Shortfall

by Alice Echols

  Every lecture I gave on this project generated valuable feedback. In April 2013 I presented my research to members of the Western History Workshop at the Autry National Center. One participant suggested I examine the court cases that he was sure followed from the building and loan meltdown. He was right, as subsequent trips to the Colorado State Archives proved. UCLA historian Steve Aron, that workshop’s organizer, asked crucial questions about the centrality of the West to my book. Faculty in the History Department at USC raised questions about the scope and ambitions of this project. Louis Hyman’s response to my paper at 2016’s Histories of Capitalism Conference at Cornell enabled me to see that I needed to clarify one piece of my argument. Many thanks to my interlocutors at the fall 2016 Colloquium on Political Economy, sponsored by the Center for the Study of Work, Labor and Democracy at the University of California, Santa Barbara, particularly the center’s director, Nelson Lichtenstein, as well as Eileen Boris, Miroslava Chavez-Garcia, Mickey and Richard Flacks, Mary Furner, Lisa Jacobson, Laura Kalman, Alice O’Connor, Constance Penley, Howard Winant, and everyone who took part in that wide-ranging and energetic discussion.

  Over the past fifteen years I have conducted research in many libraries and archives, and the people who have assisted me deserve special thanks. Tim Blevins, the division head of Special Collections in the Pikes Peak Library District, is a scholar in his own right, which is doubtless why he proved to be so tenacious at finding hard-to-get sources. It was Tim who uncovered a partial run of an obscure but essential local newspaper, Common Sense Weekly. I also want to thank the other wonderful librarians, archivists, and staff at the PPLD, particularly Erinn Barnes, Dennis Dailey, Jody Jones, Chris Nicholl, and William Thomas. The able, overworked archivists at the Colorado State Archives in Denver found the right boxes—no small feat. Paul Levit did whatever it took to retrieve pesky, seemingly lost files. Also able were James Chipman, Lance Christensen, and Tracie Seurer. Librarians at the Texas State Archives in Austin were likewise terrific. Thanks are due to Leah Witherow at the Pioneers Museum, the librarians in Special Collections at Colorado College, Bill Stookey, the title examiner in the El Paso County Assessor’s Office, the staff in Special Collections and Archives at the University of Colorado in Boulder, and Kathy Reynolds, the director of the Cripple Creek District Museum. Many years ago I examined HOLC records at the National Archives at College Park, Maryland, where the staff guided me expertly to the right materials. Finally, thanks to the staff at the Greensburg Carnegie Public Library in Greensburg, Indiana.

  In Colorado Springs, I was lucky enough to meet with veteran local journalist John Hazlehurst, whose mother, Edith Farnsworth, turns up briefly in these pages. Deeply knowledgeable about the region, John shared with me his thoughts about his hometown. Thanks also to Dwight Haverkorn, a local historian often to be found at a microfilm reader at CC.

  Anyone who has stared at a microfilm reader for long hours knows that it is hard work. The staff at the Mining Exchange Hotel, located just blocks from the downtown branch of the Colorado Springs Public Library, always made my stays there comfortable. And here at home, Moth, LucyFur, and Walter Gomez provided much-needed distraction, often when trying to pry me away from this book.

  The New Press has provided a wonderful home for Shortfall. Working with Carl Bromley and Marc Favreau, my extraordinarily talented editor, has been a dream. Marc has a laser-like vision for what needs further explanation or outright overhauling. Maredith Sheridan, the marketing manager and associate publicist at the press, and Emily Albarillo, the production editor, were terrific. Susan Warga’s copyediting was superb.

  Without my father’s revelation to me some twenty years ago, there would be no Shortfall. I’m grateful that he finally spilled the beans. Over the years my sister, Martha Jane Echols, has been generous in sharing with me her thoughts about our family. She is several years older than me, which doubtless goes some way toward explaining why our memories do not always converge. My sister also gave me several boxes of photographs and family papers, for which I am grateful. Many thanks are also due to Lucy O’Brien, who generously went through the many boxes that had been left behind in what was now her attic.

  One regret I have is that my mother’s graciousness and kindness do not come across in this book. A lifelong Episcopalian, in the last years of her life she pushed herself to be more empathic to people different from herself. For her, it was about becoming a true Christian. I loved her deeply. I still miss her and our talks about her parents and her life with them in Colorado Springs.

