BUILDING IN AUTONOMY

Innovation in the creation of new organizations is often associated with FDR and his “alphabet soup” of New Deal agencies. But the Federal Home Loan Bank Board (FHLBB) was an accomplishment of the previous Hoover administration, desperate to find a solution to the collapse of the housing bubble that accompanied the Great Depression.

Housing starts had boomed in the 1920s, increasing from around 100,000 new starts in 1918 to a high of more than 550,000 new starts in 1926 (Wheelock, 2008, 135). The upshot was a bubble to rival the recent housing crisis – complete with land and construction booms in Florida (Allen, 1931) and speculation that the bubble came from lax lending standards and the growing use of securitization of debt for new construction (Gordon, 1974).

In a 2009 article, economists Steven Gjerstad and Vernon L. Smith argued that this early housing bubble precipitated the Great Depression: “The standard explanation of the precipitating factor in the crash of 1929 has been excessive speculation on Wall Street. Speculation does appear to have been a factor, but then, as now, we believe that mortgage and consumer finance growth were also at the core of the problem” (Gjerstad & Smith, 2009, 287). And as Ernest M. Fisher pointed out in 1950, “The general economic expansion of that period found no more dramatic expression in any area than in that of mortgage lending. The expansion of mortgage lending was, in turn, a manifestation of a rapid expansion of our urban real estate inventory” (Fisher, 1950, 307). Construction surged, home ownership rapidly increased, indebtedness jumped by 174%, and mortgage bond issues rose from $300 million in 1920 to between $5 billion and $10 billion in 1935 (309).