From Buildings and Loans to Bail-Outs : A History of the American Savings and Loan Industry, 1831–1995

For most Americans, the savings and loan industry is defined by the fraud, ineptitude, and failures of the 1980s. These events, however, overshadow a long history in which thrifts played a key role in helping thousands of households buy homes. First appearing in the 1830s, savings and loans, then known as building and loans, encouraged their working-class members to adhere to the principles of thrift and mutual cooperation as a way to achieve the 'American Dream' of home ownership. This book traces the development of this industry, from its origins as a movement of loosely affiliated collection of institutions, into a major element of America's financial markets. It also analyses how diverse groups of Americans, including women, ethnic-Americans, and African-Americans, used thrifts to improve their lives and elevate their positions in society. The book ends with an analysis of the efforts to rehabilitate the industry in the 1990s. COVER......Page 1 HALF-TITLE......Page 3 TITLE......Page 5 COPYRIGHT......Page 6 DEDICATION......Page 7 CONTENTS......Page 9 LIST OF TABLES......Page 11 ACKNOWLEDGMENTS......Page 13 INTRODUCTION......Page 15 BRITISH TRADITIONS OF HOME FINANCE......Page 26 THE STATE OF HOME FINANCE IN AMERICA......Page 30 CREATING AN AMERICAN THRIFT BUSINESS......Page 31 “AMERICANIZING” THE THRIFT BUSINESS......Page 32 DEFINING THE THRIFT MOVEMENT......Page 36 REACHING THE WORKING CLASS......Page 38 REACHING THE SOCIAL REFORMERS......Page 40 GILDED AGE GROWTH......Page 42 THE ROLE OF WOMEN IN B&LS......Page 43 THE “NATIONALS” CRISIS......Page 46 THE LEGACY OF THE NATIONALS......Page 51 CONCLUSIONS......Page 53 2 THE RISE OF THE LEAGUE, 1900–1929......Page 54 PROGRESSIVISM AND THE THRIFT MOVEMENT......Page 55 THE RISE OF THRIFT MOVEMENT ADVERTISING AND PROMOTION......Page 60 MAKING THE THRIFT MOVEMENT MORE PROFESSIONAL......Page 62 NEW LEAGUE STRATEGY, NEW LEAGUE STRUCTURE......Page 65 PROGRESSIVE ERA RECOVERY......Page 66 THE RISE OF ETHNIC THRIFTS......Page 68 THRIFTS IN THE DECADE OF CONSUMERISM......Page 71 POSTWAR PROSPERITY......Page 74 WOMEN MOVE TO THE FORE......Page 76 THE CONSEQUENCES OF GROWTH......Page 77 CONCLUSIONS......Page 82 THE STRUGGLE OVER STATE REGULATION......Page 83 THE LEAGUE AND THE FEDERAL GOVERNMENT......Page 88 HERBERT HOOVER AND THE HOME LOAN BANK......Page 92 FORMING THE BANK AND FAILED EXPECTATIONS......Page 100 ROOSEVELT TAKES COMMAND......Page 103 CREATING FEDERAL SAVINGS AND LOAN INSTITUTIONS......Page 105 SECURING DEPOSIT INSURANCE......Page 107 CONCLUSIONS......Page 111 BODFISH AND THE LEAGUE......Page 114 MOVING TOWARD OPERATIONAL UNIFORMITY......Page 116 THE LEAGUE AND THRIFT ADVERTISING......Page 119 THE “B&L” BECOMES THE “S&L”......Page 120 EXERCISING THE REGULATORY MACHINE......Page 122 THRIFTS AND OTHER NEW DEAL PROGRAMS......Page 125 SURVIVING THE GREAT DEPRESSION......Page 131 EVALUATING THE INDUSTRY......Page 134 FAHEY VS. THE INDUSTRY......Page 137 CONCLUSIONS......Page 140 5 THE GLORY YEARS, 1946–1955......Page 142 PLANNING FOR SUBURBIA......Page 143 FINANCING THE AMERICAN DREAM IN THE 1950S......Page 147 THE LEAGUE IN THE GLORY YEARS......Page 149 EVALUATING THE GLORY YEARS......Page 153 FINE TUNING FEDERAL THRIFT PROGRAMS......Page 154 INCREASED COMPETITION FROM GOVERNMENT......Page 157 THE REGULATED COZIES UP TO THE REGULATOR......Page 160 THRIFTS HIT SOME BUMPS IN THE ROAD......Page 167 CONCLUSIONS......Page 171 THE ECONOMY COOLS OFF AND