Shortfall Read online

  What happened in Colorado Springs occurred in countless communities across America. During the Depression the building and loan industry suffered terrible losses, in large measure because of the calamitous downturn in the real estate market. There were contributing factors as well, which included poor accounting, lax regulation, inflated interest rates on deposits, bad loans and low-down-payment loans, balloon mortgages (a much-touted recent innovation), and financial misconduct.13 State records show that in Colorado alone 60 percent of all building and loan associations closed their doors during the Depression years. Half the population of nearby Pueblo, a working-class city and home to the Rockefellers’ huge steel mill, was directly affected by the crash of the town’s mega-B&L—the biggest in the state.14 In Texas, home of 153 associations in 1929, there were only 54 building and loans still operating in 1944.15 California also had more than its fair share of trouble, including the spectacular $8 million embezzlement of the behemoth Hollywood Guaranty Building and Loan Association with its 24,000 depositors.

  Estimates of B&L failures nationally vary widely, but one recent study posits that nearly one-half of the associations that were in operation at the onset of the Depression were out of business by 1941. Those associations that managed to survive often just limped along.16 To be clear, not all closures were the result of financial improprieties, much less embezzlement. Moreover, depositors were not always left empty-handed when their associations became frozen, were liquidated, or were forced into receivership. That said, in very many cases depositors found they were unable to recover more than a slender fraction of their money. But, again, you won’t find this in books about the building and loan business, largely because the thrift industry boasted a powerful trade group that planted upbeat stories in the press, lobbied Congress, reinvented itself as the “savings and loan” business, and played a role in the publication of seemingly objective and authoritative histories of the industry, which scholars have too often taken at face value. And then there’s It’s a Wonderful Life, a box office flop that became a cultural phenomenon decades after its release. It wasn’t Capra’s intention, but his movie has managed to cast a long and protective shadow over the thrift industry.17

  The collapse of these associations, like the all too common failure of state-chartered banks, affected millions of Americans. At the time of the stock market crash, one in ten Americans belonged to a building and loan association. B&Ls were a crucial component of America’s lending and investment landscape, helping to fuel homeownership and the consumer revolution of the 1920s. It was through these associations that ordinary Americans often came to see themselves as homeowners, consumers, and investors. In the process they developed different expectations about money, believing that it should work for them rather than form a lump under the mattress.

  Despite the overwhelming importance of the B&L industry to American families and its spectacular cratering during the Great Depression, there is, remarkably, no history of how it all played out for depositors in even one city. Shortfall unearths this unknown chapter in the history of American capitalism. Swindles and rip-offs are hardly unusual in finance and banking, but the episode I recount here ranks with the worst in the history of modern finance, all the more so because its victims were regular Americans. The mission of these building and loan associations was to facilitate working-class homeownership on affordable terms. Originally part of a wide-ranging cooperative movement, B&Ls were even called “poor men’s banks.” And yet as the industry grew it shifted as sharp businessmen ditched the original semi-philanthropic B&L design for a different business model, that of the lucrative for-profit corporation. They took to luring customers with offers of inflated rates of interest on their deposits—rates that were unsustainable even had the thirties roared like the twenties. As B&Ls transmogrified, the people running them were increasingly apt to operate them not as a “cure for poverty” but rather as “honey pots” in order to line their own pockets.18 By de-romanticizing the world of building and loans, Shortfall pushes back against our self-congratulatory national narrative and raises the possibility that the playing field in America was tilted more in favor of the wealthy and well positioned than is usually acknowledged.19

  This book also calls into question the presumption that the problems with American banking and finance begin and end with Wall Street. It asks: What if Main Street, home to the very businesses meant to embody the best of American capitalism, has not always worked well for ordinary working people?20 Certainly in Colorado Springs and elsewhere, much of the suffering during the Depression was caused by Main Street businessmen, who lacked the sophistication of big-city stockbrokers and banksters but who were their rivals in greed. In the years before New Deal–era financial reform, banking, big and small, was often characterized by what one legendary financial reformer called “legal chicanery” aided by “beneficent darkness.” Many accounts have detailed the rot at the core of Wall Street in these years, but far fewer have looked beyond it.21 Decentering Wall Street allows readers to see that the problems with banking and finance in this period were systemic, not the result of a few bad apples in lower Manhattan. Indeed, uncovering the hidden history of the building and loan business in this understudied corner of the American West goes some way toward challenging the Frank Capra–like equation of smallness with virtue. This is to say that the little guys were not always the good guys, and that shortages did not always stem from absentminded employees like George Bailey’s Uncle Billy.

