by Alice Echols
One local case that illuminates some features of America’s new financial landscape involves the former Springs building and loan man Merton Stubbs. The son of Colorado Springs pioneers, Stubbs was one of the men who sold the City Building and Loan Association to my grandfather. He was also the town’s court reporter. A man known to all the judges, he was someone whom you would have thought that even a sharp businessman would refrain from scamming.
In the summer of 1922, Stubbs, like many Americans, was looking for a lucrative way to invest his money. He had invested in Liberty Bonds, which would soon stop paying interest. He had $5,000 ($71,430 in 2016 terms) that he hoped to invest in order to pay for his children’s college education. Stubbs explained this casually one evening to a man at the Elks Lodge. Perhaps Stubbs initiated the conversation knowing that the man worked at a local investment and real estate company and might have some thoughts on the subject. The salesman claimed that the company had just the ticket for him, and several days later Stubbs stopped by the office for a more formal conversation. The company had a number of loans on its books, any of which Stubbs was assured would provide a handsome return. Stubbs would earn 7 percent, and the company would earn 1 percent for administering the loan, that is, for making sure the taxes and insurance were paid and that the interest was sent to Stubbs. Stubbs chose to buy the loan of a farmer, but not a local farmer. This was a farmer in Cedar Rapids, Iowa, a man who was said to have excellent credit and good land.
For three years Stubbs had no reason to believe he had made anything other than a smart investment. Indeed, he was sufficiently pleased with the company that he made other investments with it and steered his friends there. All that changed in 1926 when Stubbs stopped receiving payments. It later came out in court that the Iowan had been in arrears on his taxes when the Springs investment firm sold Stubbs the loan. And although the real estate company had paid Stubbs the interest for nearly four years, the farmer had stopped paying the company soon after Stubbs bought his loan. The farmer’s problems turned out not to be his Cedar Rapids farm but instead a failed Wisconsin land deal. By the time Stubbs was informed of how wrong everything had gone—the farmer was a staggering $50,000 in debt—the Iowa farm had been sold for taxes.
When pressed in court about why the company had not informed Stubbs, the firm’s president insisted it was company policy in such instances to try to “work things out” in order to avoid causing the client any “distress.”20 The case is instructive in several ways. First, we see that even in the 1920s there was a business in debt, with ordinary Americans buying the debt of other individuals, and doing so at some geographical distance. Second, we can see the lure of investment for ordinary Americans. Most interesting of all, the men running the investment and real estate company had no compunction about cheating Stubbs, a well-positioned member of the community and a fellow Elk who had known the company president for twenty-five years. This was how business was sometimes transacted on Main Street USA. And yet if there was a wink and a nod accompanying the transactions of many Springs businessmen, including the B&L men I write about in this chapter, that was not the case with Merton Stubbs, who, like many people, never got the message that it was all a game of suckers and racketeers.21
There is no reason to think that this game was conducted with particular ruthlessness in Colorado Springs. However, for men trying to get ahead—men including my grandfather and the area’s three other building and loan operators—the city presented distinct challenges. By the twenties Colorado Springs, a city that had grown cocky about the region’s mineral wealth, began to entertain the previously unmentionable—that a gold-based economy might not be sustainable.22 In his 1921 address to the General Assembly, Colorado governor Oliver Shoup, a longtime Springs resident and booster, argued that the state needed to confront the possible “passing of the prospector.” Shoup was an anti-statist politician who usually made a point of disparaging the federal government, but on this occasion he called on the federal government to help the state address this grave problem.23
