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

This book is a welcomed addition to the growing literature on the history of U.S. financial markets and institutions. Previous studies of the thrift industry largely concentrated on the Savings and Loan crisis of the 1980s while ignoring or oversimplifying the industry's earlier history. Mason's account gives short shrift to thrifts' nineteenth-century roots (one of ten chapters), but it carefully details the industry's entire twentieth-century history.

Mason's story is important because few scholars yet appreciate the crucial role that finance played in the development of the U.S. economy and way of life. By pooling the savings of numerous small investors and making home mortgages, thrifts provided vital intermediation services that allowed a large percentage of American families to purchase homes. Besides helping to stabilize the country politically, the easy availability of mortgage credit helped to increase the efficiency of the construction industry, a crucial component of the economy. Sadly, to this day, people in many countries, including Brazil and Russia, cannot easily borrow on mortgage. They build their houses over the course of many years, one inefficient brick at a time.¹

The book is also a joy to read. A former banker, Mason effortlessly explains complex financial concepts, including the theory of asymmetric information and asset-liability matching, without resorting to the use of technical jargon. Though written for the generalist rather than the specialist, the book is so thoroughly researched that even financial historians will learn much from it. To create his narrative, Mason deeply mined government documents, including materials in five presidential libraries. He also conducted ten interviews and thoroughly scoured thrift-industry publications.

A wide range of scholars should find the book useful. Political scientists and public-choice economists, for example, will appreciate Mason's careful treatment of the changing role of government regulation in the development of the industry. Thrifts clearly "captured" regulators. Except in the aftermath of crises in the 1890s, 1930s, and 1980s, the industry's lobbyists effectively blocked legislation that they considered harmful. As a result, thrifts long enjoyed preferential tax treatment and less stringent regulations than commercial banks did. Importantly, Mason's account is well-balanced ideologically. He calls each episode as he sees it rather than pandering to Harvard's statists or Chicago's libertarians.²

No book is flawless. Mason's treatment of America's early nineteenth-century financial system is misleading, though, to be fair, my works on the subject were published only recently or are still forthcoming.³ More importantly, Mason avoids direct discussion of a topic of major interest, the role of the mutual form in the financial-services sector. Mutuals—corporations owned by their clients rather than by a separate class of stockholders—traditionally dominated the building-and-loan, savings-bank, and life-insurance industries. Though the dominance of mutuals waned in the 1980s and 1990s, many analysts still believe that mutuality provides companies a distinct advantage in certain realms of finance, including community banking and whole life insurance.⁴

Despite those shortcomings, Mason's well-researched, well-written book will interest anyone, lay or specialist, interested in the development of the U.S. financial or regulatory systems.