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THREE

Undertaker at a Plague

THE LOS ANGELES TIMES BLAMED home buyers. A “careful study of conditions,” the Times reported in July 1931, revealed that most home owners going through foreclosure had only themselves to blame for “attempting more than they can handle” or for having “overextended themselves in an effort to ‘keep up with the Joneses.’” Most foreclosed homes were “not those of the moderate-priced class, but are the more expensive type residence bought by persons in a ‘flush’ financial period.” In some cases, the Times conceded, the “downright dishonesty” of either the contractor or the lender was also to blame. But Times readers needn't worry. In middle-class and suburban areas, foreclosures were practically unknown.¹

Despite the Times’s efforts to downplay the crisis, foreclosures affected many home owners in Los Angeles and the lenders who carried their loans. The president of the Los Angeles real estate board in 1932 called for legislation to protect home owners from rapid foreclosure and eviction. One Hollywood assemblyman asked Governor Rolph to convene a special session of the legislature “to enact laws providing for a year's moratorium on foreclosures to give homeowners a breathing spell in order to readjust themselves to the present economic condition.”² Rolph refused, asserting that relief was better addressed at the local level.³ Meanwhile, the American Legion and local women's organizations, supported by local realty boards, launched a fund-raising effort to amass a two-million-dollar revolving loan fund to help home owners on the brink of foreclosure.⁴

Despite these efforts, the pace of foreclosures increased. Each time a lender took a house back and left it empty, H. F. Ahmanson & Co. had an opportunity to write an insurance policy. Sometimes, when even the lender didn't have the cash necessary for the insurance, Ahmanson paid the premium and let the lender run a tab. When these debts grew high enough, the banks gave him properties to settle the debt. While others struggled, Ahmanson amassed a small fortune in cash and property. “It was like being an undertaker at a plague,” Ahmanson said later. “The worse things got, the better I was.”⁵

FINANCIAL REFORM SHAPES THE MORTGAGE MARKET

While Ahmanson ran his own personal bailout program for lenders with distressed properties on their hands, President Herbert Hoover began to reframe the government's role in financial services and the mortgage industry as a way to ease the crisis of the Great Depression. The reforms he initiated were continued and deepened by his successor. They created enormous entrepreneurial opportunities for Howard Ahmanson and other lenders in the years following World War II. During the Depression, however, the presidents aimed to stem the crisis.

Throughout his years in Washington, Hoover had sought to make home ownership and housing development a federal priority. As secretary of commerce, he created a Division of Building and Housing to promote the “Own Your Own Home” movement.⁶ As the Republican nominee for president in 1928, he professed that the American home was the most important foundation stone in the structure of modern civilization.⁷ Following the stock market crash of October 1929, Hoover labored to adapt his philosophy of cooperation and associationalism to the nation's growing economic crisis and to the issues facing home owners across the country.

Early in the Depression, Hoover gathered the nation's top CEOs and persuaded them to accelerate construction and maintenance projects to stimulate spending to avert large-scale unemployment. He encouraged states to do the same. He won high praise for his activism. Within his cabinet, however, some believed that the crash was good for the country. Treasury secretary Andrew Mellon was convinced that the Depression “will purge the rottenness out of the system. People will work harder, live a more moral life. Values will be adjusted and enterprising people will pick up the wreck from less-competent people.” Mellon was joined in this perspective by the governors of the Federal Reserve, who refused to pump cash into the economy and, in fact, raised interest rates in October 1931, exacerbating the shrinkage of the money supply.⁸

Hoover never subscribed to the laissez-faire ideologies of these bankers. But in the early years of the Depression, he relied on presidential cajoling and corporate cooperation to promote prosperity. Initially his strategy seemed to work. In the spring of 1930, Hoover told members of the U.S. Chamber of Commerce: “We [are] past the worst.”⁹

In reality, the nation's problems were just beginning. Throughout 1930 and 1931 unemployment increased and incomes plummeted. As credit tightened, corporate giants and whole industries stood poised on the brink of failure. To solve the credit crisis, Hoover once again promoted a cooperative approach. In a secret meeting in October 1931, he asked top banking executives to create a private fund of five hundred million dollars to be known as the National Credit Corporation to aid struggling financial institutions. Shocked when the bankers asked for government intervention instead, Hoover soon gave up on this voluntary strategy.¹⁰ In his State of the Union address in December, he urged Congress to create the Reconstruction Finance Corporation (RFC) to provide up to two billion dollars in emergency financing to banks, railroads, and insurance companies.¹¹ He also asked Congress to address the growing credit crisis in home ownership.