  Finally, Kate Flint came into my life a little more than twelve years ago. A polymath and an indefatigable sleuth, Kate is brilliant. A generous and demanding critic, she managed throughout to be utterly supportive while at the same time conveying that whatever draft she had just read was not quite there. Always this news was conveyed in an upbeat fashion, usually by the phrase “Almost there!” There were times when she also tracked down something—about, say, tourism or banking—before I had gotten there. Kate often accompanied me on trips to Colorado Springs, where she would photograph the houses, buildings, stores, and hotels that figure in this book. She did this even though she was working on her own book, a cultural history of flash photography. Having Kate in my life (and, indeed, being married to her) is a blessing. I cherish her every day.

  Notes

  Abbreviations

  CSA

  Colorado State Archives

  CSET

  Colorado Springs Evening Telegraph

  CSG

  Colorado Springs Gazette

  CSGT

  Colorado Springs Gazette-Telegraph

  CSI

  Colorado Springs Independent

  CSW

  Common Sense Weekly

  DP

  Denver Post

  LAT

  Los Angeles Times

  NYT

  New York Times

  RMN

  Rocky Mountain News

  SGT

  Sunday Gazette and Telegraph

  Prologue: Captain Nothing

  1. Calculating worth over time is a vexed task. One can employ different measures of worth. I have chosen to use the Consumer Price Index (CPI) throughout. See the very useful essay by Lawrence H. Officer and Samuel H. Williamson, “Measures of Worth,” Measuring Worth website, www.measuringworth.com/worthmeasures.php, accessed January 25, 2017.

  2. “Why Banker Davis Was Glad,” San Antonio Light, January 22, 1933. This feature article, which included an artist’s renderings of the principals in the scandal, seems to have been nationally syndicated. It also appeared in the Milwaukee Sentinel.

  3. Davis is mentioned in Stephen J. Leonard’s invaluable history, Trials and Triumphs: A Colorado Portrait of the Great Depression with FSA Photographs (Niwot, CO: University Press of Colorado, 1993).

  4. For example, in the standard history of the thrift industry, its author, David L. Mason, argues that B&Ls had an impressively low failure rate nationwide in 1931 and 1932. He puts the figure at just over 2 percent, by comparison to the failure rate of banks, which he puts at 20 percent. However, the problems with B&Ls—with associations becoming frozen, going into receivership, being liquidated or consolidated—lasted into the early forties. To get an accurate reading on the condition of the B&L industry, one would have to consult state archives in every state rather than rely on the numbers put out by the thrift industry itself. See Mason, From Buildings and Loans to Bail-Outs: A History of the American Savings and Loan Industry, 1831–1995 (New York: Cambridge University Press, 2004), 78. Mason often relies upon thrift industry insider Josephine Hedges Ewalt’s A Business Reborn: The Savings and Loan Story, 1930–1960 (Chicago: American Savings and Loan Institute Press, 1962). He also cites the history written by the general counsel of the U.S. Savings and Loan League, an industry trade group. See Horace Russell, Savings and Loan Associations (Albany, NY: Matthew Bender, 1956). In discussing the Great Depression, Mason downplays financial wrongdoing and fraud, b
ut he mentions one 1920s case involving seventeen Philadelphia thrifts with interlocking directorates.

  5. See Mehrsa Baradaran, How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy (Cambridge, MA: Harvard University Press, 2015), 86. Baradaran’s book is on target in its critique of the banking industry today, but she treats Bailey Brothers Building and Loan Association as though it typified the building and loan business. And in the opening paragraphs of From Buildings and Loans to Bail-Outs, Mason claims that It’s a Wonderful Life “provided an accurate sketch of America’s thrift industry during its heyday of the late 1940s and early 1950s.” Here and there one comes across references to building and loan failures in a particular city during the 1930s. See, for example, Lizabeth Cohen, Making a New Deal: Industrial Workers in Chicago, 1919–1939 (New York: Cambridge University Press, 1991), 227–38, and Gerald Jaynes, “The Economy and the Black Citizen, 1900 to World War II,” in The Oxford Handbook of African American Citizenship, 1865–Present, ed. Henry Louis Gates Jr. et al. (New York: Oxford University Press, 2012), 308. Jaynes notes that in 1930 there were seventy black-owned B&Ls with assets of more than $6.5 million. By 1938 that number had fallen to fifty B&Ls with assets of $3.6 million. One scholar who does acknowledge the extent of failure in the thrift industry, but refers to “amateur management” and “conflicts of interest” rather than flat-out financial wrongdoing, is Kenneth A. Snowden in his essential article, “The Transition from Building and Loan to Savings and Loan, 1890–1940,” in Finance, Intermediaries, and Economic Development, ed. Stanley L. Engerman, Philip T. Hoffman, Jean-Laurent Rosenthal, and Kenneth L. Sokoloff (New York: Cambridge University Press, 2003), 167–69. Barry Eichengreen describes B&Ls as among the worst offenders when it comes to real estate speculation in the 1920s. See Eichengreen, Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History (New York: Oxford University Press, 2015), 29.