By this point even some local mine owners had come to realize that Cripple Creek would not keep producing.24 They started looking for the next big thing and turned to sugar beets, oil, and, of course, other minerals—all of them extractive industries. With the slowly dawning realization that mining might not always be the town’s economic engine, Colorado Springs itself began to search, sometimes anxiously, for what might take the place of gold.25 Some, including Spencer Penrose, bet on tourism. Penrose made millions from mining copper in Utah, but he was among those who banked on tourism as the saving grace of Colorado Springs. He financed the Pikes Peak Highway, the Broadmoor Hotel, and the Cheyenne Lodge. One group plotted to turn Monument Valley Park into a world-famous spa.26 In nearby Manitou the “golden dream” had long been the discovery of hot mineral water that would permit the resort town to operate on a year-round basis. In 1930 a Texas oil magnate, who had vowed to find Manitou’s hot water by drilling 1,500 feet deep or deeper, became one of many who promised (and failed) to deliver.27 A year later, businessman Merrill Shoup, son of the former governor, argued that the city should exploit the region’s “coal wealth” until a “new Cripple Creek is discovered.”28
Colorado Springs did its best to turn itself into a commodity. City leaders promoted it as “the City of Sunshine” and “the gateway to the roofgarden of America.” In an apparent effort to cover all bases, they even marketed it as both “the Playground of the Nation” and “the City of Churches.”29 Tourism had long been an essential part of the town’s economy, but with the downturn in mining, its economy became almost entirely dependent on tourism. By contrast, Los Angeles, the city that sold itself better than any other, could boast by the twenties that it had the movies, real estate, tourism, and the beginnings of industry.30 Tourism produces service-sector jobs, and the Springs became so well known as a city of such jobs that people joked that the place was made up of three classes: a leisure class revolving around society and sports, another class of tourists, and everyone else whose job it was to serve those groups.31 I mention it here because it captures something of what Colorado Springs was like for ambitious men who were not already part of the city’s leisure-class elite. They had arrived in the Springs when the lure of gold was still alive, but only the most delusional could continue to hold on to that fantasy. More and more Americans thought they might make it in the twenties, a time when a full four million were trying their hand at the stock market and when radio, newspapers, and women’s magazines ran stories on how to strike it rich on stock “tips.”32 Those hopes lived on in Colorado Springs, too, but the jobs on offer there were increasingly service-sector jobs, only some of which were lucrative.
In 1923 Colorado Springs was selling itself as “the City of Sunshine,” beckoning tourists from other parts of the country. (Gazette)
The 1920s have the reputation of having been a boom time, and they were, particularly for urban elites. Take the changes in the tax code, which created “windfalls for the wealthy” and spurred speculation among the affluent.33 However, for the middle class, participating in the consumer revolution meant assuming more debt and trying their hand at investing. For the men who ran the B&L business in Colorado Springs it must have been an especially frustrating time because the Springs was characterized by an unrivaled concentration of wealth. Moreover, at this juncture Colorado Springs was a small city with distinct limits, very unlike Los Angeles, which even in the early twentieth century was characterized by both sprawl and a “private, fragmented urbanism.”34 By contrast, even Millionaires’ Row was a part of the North End; its residents were visible, not cloistered. This would shift with the housing development in Broadmoor, where more affluent residents began to settle, particularly from the late 1920s onward. But up until that point the wealthy tended to live in relative proximity to other townspeople. My grandfather would have seen Spencer Penrose and other millionaires as they moved about town. He would have seen the construction on Penrose�
��s house—an enormous garage to house the mining magnate’s four canary-colored Lozier cars, for a time the most expensive car built in the United States.35 The city’s affluence was palpable, but in a context of limited upward mobility it felt increasingly out of reach.
In the years leading up to the building and loan crash, there were three men besides my grandfather operating building and loan associations in Colorado Springs. Like Walter Davis, all of them were from the great middle—geographically and socioeconomically. Their early years were spent in the Midwest, in families positioned somewhere in that baggy territory that extends imprecisely from the lower middle class downward. Their backgrounds were similar, but each of them lived and failed in ways that were distinctly their own.