The Depression threatened to undermine home ownership in America. Across the country, foreclosures rose from an annual rate of 75,000 per year prior to the stock market's collapse in 1929 to 273,000 in 1932.¹² Nearly one in six mortgages slipped into foreclosure between 1930 and 1934.¹³ Since building and loans held roughly a third of the home mortgages in the United States in 1930, these foreclosures put enormous pressure on their working capital.¹⁴ Unable to sell many of these properties, they carried them on their balance sheets and paid the taxes, maintenance, and, of course, property insurance.¹⁵ As loan payments slowed, the value of the assets in their portfolios declined and creditors made demands. Many building and loans failed.

Hoover organized the White House Conference on Home Building and Homeownership in 1931 to confront the crisis. Addressing the assembled members, Hoover echoed the rhetoric of Seymour Dexter and successive leaders in the U.S. League of Savings and Loans:

Next to food and clothing, the housing of a nation is its most vital social and economic problem. . . . I am confident that the sentiment for homeowner-ship is so embedded in the American heart that millions of people who dwell in tenements, apartments and rented rows of solid brick have the aspiration for wider opportunity in ownership of their own homes. To possess one's own home is the hope and ambition of almost every individual in our country, whether he lives in hotel, apartment or tenement. . . . This aspiration penetrates the heart of our national wellbeing. It makes for happier married life. It makes for better children. It makes for confidence and security, it makes for courage to meet the battle of life, it makes for better citizenship. There can be no fear for a democracy or self-government or for liberty or freedom from homeowners no matter how humble they may be.¹⁶

Continuing, Hoover announced that the time had come to consider what role the federal government might play in facilitating home ownership.

Initially, Hoover's call for action seemed to fall on deaf ears. Building and loan leaders hoped Hoover would allow thrifts to become members of the Federal Reserve system, giving them access to credit, but commercial bankers attending the White House conference rejected this idea and failed to support any substantial changes in the mortgage finance system. Congressional leaders also scorned the idea of creating a federal institution to provide a credit facility for mortgage lenders. Even Hoover was reluctant to put the nation's home mortgage system in the hands of the Federal Reserve's governors, whom he saw as a “weak reed for a nation to lean on in time of trouble.”¹⁷ So savings and loan officials dusted off an old proposal.

After World War I, the league had proposed the creation of a federal home loan bank to provide credit to the nation's thrift institutions. Congress, focused on shrinking the size of the federal bureaucracy, showed little interest. The league abandoned the effort. With the Depression, however, the league's plan was revived, and Hoover offered it to Congress in November 1931.¹⁸

Hoover pointed to three primary constituencies that the Federal Home Loan Bank (FHLB) would address: mortgage lenders facing a liquidity crisis, home owners in danger of losing their property to foreclosure, and workers unemployed because of the drop in demand for construction.¹⁹ On Capitol Hill, the building and loans asserted that a federal home loan bank would bring stability to the mortgage credit system and provide liquidity during the economic crisis. The league also suggested that the bank would help standardize lending practices in the building and loan community, which would also strengthen the financial system.²⁰

Opponents asserted that borrowers and inflated real estate prices were to blame for the home ownership crisis. They insisted the system would naturally self-correct. Imprudent buyers and lenders would be disciplined by foreclosures and bank or building and loan failures. If the Federal Home Loan Bank Act passed and building and loans gained access to government resources, thrifts would tend to lend too much, leading to overbuilding and inflated home prices.²¹

Despite the arguments against the bill, lobbying efforts by the building and loan associations, combined with the pressures of the economic crisis and widely shared support for the ideology of home ownership, convinced Congress to approve the bill.²² Hoover signed it into law on July 22, 1932. Moving quickly, the administration had the FHLB up and running in a matter of weeks. Hoover optimistically declared that the mortgage credit crisis was over.²³

The new law reflected an emerging paradigm of financial industry regulation that would be consolidated under Hoover's successor, Franklin Delano Roosevelt. Under the overarching philosophy of this reform, large categories of financial services would be separated from one another by federal rules. In exchange, the government would provide incentives and protections to make these sectors successful.²⁴ This kind of regulatory paradigm reflected the essence of what would become the managed economy, a system in which business adopted the government's public policy goals in exchange for the stability of limited or bounded competition in the marketplace.