COMPETITION HEATS UP......Page 173 AN INCREASED FOCUS ON MINORITY HOUSING......Page 177 S&LS AND THE LEAGUE CONTINUE TO GROW......Page 184 EVALUATING THE INDUSTRY......Page 187 THE INDUSTRY SHOWS SIGNS OF DIVISION......Page 189 A REVITALIZED REGULATORY ENVIRONMENT......Page 192 CREATING RATE CONTROLS......Page 196 CONCLUSIONS......Page 200 CONTENDING WITH STAGFLATION......Page 201 A REVOLUTION IN FINANCIAL TECHNOLOGY......Page 206 THE RISE OF CONSUMER ACTIVISM......Page 209 THE LEAGUE STRUGGLES TO ADAPT......Page 212 REGULATORS IN LIMBO......Page 214 EVALUATING THE THRIFT INDUSTRY......Page 216 LURCHING TOWARD DEREGULATION......Page 220 WHY DID 1970S, FINANCIAL REFORM FAIL?......Page 223 CONCLUSIONS......Page 226 8 DEREGULATION AND DISASTER, 1979–1988......Page 227 THRIFT DEREGULATION: ROUND ONE......Page 228 THRIFT DEREGULATION: ROUND TWO......Page 231 REGULATORS EASE THE RULES......Page 234 THE CRISIS BEGINS: 1983–1985......Page 238 THE CRISIS INTENSIFIES: 1985–1987......Page 241 DEALING WITH THE DEBACLE: 1985–1987......Page 243 THE CLEAN UP BEGINS: 1987–1988......Page 248 PROFILES OF FAILURE......Page 251 CONCLUSIONS......Page 253 TOWARD RE-REGULATION......Page 255 ENTER THE RTC......Page 261 WHY DID 1980S FINANCIAL REFORM FAIL?......Page 269 THE “NEW” THRIFT INDUSTRY......Page 274 CONCLUSIONS......Page 278 10 THE AMERICAN SAVINGS AND LOAN INDUSTRY IN PERSPECTIVE......Page 280 THRIFTS AS AN INDUSTRY......Page 281 THE ROLE OF THE TRADE ASSOCIATION......Page 283 THRIFTS IN AMERICA’S POLITICAL ECONOMY......Page 284 THRIFT, HOME OWNERSHIP, AND AMERICAN SOCIETY......Page 286 THE 1980S IN HISTORICAL PERSPECTIVE......Page 287 APPENDIX 1. FRAUD, FORBEARANCE, AND FAILURE: THE CASE OF EMPIRE SAVINGS & LOAN ASSOCIATION......Page 289 THE STORY OF FAILURE......Page 290 IDENTIFYING THE FACTORS OF FAILURE......Page 298 THE ROLE OF FRAUD......Page 300 THE ROLE OF REGULATORS......Page 303 THE AFTERMATH......Page 307 CONCLUSIONS......Page 309 APPENDIX 2. SUCCESS THE OLD-FASHIONED WAY: THE CASE OF MEDFORD COOPERATIVE BANK......Page 311 THE BEGINNINGS OF THE MEDFORD CO-OPERATIVE BANK......Page 312 GROWTH BRINGS CHANGE......Page 314 DEALING WITH THE GREAT DEPRESSION......Page 317 MAINTAINING CONSERVATIVE BUSINESS PRACTICES......Page 319 CHANGE BRINGS GROWTH......Page 321 MCB UNDER JOHN HAND......Page 322 SURVIVING DEREGULATION......Page 324 RESTRUCTURING THE “FAMILY BUSINESS”......Page 326 EXPANDING MCB UNDER ROBERT SURABIAN......Page 327 CONCLUSIONS......Page 330 Congressional Hearings and Reports......Page 333 Federal Home Loan Bank Board Publications......Page 335 Other Federal Government Publications......Page 336 Massachusetts State Government Documents......Page 337 Dissertations and Theses......Page 338 National League Trade Journals......Page 339 Books Used as Primary Sources......Page 340 Newspapers and Periodicals......Page 343 Select Articles Used as Primary Sources......Page 345 Books......Page 346 Articles......Page 353 INDEX......Page 355 COVER 1 HALF-TITLE 3 TITLE 5 COPYRIGHT 6 DEDICATION 7 CONTENTS 9 LIST OF TABLES 11 ACKNOWLEDGMENTS 13 INTRODUCTION 15 1 A MOVEMENT TAKES SHAPE, 1831–1899 26 BRITISH TRADITIONS OF HOME FINANCE 26 THE STATE OF HOME FINANCE IN AMERICA 30 CREATING AN AMERICAN THRIFT BUSINESS 31 “AMERICANIZING” THE THRIFT BUSINESS 32 DEFINING THE THRIFT MOVEMENT 36 REACHING THE WORKING CLASS 38 REACHING THE SOCIAL REFORMERS 40 GILDED AGE GROWTH 42 THE ROLE OF WOMEN IN B&LS 43 THE “NATIONALS” CRISIS 46 THE LEGACY OF THE NATIONALS 51 CONCLUSIONS 53 2 THE RISE OF THE LEAGUE, 1900–1929 54 