  6. Molly Pulda, “Unknown Knowns: State Secrets and Family Secrets,” Biography 35, no. 3 (2012).

  7. Beryl Satter, “Reflections: On Family Properties: Race, Real Estate, and the Exploitation of Black Urban America,” Reviews in American History 41, no. 1 (March 2013): 179.

  8. The Davis family archive included material that my sister subsequently contributed.

  9. “Federal Savings Reelects Officers,” CSG, January 20, 1938, 1.

  10. Letter to the Editor, CSW, May 13, 1932, 1.

  11. U.S. Department of Commerce, Fifteenth Census of the United States: Population, vol. 6, Families (Washington, DC: Government Printing Office, 1933), 213. Accounts of the number of depositors in the four Colorado Springs building and loan associations varies from a high of 10,000 to a low of 5,000. See “Depositors Demand Arrest of Gross,” DP, July 2, 1932; Republican Central Committee of El Paso County Announcement to B&L Stockholders, CSG, November 5, 1932; Editorial, CSW, July 18, 1932, 4.

  12. For a number of important essays emphasizing instead the “anonymous, often invisible, workings” of capitalism, see Michael Zakim and Gary J. Kornblith, eds., Capitalism Takes Command: The Social Transformation of Nineteenth-Century America (Chicago: University of Chicago Press, 2012), 12.

  13. For dubious mortgage lending schemes, including interest-only balloon mortgages and the “mortgage racket” more generally, see Louis Hyman’s Borrow: The American Way of Debt (New York: Vintage, 2012), 65–78. For low-down-payment loans, see Eichengreen, Hall of Mirrors, 29. Historian Jacob Soll persuasively argues that poor accounting exacerbated the Great Depression. See Soll, The Reckoning: Financial Accountability and the Rise and Fall of Nations (New York: Basic Books, 2014), 192.

  14. For the failure rates of Colorado B&Ls, see the Index to Liquidations Archives Number 69-261, CSA. For the effects of the crash on Pueblo, see “District Attorney Traces Saunders’ $100,000 Check,” DP, July 22, 1932, 3.

  15. See Annual Report of Building and Loan Associations (1929–1944) of the Texas Department of Banking at the Texas State Library and Archives, Austin, Texas.

  16. Eichengreen, Hall of Mirrors, 29. Snowden notes that the sunny predictions for industry growth and integrity made in 1930 by Morton Bodfish, the powerful leader of the B&L trade group, were colossally wrong. The thirties, says Snowden, represented nothing less than a “decade of demise” for the B&L industry. Snowden, “Transition,” 157.

  17. My estimate of the failure rate in Colorado is derived from the State of Colorado’s Biennial Reports of the Bureau of Building and Loan Associations, which are available at the Colorado State Archives, Denver, Colorado. When it comes to the figures nationally, there is a gulf separating the figures put forward by David Mason in From Buildings and Loans and those put forward by Kenneth Snowden in “Transition.” That discrepancy is largely attributable to the fact that Mason stops counting after 1932, and Snowden wisely continues counting until 1941. It turns out that one must examine figures until at least 1941 because associations typically “froze,” often for years, until they were liquidated or consolidated into another B&L. Complicating any effort to calculate the closure rate is that while many B&Ls were effectively frozen, new “savings and loans” associations were being established while the older B&Ls languished. The new S&Ls were federally chartered and offered depositors federally insured insurance. See Snowden, “Transition,” on this development.

  18. For quotes stressing the semi-philanthropic nature of B&Ls, see Elaine Lewinnek, The Working Man’s Reward (New York: Oxford University Press, 2014), 95, 99; Snowden, “Transition,” 170; Mason, From Buildings and Loans, 24–27. It was New York University professor of economics Richard Netzer who characterized the post–World War II S&L industry as dominated by men who treated their associations like nothing so much as “honey pots.” In the aftermath of the S&L crisis, prevailing wisdom held that deregulation had destroyed the S&L industry. Netzer believed otherwise: that the industry had always tolerated unethical practices. See his letter to the editor, “Savings and Loans Were Always a Scandal,” NYT, August 24, 1990.