During his reelection campaign in 1932, Hoover touted the strength of this vision as a way to preserve the capitalist system. As he crisscrossed the country campaigning that fall, Hoover insisted that everything his administration was doing for the economy was intended to address the needs of ordinary Americans. “We are a nation of 25 million families living in 25 million homes,” he said, “each warmed by the fires of affection and cherishing within it a mutual solicitude for kinfolk and children.” Within the nation's homes, schools, and 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 of 1906. Divided into two sections, the talk blasted the advertising industry for misleading consumers in a variety of industries and criticized lawmakers for succumbing to the interests of manufacturers in the food, drug, and cosmetic industries. He didn't spare Congress, the president, or his administration.

Ahmanson began by making it clear that he was on the side of the consumer. “New deals, old deals or what-not,” he said, “to an ever increasing degree we seem to be plucking our greatest benefactor, good old John Consumer. And inasmuch as we are all both producers and consumers, we go madly forward giving ourselves a bad break.” In Ahmanson's view, advertising had played an enormously beneficial role in the development of national companies by allowing economies of scope and scale that lowered production costs for the consumer and increased profits for the shareholder. Without advertising, these companies would not have been able to expand their manufacturing processes and distribution networks. But advertising, he said, “appears to have become a veritable Frankenstein and has taken a firm hold upon his former master, Production.”

Ahmanson detailed the ways in which the advertising profession misled rather than informed. He criticized the tobacco industry, which had the temerity to pretend that it was reducing prices when it actually was shrinking the amount of tobacco in a cigarette. He blasted the cosmetic industry for its insidious efforts to insinuate that a woman would lose her man if she used the wrong soap or failed to apply the right makeup. He took on the makers and advertisers of toothpastes, automobiles, antiseptics, laxatives, and Jell-O. “All of such examples of quackery and just plain bunk,” he said, “bring to the mind of the curious what tools we have for combating the ever-increasing wave of undependable advertising, and useless if not dangerous products promoted thereby.”

Ahmanson looked to government to protect the public, but he was frustrated by both the existing body of law and the resources devoted to enforcement. “We are operating under the Food and Drug Act of 1906,” he said, “whose woefully weak provisions are even more weakly policed.” He noted that “less than one cent per person per year is spent by the Federal Government in guarding the interest of the consumer.” He also pointed out that “the average fine for the successful prosecution of a violation of [the Act] is $6.00—this amount including the value of the seized goods.” Implicitly, he argued, the government, under its duty to provide for the public safety, should do more.

From the evils of advertising, Ahmanson turned to the corruptions of interest group politics. In an allusion to Roosevelt's inaugural address, he recalled the president's assurance that “the money changers would be driven from the temple.” Roosevelt and his undersecretary of agriculture had promised “that the food and drug industries would be purged of adulterators, poisoners and quacks.” But the “sell-out of the consumer started almost immediately.” The administration's proposal had been developed with the input of industry. In Congress, it had been watered down by politicians who were cooking the bill with the adulterators. After describing in detail the painful legislative process, Ahmanson concluded with apparent disgust “that the whole problem of giving the consumer some measure of protection against fraud, trickery and dishonesty is getting exactly no place.”⁴¹

Ahmanson's speech to the Economic Round Table was hardly designed to provide a coherent synthesis of his view of the role of government in structuring markets, nor was it a call for popular revolt, but it does offer important perspectives on his values. Clearly, he supported the government's authority to intrude into the marketplace in the context of protecting public safety. Toothpaste with toxic ingredients, for example, should be banned. But Ahmanson seemed to go further. The government should also protect the consumer from product claims that were simply fraudulent—motor oil that did nothing, despite the manufacturers’ claims, to extend the life of a car's engine, or laxatives that were “doctor-recommended” when they weren't. Thus the government had a role to play in a market where buyers and sellers had unequal access to information.

Ahmanson also made it clear that government regulation should not be left in the hands of politicians. Explicitly, he expressed his support for the Progressive model of regulation by experts insulated from the political process. An effective pure food and drug law, he said, should be administered by “qualified technicians interested primarily in consumers’ welfare and safety.” Implicitly, he believed that such experts should be protected from the influence of manufacturers and other interest groups.