  A lot of writing about the thirties treats it as the “red decade,” when collectivism and faith in big government triumphed over the ideologies of free enterprise and rugged individualism.22 It is true that the Great Depression witnessed fundamental reform that was in some ways far more profound than anything achieved in the wake of our own Great Recession. And yet the episode I recount here may surprise readers accustomed to stirring Depression stories of working people subverting farm auctions, blocking rent evictions, and participating in sit-down strikes on factory floors. Depositors elsewhere in the nation did fight for government regulation of the B&L industry and often supported New Deal reform, but in Colorado Springs the story unfolded differently. There, the idea that people move through the world as “self-contained, contract-making individuals,” best left to their own devices, unaided by government efforts to diminish inequality—an idea associated with our own neoliberal times—had already taken root.23

  What I discovered in Colorado Springs led me to see the thirties’ social-democratic turn as more contested and less settled than the lasting political recalibration that I had taken it for. The portrait of the thirties that emerges in these pages suggests that the New Deal ideals of collectivism and economic justice were born of catastrophic economic failure and, still, were resisted by many Americans, not just wealthy businessmen.24 The story of aggrieved depositors I tell here goes some way toward filling in the backstory of modern American conservatism, and indicates that in some places the rightward shift of the white working classes has a longer history than we have known.25

  Some readers might argue that Colorado Springs is hardly representative, even of the West. It is true that from the beginning the city sold itself as the antithesis of the typical wide-open Western town. Drinking, gambling, and factories were all relegated to adjacent Colorado City. Until a nearby gold strike transformed it, making it top-heavy with millionaires, Colorado Springs was primarily a health resort town, and a predominantly Anglo one at that. The city’s evolution into a bastion of free-enterprise conservatism owes a lot to the 1891 gold strike in Cripple Creek, some twenty miles away as the crow flies but forty-five by road. The gold there produced fortunes (and the expectation of more to come) as well as fierce wars between capital and labor.26 During the years that Cripple Creek produced more gold than anywhere else in the country Colorado Springs was the American dream on steroids. America might boast of streets paved with gold, but the downtown streets of Colorado Springs were actually paved with gold. In 1
920 fifteen hundred carloads of crushed low-grade gold ore from the Vindicator Mine in Cripple Creek were added to the city’s paving mixture, making the town’s streets gleam.27

  So at the turn of the twentieth century Colorado Springs was not precisely your typical Western city. And yet, every bit as much as Cripple Creek or other mining towns in the area, Colorado Springs was transformed by the capitalist logic that reduced nature to a “collection of commodities,” by what historian Patricia Limerick has characterized as “the attitude of extractive industry—get in, get rich, get out.”28 The story I tell here is very much a Western story in other respects as well. That is because over time many cities of the West would increasingly come to resemble Colorado Springs, with its service-sector economy, non-unionized workforce, and reliably conservative electorate. And moving forward into the 1940s, the far edge of my time frame, the town’s militarized economy presaged what would happen in much of the West, loaded today with military installations.29 If anything, Colorado Springs prefigured what the West became.30

  To be clear, if my mother’s hometown was prototypical, its rightward trajectory was never a foregone conclusion. Yes, the mining and milling interests came to enjoy an outsized influence there, but even that was not preordained. After all, the Pikes Peak region, where organized labor is now virtually banished, was once a hotbed of radical unionism. W.S. Stratton, who became a mining millionaire, started out as a carpenter and remained a proud union man. Moreover, in contrast to most of the state, Colorado Springs fought off the KKK. The Pikes Peak area was also once home to militant suffragists and Populists, and even some socialists. Although the period covered in this book is one in which conservatism held sway, the city’s longer history demonstrates it was not hardwired for conservatism.

  The strains of conservatism I track in Shortfall first took hold in those parts of the American West characterized by non-unionized labor, plentiful and cheap land, minimal business taxes, and a political system controlled by the business elite.31 The region’s politicians have long attacked the federal government despite its aid in subjugating native peoples, fighting labor unions, subsidizing the construction of the railroad and dams, and stabilizing local economies through the development of a military economy. Of course, plenty of Americans, as historian Michael Kazin has observed, “hate big government and love federal spending—as long as it benefits them and anyone else they regard as morally worthy.”32 However, the involvement of the federal government in the development of the West, and particularly in the regulation of its development, elicited a response from Westerners that one historian has characterized as “politically schizophrenic.” Despite (or perhaps because of) the New Deal’s largesse toward the West, which received three times the national average of federal expenditures, Westerners’ response to the federal government went something like this: “Get out and give us more money.”33

  Still, Colorado Springs seems to have had a head start on other Western cities, even Barry Goldwater’s Phoenix, when it comes to conservatism.34 Consider this: the city’s founder, General William J. Palmer, modeled tax resistance in 1884, a mere thirteen years after establishing the town, by announcing that he was leaving El Paso County and would no longer be paying personal income tax there.35 As is the case today, there were competing strands of conservatism in play. There was the slash-taxes-and-eviscerate-government crew of conservatives who foreshadow today’s Tea Party activists. And then there were the city’s elite businessmen, most of whom were among neoliberalism’s early adopters as they deployed the rhetoric of free enterprise while developing pro-business tax and regulatory climates. The bottom line is that if you want to understand the history of conservatism in the United States, you might want to familiarize yourself with Colorado Springs as well as Kansas, the subject of Thomas Frank’s important 2004 book.36

  Thinking about the relationship between capitalism, class, and conservatism means grappling with homeownership. America can rightfully boast that, historically, homeownership has been achievable here, even for millions of working-class Americans. Those very same Americans, many of them immigrants, viewed owning their own home as the surest path to family security and the best buffer against the uncertainties of industrial capitalism.37 When building and loan associations were gaining a foothold in America in the post–Civil War years, they did so as nonprofits. In those B&Ls guided by the principles of mutuality and cooperation, members found that this promise was often kept. But as Shortfall documents, the culture of building and loans shifted by the late nineteenth century, and the cooperative movement of which they were a part waned. Buying a home, for those with few resources, became more of a gamble—and more of an individual enterprise than a community endeavor. Increasingly, buying a home meant buying on contract or dealing with a dodgy loan man like my grandfather, and in both cases a forfeiture clause was standard.