PROGRESSIVISM AND THE THRIFT MOVEMENT 55 THE RISE OF THRIFT MOVEMENT ADVERTISING AND PROMOTION 60 MAKING THE THRIFT MOVEMENT MORE PROFESSIONAL 62 NEW LEAGUE STRATEGY, NEW LEAGUE STRUCTURE 65 PROGRESSIVE ERA RECOVERY 66 THE RISE OF ETHNIC THRIFTS 68 THRIFTS IN THE DECADE OF CONSUMERISM 71 POSTWAR PROSPERITY 74 WOMEN MOVE TO THE FORE 76 THE CONSEQUENCES OF GROWTH 77 CONCLUSIONS 82 3 FROM STATE TO FEDERAL OVERSIGHT 83 THE STRUGGLE OVER STATE REGULATION 83 THE LEAGUE AND THE FEDERAL GOVERNMENT 88 HERBERT HOOVER AND THE HOME LOAN BANK 92 FORMING THE BANK AND FAILED EXPECTATIONS 100 ROOSEVELT TAKES COMMAND 103 CREATING FEDERAL SAVINGS AND LOAN INSTITUTIONS 105 SECURING DEPOSIT INSURANCE 107 CONCLUSIONS 111 4 THE MOVEMENT BECOMES AN INDUSTRY, 1930–1945 114 BODFISH AND THE LEAGUE 114 MOVING TOWARD OPERATIONAL UNIFORMITY 116 THE LEAGUE AND THRIFT ADVERTISING 119 THE “B&L” BECOMES THE “S&L” 120 EXERCISING THE REGULATORY MACHINE 122 THRIFTS AND OTHER NEW DEAL PROGRAMS 125 SURVIVING THE GREAT DEPRESSION 131 THRIFTS IN WARTIME 134 EVALUATING THE INDUSTRY 134 FAHEY VS. THE INDUSTRY 137 CONCLUSIONS 140 5 THE GLORY YEARS, 1946–1955 142 PLANNING FOR SUBURBIA 143 FINANCING THE AMERICAN DREAM IN THE 1950S 147 THE LEAGUE IN THE GLORY YEARS 149 EVALUATING THE GLORY YEARS 153 FINE TUNING FEDERAL THRIFT PROGRAMS 154 INCREASED COMPETITION FROM GOVERNMENT 157 THE REGULATED COZIES UP TO THE REGULATOR 160 THRIFTS HIT SOME BUMPS IN THE ROAD 167 CONCLUSIONS 171 6 EXTERNAL CHALLENGES AND INTERNAL DIVISIONS, 1956–1966 173 THE ECONOMY COOLS OFF AND COMPETITION HEATS UP 173 AN INCREASED FOCUS ON MINORITY HOUSING 177 S&LS AND THE LEAGUE CONTINUE TO GROW 184 EVALUATING THE INDUSTRY 187 THE INDUSTRY SHOWS SIGNS OF DIVISION 189 A REVITALIZED REGULATORY ENVIRONMENT 192 CREATING RATE CONTROLS 196 CONCLUSIONS 200 7 LOST OPPORTUNITIES, 1967–1978 201 CONTENDING WITH STAGFLATION 201 A REVOLUTION IN FINANCIAL TECHNOLOGY 206 THE RISE OF CONSUMER ACTIVISM 209 THE LEAGUE STRUGGLES TO ADAPT 212 REGULATORS IN LIMBO 214 EVALUATING THE THRIFT INDUSTRY 216 LURCHING TOWARD DEREGULATION 220 WHY DID 1970S, FINANCIAL REFORM FAIL? 223 CONCLUSIONS 226 8 DEREGULATION AND DISASTER, 1979–1988 227 THRIFT DEREGULATION: ROUND ONE 228 THRIFT DEREGULATION: ROUND TWO 231 REGULATORS EASE THE RULES 234 THE CRISIS BEGINS: 1983–1985 238 THE CRISIS INTENSIFIES: 1985–1987 241 DEALING WITH THE DEBACLE: 1985–1987 243 THE CLEAN UP BEGINS: 1987–1988 248 PROFILES OF FAILURE 251 CONCLUSIONS 253 9 RESOLVING THE CRISIS, RESTORING THE CONFIDENCE, 1989–1995 255 TOWARD RE-REGULATION 255 ENTER THE RTC 261 WHY DID 1980S FINANCIAL REFORM FAIL? 269 THE “NEW” THRIFT INDUSTRY 274 CONCLUSIONS 278 10 THE AMERICAN SAVINGS AND LOAN INDUSTRY IN PERSPECTIVE 280 THRIFTS AS AN INDUSTRY 281 THE ROLE OF THE TRADE ASSOCIATION 283 THRIFTS IN AMERICA’S POLITICAL ECONOMY 284 THRIFT, HOME OWNERSHIP, AND AMERICAN SOCIETY 286 THE 1980S IN HISTORICAL PERSPECTIVE 287 APPENDIX 1. FRAUD, FORBEARANCE, AND FAILURE: THE CASE OF EMPIRE SAVINGS & LOAN ASSOCIATION 289 THE STORY OF FAILURE 290 IDENTIFYING THE FACTORS OF FAILURE 298 THE ROLE OF FRAUD 300 THE ROLE OF REGULATORS 303 THE AFTERMATH 307 CONCLUSIONS 309 APPENDIX 2. SUCCESS THE OLD-FASHIONED WAY: THE CASE OF MEDFORD COOPERATIVE BANK 311 THE SETTING OF MEDFORD CO-OPERATIVE BANK 312 THE BEGINNINGS OF THE MEDFORD CO-OPERATIVE BANK 312 GROWTH BRINGS CHANGE 314 DEALING WITH THE GREAT DEPRESSION 317 MAINTAINING CONSERVATIVE BUSINESS PRACTICES 319 CHANGE BRINGS GROWTH 321 MCB UNDER JOHN HAND 322 SURVIVING DEREGULATION 324 RESTRUCTURING THE “FAMILY BUSINESS” 326 