It's not clear from the speech whether Ahmanson believed that the government had a positive role to play in the marketplace—to promote hygiene or good health, for example. He didn't suggest that the alternative to false claims in a free market was government approval in a managed economy. He didn't outline a plan for the government to encourage manufacturers to make one kind of drug over another or reward grocery stores for selling broccoli rather than Jell-O. Likewise, his speech didn't touch on the growing number of federal programs designed to support food producers—like agricultural cooperative marketing programs or price supports—without concomitant efforts to protect consumers.

Delivered in the first year of Franklin Roosevelt's presidency near the low point of the Depression, when unemployment, labor unrest, and a collapsing financial system threatened to undermine capitalism itself, Ahmanson's remarks have to be taken within the context of the times. Nevertheless, they were his times. He was twenty-seven years old and already a highly successful entrepreneur. His audience of academics, business leaders, and “men on the make” shared in the common experience of the era. Roosevelt had equated the Depression to a war. Soon business leaders like Ahmanson and his friends Charlie Fletcher and Howard Edgerton would discover that a real war could pose an even greater challenge to the management of the economy.

BUSINESS AND HIGH SOCIETY

Fortunately for Ahmanson, the regulatory reforms of the New Deal had little impact on the fire insurance industry. The U.S. Supreme Court continued to hold that insurance was for the states, not the federal government, to regulate. In California, Ahmanson's main regulatory threat came from independent insurance agents. They complained that mortgage lenders should not be allowed to steer borrowers into buying property insurance from favored companies—like National American Insurance. They claimed that these arrangements were fraught with conflicts of interest, were “coercive” in nature, and served as a barrier to entry and competition. The independent agents lobbied the California legislature to pass an “anticoercion” law, but Ahmanson's friends in the savings and loan industry, including Howard Edgerton and Charlie Fletcher, were able to kill these proposals.⁴²

Meanwhile, Ahmanson continued to cultivate an image of success as a critical component of his sales strategy. “He always wanted us to drive a good car so we looked successful,” remembers Robert DeKruif, who began working for the company in 1941. “And he wanted us to dress immaculately: wing-tip shoes, white shirts, blue shirts, and everything like that.”⁴³ But while he cultivated the image of success, Ahmanson also stuck to the basics of building and sustaining relationships. Working with his secretary, Evelyn Barty, for example, he maintained an elaborate “birthday list” that included customers, friends, employees, and politicians. Every month, Barty gave him a list and he would handwrite cards to everyone on the list.⁴⁴ He worked eighteen hours a day. His aunt, who lived in Los Angeles, complained that he was “a hard man to find in his office.” Howard, she said, had told her “he loses money when he's in.”⁴⁵ It was far better to be out calling on customers.

But Howard also paid attention to the cost of doing business. As a manager, he found ways to stimulate productivity. He ordered desks without drawers “so people, when they got policy orders or anything like that couldn't stick them in their drawer.” When he walked around at night he could see if staff was keeping up with the work. When he hired a new typist, “he would put that typist next to the gal that typed the fastest,” DeKruif remembers. Ahmanson also didn't believe in private offices. At one point early in his career, DeKruif realized that a lot of his competitors were schmoozing potential clients on the golf course, so he suggested to Ahmanson that maybe he should join a golf club. “Bob, let me tell you,” Ahmanson replied, “while you're playing one game of golf, you can call on five agencies.” So DeKruif stuck to Ahmanson's Calvin Coolidge approach—persistence.⁴⁶

As hard as he worked, Ahmanson also enjoyed his wealth. While the rest of the nation struggled through the Great Depression, he and Dottie frequented the Jonathan Club downtown, the Bel Air Bay Club in Santa Monica, and the Los Angeles Stock Club. In the fall of 1935 they began an annual tradition, hosting a spectacular champagne brunch before the football game between USC and UCLA. Howard chartered buses for his guests—many of them savings and loan clients. With banners waving and the sirens of a police escort screaming, “Southland's younger set” rode to the Los Angeles Coliseum.⁴⁷