  19. There is a vast and contentious literature on social mobility in the United States. Historian Stephan Thernstrom penned two of the most influential books about it. Thernstrom’s 1964 classic, Poverty and Progress: Social Mobility in a Nineteenth Century City (reprint, Cambridge, MA: Harvard University Press, 2009) argued for limited mobility. His prize-winning 1976 book, The Other Bostonians: Poverty and Progress in the American Metropolis, 1880–1970 (Cambridge, MA: Harvard University Press, 1976) found evidence of significantly greater mobility. My discussion draws on these books, and his preface to the 1987 edition of Poverty and Progress. I have also been influenced by other studies, including the critique of Thernstrom’s work in Kenneth Kusmer’s Down and Out, on the Road: The Homeless in American History (New York: Oxford University Press, 2003). See also Howard Chudacoff’s excellent essay “Success and Security: The Meaning of Social Mobility in America,” Reviews in American History 10, no. 4 (December 1982); Michael B. Katz, Michael B. Doucet, and Mark J. Stern, The Social Organization of Early Industrial Capitalism (Cambridge, MA: Harvard University Press, 1982). Economist Thomas Piketty’s Capital in the 21st Century (Cambridge, MA: Belknap, 2014) has generated substantial debate about income inequality and social mobility. Piketty argues that American rates of social mobility actually lag behind those of Europe and have for some time. It’s worth noting that claims about social mobility have not always been attentive to place, time, race, and gender. For income inequality, see also Emanuel Saez, “Striking It Richer: The Evolution of Top Incomes in the Unites States,” September 3, 2013, 3, http://eml.berkeley.edu/~saez/saez-UStopincomes-2012.pdf.

  20. The idea that what’s truly problematic about American capitalism is Wall Street (and titans of capital) was demonstrated in an exchange between 2016 Democratic Party presidential candidates Hillary Clinton and Bernie Sanders. Asked if it was actually true that he was not a capitalist, Sanders deflected the question and instead attacked the “casino-capitalis
t process” whereby “Wall Street greed and recklessness wrecked this economy.” Clinton said, “When I think about capitalism, I think about all the small businesses that were started.” She then moved on to discuss the need to address the excesses of capitalism. See Amy Davidson, “Comment: Radical Measures,” The New Yorker, January 25, 2016, 19.

  21. The description here is that of Wall Street reformer Ferdinand Pecora in his 1939 book, Wall Street Under Oath: The Story of Our Modern Money Changers (ebook, Los Angeles: Graymalkin Media, 2014). John Kenneth Galbraith emphasized Wall Street in his classic study of the Depression, The Great Crash 1929 (New York: Penguin Books, 1975), and others have as well. See, for example, David M. Kennedy’s The American People in the Great Depression, Freedom from Fear, Part One (New York: Oxford University Press, 2001), and Ira Katznelson’s Fear Itself: The New Deal and the Origins of Our Time (New York: Norton, 2014).

  22. Peter Conn is critical of this tendency in The American 1930s: A Literary History (New York: Cambridge University Press, 2009), 6.

  23. The language here is that of Wilfred M. McClay, invoked by labor historians Jefferson Cowie and Nick Salvatore, in their provocative article “The Long Exception: Rethinking the Place of the New Deal in American History,” International Labor and Working-Class History 74 (Fall 2008). See McClay, “Individualism and Its Discontents,” Virginia Quarterly Review 77, no. 3 (Summer 2001): 395.

  24. Jefferson Cowie and Nick Salvatore advance the idea that the New Deal was “the long exception” in U.S. history. See Cowie and Salvatore, “The Long Exception.” The same issue includes pithy responses from Jennifer Klein, Michael Kazin, Kevin Boyle, and Nancy MacLean. There is a growing literature about the New Deal that reveals the extent to which gender and racial inequality were built into the welfare state that New Dealers forged. Devra Weber, Dark Sweat, White Gold: California Farm Workers, Cotton, and the New Deal (Berkeley: University of California Press, 1994); Katznelson, Fear Itself; Suzanne Mettler, Dividing Citizens: Gender and Federalism in New Deal Public Policy (Ithaca, NY: Cornell University Press, 1998).