There was Willis Sims, a staunch Republican who made his name in a successful credit reporting business he ran with his brother Robert.36 Credit bureaus began forming in the years before the Civil War, and they helped to bring about a sea change in American society by judging and rating men according to their creditworthiness. Those who fell short of “character, capital and capacity” would have their disappointments catalogued and tracked, much like “damaged or unclaimed freight.”37
Knowing the gossip and the rumors with which to fill up these reports required being a part of the town’s lodges and clubs. Sims was active in the Knights of Pythias, the Elks Club, and the Masons. He wasn’t your run-of-the-mill Mason; he was a Master Mason. A founding member of the town’s Rotary Club, he was also active in the town’s conservative Chamber of Commerce, and for one term served El Paso County in the state legislature. During World War I he was the chairman of El Paso County’s Four-Minute Men, a national effort to drum up patriotic support for the war and the purchase of Liberty Bonds through rapidly delivered four-minute speeches.38
In 1916 Sims acquired a controlling interest in the town’s very first building and loan association, the Assurance Savings and Loan.39 His association grew despite the fact that he did not offer bloated interest rates on savings accounts. In the summer of 1918 he also began working at the State Savings Bank in Colorado Springs as the cashier, which in those days was the crucial stepping-stone to the presidency. The State Savings Bank was far from a banking powerhouse. However, Sims was an establishment businessman and it was his bank where the city of Colorado Springs and El Paso County kept their money.
Sims seems to have run these businesses conservatively, but he was not immune to the get-ahead sensibility of those times. As in much of the nation, the Springs was awash in new housing construction, and in 1921 Sims became involved with the former mayor of Manitou in an ambitious deal to develop a big parcel of land right by the doorstep of the Garden of the Gods.40 The eighty-two-acre residential townsite, Lennon Park, was due north of Adams Crossing, an area between Colorado Springs and Manitou.41
There was just one problem going forward: Sims had no money of his own to invest. Unable to resist this surefire opportunity, he began embezzling. Legally, an embezzler is someone who misappropriates money or property that was placed in his or her care, and that’s what Sims set about doing. Like many embezzlers, he was doubtless full of good intentions about returning the money.42 However, sales of Lennon Park lots proved sluggish, and that led Sims to take some of the unsold lots and develop them himself, not into homes, but into a deluxe auto lodge. Maybe his brother Robert, who was by this point also working as the secretary for the local Automobile Dealers Credit Association, encouraged him to get in on this growing industry. After all, the Springs was a tourist destination and some people were looking for an alternative to camping by the side of the road, a practice that municipalities were increasingly outlawing. At Sims’s Buffalo Lodge tourists would find themselves within feet of the entrance to the Garden of the Gods, with its stunning red rock formations. How could it fail? According to court records, Sims financed its construction and outfitting by embezzling nearly $30,000 from his B&L and taking out a $10,000 loan from his own bank. But by the time construction began on his lodge it was 1930, just months after the stock market crash. As the Depression set in and the tourist industry withered, Sims scrambled to pay back the loan to his own bank, to keep the shortfall in his B&L hidden, and to keep his handsome auto lodge going. Over the next months he used his good name to borrow another $25,000 from individuals and local banks.
Why did Sims become an embezzler? Perhaps as he approached middle age he despaired of ever being able to provide for his wife and children as well as he would have liked. He had been the golden boy of the Republican elite, yet it was his younger brother who just bought a home in the new upmarket Broadmoor development. Meanwhile, even though he labored at three jobs his family lived modestly in a house in the business district, an area already of diminished desirability. He may have wondered whether he would end up like those men he had judged so harshly: society’s “unclaimed freight.”
In contrast to Sims, who was part of the Colorado Springs establishment, Fred Bentall was an outsider. In a town dominated by Protestant Republicans who opposed the Ku Klux Klan, Bentall was a Democrat, a deacon of his Baptist church, and a leader of the local Klan.43 Born and raised in Minnesota by his Swedish immigrant parents, the twenty-six-year-old Bentall showed up around 1908 in Colorado Springs. He secured employment as a clerk in an attorney’s office and studied the law. In 1912 he listed his line of work in the city directory as “notary public” and “loans,” and a year later he was admitted to the bar.