Dottie threw herself into an endless series of society luncheons and charity events. Howard participated to a limited extent. He helped organize the Boys Club Foundation of Los Angeles and served on its board. Dinners with other couples to play cards or badminton were noted in the society pages of the Los Angeles Times. The Ahmansons were regulars at nightclubs like the Cocoanut Grove, the Biltmore Bowl, and Ciro's. In addition to enjoying the high life at home, Dottie and Howard traveled widely. A year after their honeymoon cruise through the Caribbean, they went to Mexico. In 1938, they sailed on the Queen Mary to Europe for a six-week tour of the continent with screen star Don Ameche and his wife.⁴⁸ In 1940, with the United States watching the path of Japanese aggression across the Pacific, Howard and Dottie impulsively visited Japan. Arriving in Yokohama in May, Howard told the Japan News-Week, "We are the only honest-to-goodness tourists in Japan.”⁴⁹ Howard and Dottie toured the countryside and visited Tokyo without a guide or interpreter. Howard entertained the locals by playing the piano. The memory of that trip would soon seem surreal.

After Pearl Harbor, fear seized the West Coast as newspapers speculated on whether the Japanese would bomb and strafe the mainland next. Fresh headlines hit the newsstands several times a day. With dark humor, Dottie joked that Howard was to blame for the war: the Japanese had attacked Pearl Harbor, she said, as a way to put an end to Howard's piano playing.⁵⁰

REORGANIZING FOR THE DURATION

In one respect, the war came at just the right time for both Howard Ahmanson and his good friend Howard Edgerton. Both had gotten in trouble with regulators and the law. With six other men, including a prominent Los Angeles physician, Edgerton had been indicted by a federal grand jury in June 1941 for devising a scheme to defraud investors in the Railway Mutual Building and Loan Association.⁵¹ According to the charges, victims of the scheme who were Railway depositors were told that they would have to wait for some time to withdraw their money from the association. If they wanted their money sooner, they could go to a company called First Security Deposit Corporation, which would give them only eighty or ninety cents on the dollar but would give them cash immediately. Customers who chose this option sold their Railway Mutual shares (deposits) to First Security. According to prosecutors, Edgerton was the primary owner of First Security Deposit Corporation, and as soon as these accounts were transferred, Edgerton received full value for the accounts he had paid for at a discount.⁵²

As the rest of the nation organized for all-out war, Edgerton and his fellow defendants went on trial in February 1942.⁵³ On April 5, 1942, after thirty hours of deliberation, a jury convicted him and a codefendant on a number of counts related to mail fraud. The jury was unable to agree on the guilt or innocence of four other men. One other man was found completely innocent. All were judged innocent on the charge of conspiracy.⁵⁴ Three weeks later, a federal judge sentenced Edgerton to two and a half years in a federal penitentiary.⁵⁵ While the rest of the nation turned to the business of war, Edgerton was released on his own recognizance pending his appeal.⁵⁶

Howard Ahmanson's brush with the censure of state government in 1942 threatened far less serious consequences, but it was troubling nonetheless. The details are sketchy. He ran into trouble with the Insurance Commission on business transactions with Thomas Mortgage Co., a business run by two brothers, H.B. and Luther Thomas, out of Los Angeles and Long Beach. The brothers, as agents for Prudential Life Insurance Company, advertised their services in the classifieds of the Los Angeles Times.⁵⁷ They offered FHA Title II and Title VI loans and handled real estate sales. They also seemed to offer fire insurance through H. F. Ahmanson. At the time, Anthony Caminetti, a former judge from Amador County, was the state insurance commissioner. Appointed by Democratic governor Culbert Olson in 1939, he was known as a crusader.⁵⁸ In 1940, he had seized a dozen life insurance companies, asserting that they were being mismanaged and that assets to benefit policyholders were being diverted to stockholders and directors.⁵⁹ It's unclear what brought the Thomas brothers and Ahmanson to Caminetti's attention, except to quote from Ahmanson, who later blamed it all on “one careless, fiery-tempered red-head.”⁶⁰ It's also unclear what actual charges were leveled against the Thomas brothers and Ahmanson. All apparently faced possible suspensions.