EXPANDING MCB UNDER ROBERT SURABIAN 327 CONCLUSIONS 330 BIBLIOGRAPHY 333 Primary Sources 333 Personal Papers 333 Archival Sources – Government Agencies 333 Congressional Hearings and Reports 333 Federal Home Loan Bank Board Journals 335 Federal Home Loan Bank Board Publications 335 National Commission on Financial Institution Reform, Recovery and Enforcement Publications 336 Other Federal Government Publications 336 Massachusetts State Government Documents 337 Records of Private Organizations 338 Interviews by the Author 338 Dissertations and Theses 338 Thrift Industry Publications 339 U.S. League Monthly Trade Journals 339 National League Trade Journals 339 Annual Publications 340 Other Trade Publications 340 Books Used as Primary Sources 340 Newspapers and Periodicals 343 Select Articles Used as Primary Sources 345 Secondary Sources 346 Books 346 Articles 353 INDEX 355 For most Americans, the savings and loan industry is defined by the fraud, ineptitude and failures of the 1980s. However, these events overshadow a long history in which thrifts played a key role in helping thousands of households buy homes. First appearing in the 1830s savings and loans, then known as building and loans, encourage their working-class members to adhere to the principles of thrift and mutual co-operation as a way to achieve the'American Dream'of home ownership. This book traces the development of this industry from its origins as a movement of a loosely affiliated collection of institutions into a major element of America's financial markets. It also analyses how diverse groups of Americans, including women, ethnic Americans and African Americans, used thrifts to improve their lives and elevate their positions in society. Finally the overall historical perspective sheds new light on the events of the 1980s and analyses the efforts to rehabilitate the industry in the 1990s. "First appearing in the 1830s, savings and loans, then known as building and loans, encourage their working-class members to adhere to the principles of thrift and mutual cooperation as a way to achieve the "American Dream" of home ownership. This book traces the development of this industry, from its origins as a "movement" of a loosely affiliated collection of institutions into a major element of America's financial markets. It also analyzes how diverse groups of Americans, including women, ethnic Americans, and African Americans, used thrifts to improve their lives and elevate their positions in society This first complete history of the American thrift industry traces its development from its origins in the mid-nineteenth century through the resolution of the savings and loan crisis in the 1990s. Because S&Ls offer affordable forms of consumer finance, these institutions have helped millions of people achieve the "American Dream" of home ownership. Although the thrift crisis of the 1980s and early 1990s dealt a severe blow to the financial health and reputation of the industry, this book reveals the ways government resolved it, and how the industry was reinvented in its aftermath. This is the first complete history of the American thrift industry from its origins in the mid-nineteenth century through the resolution of the savings and loan crisis in the 1990s. Offering affordable forms of consumer finance, these institutions have helped millions of people achieve the 'American Dream' of home ownership

The overall historical perspective sheds new light on the events of the 1980s and analyses the efforts to rehabilitate the industry in the 1990s.