Bentall later claimed that it was Walter Davis who had encouraged him to open his own association. However, it is unlikely Bentall needed any encouragement to get into the B&L business; he had spent much of the past decade working as a moneylender, which supplemented whatever income he earned as a lawyer. The Home Building and Loan Association opened right before Thanksgiving 1922. Within weeks of its opening, the association was running ads that screamed “7% interest” and promised that money could be withdrawn as needed, which was not, of course, true. Despite offering inflated rates of interest, the Home remained a small and amateurish concern, and at least one lawsuit suggests that Bentall sometimes took advantage of his more vulnerable working-class customers.44 It’s also possible that potential customers were put off by the association’s disheveled office and Bentall’s uncertain handle on the details of people’s accounts. It was later revealed that his bookkeeping sometimes amounted to nothing more than notations on scraps of paper stuffed into the pigeonholes of his desk. Bentall did not use his depositors’ money to buy a flashy car or a more expensive home, which might have caused comment. Rather, he acquired equity in an Oklahoma property and bought a ranch outside of town, which he stocked with cattle and outfitted with $2,000 worth of farm machinery.
All the town’s building and loans ran advertisements in the local dailies. From the time it opened its doors in 1922, the Home, like the Dollar, offered 7 percent interest, and sometimes, as here, with promises of interest compounded monthly. This ad ran in April 1930. (Colorado Springs Gazette & Telegraph)
Edward C. Sharer, the other building and loan man at the heart of this saga, came to the business after a long career in the employ of some of the most powerful capitalists in Colorado Springs. After finishing law school in Chicago, he moved to the Springs to be the private secretary for James R. McKinnie, a mining contractor who struck it rich in Cripple Creek. McKinnie’s network included his business partner Robert P. Davie, the legendary mining man Verner Z. Reed, and Reed’s private secretary, Oliver H. Shoup, the future Colorado governor. All of these men were national capitalists who made fortunes in mining, oil, and what many regarded as the “new gold,” sugar beets.
McKinnie and Davie were land speculators who bought up promising land, sank some wells, pumped some water, and then moved on, having sold the land to someone with the money to properly develop it.45 They were, as one newspaper put it, “hustlers,” men who made their money by transforming the West’s “waste places.”46 Sharer worked alongside these hustlers, and even followed th
em to Los Angeles, where he tried to make his fortune as a real estate developer. Despite his proximity to power, the forty-one-year-old Sharer returned to the Springs in 1916 after three years in L.A. with little to show for it. Shoup, a millionaire, provided him a soft landing, appointing him president of the Manitou Mineral Water Company. Ginger Champagne, a nonalcoholic beverage, was the company’s big seller. (Ed Sharer was possibly the man my mother regarded as her father’s nemesis, the mysterious “Bubbles.”)47 Back in the Springs Sharer resumed his role as a community pillar, serving as the secretary of Liberty Bond drives, heading up financial campaigns for the Red Cross, and directing the Sunday school program at the First Presbyterian Church. He was active in the Republican Party and the Chamber of Commerce.
Sharer was among the men who formed the Dollar Building and Loan Association, which opened for business in April 1922. Just as the Home did several months later, it announced its arrival with advertisements promising rates of 7 percent interest on deposits. Sharer used his position at the Dollar to further his ambitions as a land developer, and in the process his personal business grew entangled with that of the B&L. The Dollar was so haplessly managed that in 1927 a concerned employee contacted board member Shoup, who then alerted the state’s building and loan commissioner to its condition. An audit revealed the association was operating with a $32,000 shortfall (more than $441,000 today) and a $40,000 impairment of its assets. When the accountant handling the audit confronted Sharer with his finding, the B&L man implored him, “Think of my wife and children.”48
This wasn’t a trivial matter caused by an absentminded staffer, as with It’s a Wonderful Life’s Uncle Billy misplacing $8,000 of depositors’ money. Indeed, the commissioner judged what had happened at the Dollar a “serious malfeasance.” Yet the authorities chose not to prosecute Sharer or to warn the public of its precarious condition.49 The state’s unwillingness to pursue the matter reflected its long-standing reluctance to regulate the industry it was charged with supervising as well as the influence enjoyed by the former governor, who offered to put the association on sounder footing before quietly resigning from the association’s board of directors. Whatever arrangements were made in 1927—and they were never entirely explained—Sharer went unpunished.