Ahmanson and the Thomas brothers caught a break in September 1943, when Governor Earl Warren announced that he would not reappoint the controversial Caminetti. Instead, he tapped Pasadena attorney Maynard Garrison. The thirty-eight-year-old Garrison had graduated from Loyola University Law School in 1932 and had practiced insurance law as an employee and associate general counsel for the Automobile Club of Southern California for eleven years. He had served as vice chairman of Warren's campaign in Southern California.⁶¹ He was also good friends with the attorneys handling the case for the Thomases and Ahmanson.⁶²

With Ahmanson already in navy basic training on the East Coast, the Thomases’ preliminary hearing took place on November 29, 1943. Asked to offer a plea, the brothers asserted that they were unaware of the events that led up to the charges.⁶³ The hearing was then postponed until December 10. Before the 10th, the attorneys for the Thomases negotiated a thirty-day suspension for the brothers, who pled guilty to several minor citations. All other charges were dropped. Gould Eddy thought this was a remarkably favorable outcome. Howard apparently received only a five-day suspension. Writing to H. B. Thomas after the decision, he gave credit to the lawyers but also concluded that the lightness of the sentence reflected “the reputation of the good old Thomas Mortgage Company and some of your and my personal acquaintances.”⁶⁴

Military service offered Ahmanson and Edgerton a way to put some distance between them and the law. Even before Pearl Harbor, Congress had approved a broad military draft that eventually encompassed every able-bodied man under the age of forty-five. Edgerton joined the Air Corps as a civilian flight instructor.⁶⁵ To Ahmanson and Fletcher he expressed his delight in being able to graduate from his Piper Cub to the 450-horsepower trainer aircraft that he flew “with a cadet in the other cockpit that doesn't know a damned thing about the airplane and is scared to death of its size.” Despite the bravado of his aerial exploits, however, “the shadow of the gray prison walls” followed him. In November 1943, as he waited for the oral hearings on his case before the Ninth Circuit Court of Appeals, he confessed that “this particular period before the deadline is a rather tense one and is a fitting climax to the past 3½ years during which period of time I have been investigated, indicted, tried, convicted, wooed, screwed and tattooed.”⁶⁶

Despite his statements in 1941, Howard chose to enlist in the U.S. Navy rather than wait to be drafted. In his application for a commission, he included yachting among his leisure activities. Curiously, he also noted that he had performed “investigation along lines required by Naval Intelligence.”⁶⁷ Perhaps this referred to information he had supplied after touring Japan. In any case, in May 1943 he was appointed as a lieutenant in the U.S. Naval Reserves with the understanding that he would go to Rhode Island for basic training and then be assigned to duty.

Before leaving for boot camp, Ahmanson reorganized his businesses to create a simplified structure. Although H. F. Ahmanson & Co. was his primary focus, he had a number of other active investments and property to be managed, including his real estate and oil wells. As the result of a winning hand in a poker game with Morgan Adams, he was also the owner of the once-famous Mayan Theater in downtown Los Angeles, where live stage performances included African American song and dance troupes, Jewish comedies, and solo performances by singers and comedians.⁶⁸ Howard could easily leave the oil wells and the real estate in the hands of developers and property managers. He asked Ted Crane, the head of the Inland Marine Department at H. F. Ahmanson & Co., to keep the theater rented. H. F. Ahmanson & Company, however, was more complicated.

As he put it, H. F. Ahmanson & Company had “become involved in so doggone many kinds of businesses that my examiners and the like were going nutty trying to figure out who was doing what to who[m]—and so was I.” For the duration of the war he put the day-to-day operations into a company called Insurance Managers, which was owned by H. F. Ahmanson & Company, Inc. He turned management of the new company over to Gould Eddy. Then he began packing for basic training.⁶⁹

DEPRESSION LEGACIES

War ended the long nightmare of the Depression even as it slowed all of the industries dependent on the residential real estate market. Private construction came to a virtual standstill in the face of the government's need for construction materials. Nevertheless, the institutional legacies of the Depression reflected substantial changes in the government's approach to increasing the supply of residential mortgage capital and promoting the role of home ownership in strengthening American democracy and capitalism. New government institutions brought stability to the market by diminishing risks for savers, borrowers, and lenders alike. These institutions had been formed from the coalescence of Hoover's associationalism with the strong hand of Roosevelt's New Deal. During the Depression, these new agencies had staved off even deeper trouble. After the war, they would provide the foundation for a resurgent and redefined American Dream, a dream that would reshape the pattern of cities across the nation and would lead savings and loan executives like Howard Ahmanson to great fortune.