bound for the Caribbean.⁸²

Despite a long and luxurious honeymoon, Howard remained committed to his pursuit of capital. He and Dottie agreed to limit their spending to 10 percent of the income they received from their personal holdings only—in other words, from Howard's side bets in real estate and the stock market. They would leave the earnings and dividends from H. F. Ahmanson & Co. in the business to grow.

With his personal investments, Ahmanson developed a conservative strategy. He put 90 percent of his reserves in cash or cash-equivalent short-term government bonds. “If you've got cash available,” he said, “your gun is always loaded.” He invested the rest “in the wildest cats and dogs. If the beasts are good,” he said, “they'll go up twenty times. If they're sour, they'll go down to two, but I'll still have the cash.”⁸³ With the nation and the world sinking deeper into economic depression, Ahmanson's cash was king.