  In his 1906 novel The Jungle, Upton Sinclair exposed the rip-off—the “trap of the extra payments, the interest, and all the other charges that they had not the means to pay”—that for many working-class families was the reality of real estate.38 Studies of housing in Chicago indicate that Sinclair’s fictional account described all too well the pitfalls for the working classes of owning property.39 By the turn of the twentieth century the foreclosure rate for Chicago’s working people stood at a full 50 percent.40 Despite this checkered history, it is an article of faith in America that homeownership is an unambiguous good, a surefire path toward upward mobility, even in the wake of our own disastrous subprime mortgage crisis. That homes can be (and have been) our ruin is simply not a part of Americans’ cultural memory. And in later chapters I ask if homeownership may affect more than our pocketbooks—if it may, indeed, change our political understanding of the world we inhabit.

  Understanding class requires getting at its emotional undertow. For the most part, American historians have ceded this territory to novelists, playwrights, and screenwriters.41 Jay Gatsby, Clyde Griffiths in Dreiser’s American Tragedy, Mildred Pierce, Willy Loman, and George Bailey are among their most memorable creations. Mildred Pierce builds an empire of restaurants, but the “smells of grease” from her kitchens betray her lack of class and make her repellent to her haughty daughter. Jay Gatsby can throw swanky parties and use leisure-class lingo such as “old sport,” but it’s Daisy Buchanan, the woman with the voice “full of money,” with whom he is infatuated. And who can forget that scene on the train platform in It’s a Wonderful Life when George realizes his brother, Harry, is reneging on his promise to take over the B&L? In those moments before he pulls himself together, his face registers the dismay and the pain of being consigned for the rest of his life to his dad’s shabby office.

  As these examples signal, class is relational. It plays out in intimate spaces as well as workplaces, and class feelings are not readily shed. None of the aforementioned characters is stereotypically blue-collar, yet class is hardly negligible in their lives, and so it is with the people in this book. Some of the folks who turn up in these pages, such as the unionized millworkers in turn-of-the-century Colorado City, saw themselves, at least briefly, as part of a politicized working class. But this book takes on board a range of people whose occupations, neighborhoods, educational backgrounds, and income levels lie outside the conventional parameters of the “working class.” Salesclerks, stenographers, seamstresses, secretaries, contractors, carpenters, stonecutters, waitresses, barbers, even struggling shopkeepers—they were blue-collar, pink-collar, and even white-collar, which is why I describe them as “working people” or the “working classes.” If they shared a disposition—and I can’t say for sure that they all did—“getting ahead” may best describe it.42

  A hybrid, Shortfall ranges across subfields of twentieth-century U.S. history—labor, conservatism, the West, and gender. It features a braided narrative: a financial history, a community study, and a family history. British writer Alison Light has described family history as a “trespasser” that disregards multiple bound
aries, including those between the private and the public.43 Readers of this book will surely experience this dissolve between public and private. What this means in practical terms is that, throughout, the narrative toggles between the micro and the macro. A passage about an intimate family detail might give way to a discussion of fringe financing. But in a narrative in which both an individual family and the American economy are moving inexorably toward ruin, this back-and-forth approach underscores the fact that despite our best efforts to deny it, the boundaries between intimate life and business are sometimes surprisingly porous.

  Part One

  1

  Advertisements for Himself

  Walter Clyde Davis’s name first turned up in the Colorado press just two months after he relocated there. It was the fall of 1905 when news of the twenty-four-year-old’s marriage appeared in the local press. The mention in the Colorado Springs Gazette played up the romantic angle. Separated for two months—with Davis in Colorado and his fiancée, Lula Gilham, in Indiana—the young couple married the very evening she stepped off the westbound train in the Springs. Gilham was said to be from “one of the most wealthy and influential families in Indiana,” and Davis was described as having practiced law in his home state. According to the write-up, they were from the Hoosier state’s more cosmopolitan cities—she from Indianapolis and he from Columbus. The Denver Post approached the story differently. “Pleading at Bar Wins Heiress for Colorado Lawyer” was the title of its account of their marriage. Here, the “very handsome” twenty-one-year-old bride was said to have struck a hard bargain with her suitor, agreeing to marry him only if he won an important lawsuit in Indiana. “If you win this suit, you win me,” she declared. Davis prevailed, the paper said, with one of the arguments of his life.