A historian asks: Do we over-idealize Main Street?

Historian and author Alice Echols began to look into a family scandal and uncovered a sprawling saga of capitalism run amok.

'Shortfall' is by Alice Echols.

During the Great Depression, a banker ripped off millions of dollars from depositors while working as a Colorado Springs building-and-loan banker. Then he fled town, abandoning depositors to potential ruin and his family to heartache.

It was a major news story at the time, but her family hid the scandal from the banker's granddaughter, Alice Echols, now a University of Southern California history professor. Then, just a few years ago, her elderly mother began to open up, and Echols discovered a forgotten cache of letters and documents in an attic.

Echols would go on to uncover a sprawling saga of capitalism run amok and a Colorado-style conservatism whose adherents railed against big government instead of demanding more protections. The tale unfolds in her new book Shortfall: Family Secrets, Financial Collapse, and a Hidden History of American Banking.

In an interview, Echols talks about the colorful history of Colorado Springs, her own deep guilt about her grandfather's crimes, and the dangers lurking when we trust our down-home institutions too much.

"We continue to put so much faith in capitalism as an essentially good system, and we idealize Main Street," she says. "But often our faith is misplaced."

Q: Today, Colorado Springs is best known as a military city and right-wing stronghold. As you write, the city made a mint in its early 19th-century days as a successful mining town that kept vice – brothels and bars – outside city limits. What else set it apart?

Surrounded by so much beauty, Colorado Springs had a sense of its own specialness. And it was an incredibly wealthy city with the highest proportion of millionaires anywhere in America.

It had an opera house and beautiful parks, and many people saw this as this little island of sophistication that wasn't a representative Western town.

Q: What happens when mining begins to fade at the beginning of the 20th century?

It was up for grabs to how Colorado Springs was going to develop politically.

This was a city that certainly featured suffragists, and it would actually be the one major Colorado city that resisted the Ku Klux Klan in the 1920s when Colorado was one of the most "Klux" states in America. And since it was in the Pikes Peak region, it was an area of pretty significant labor radicalism due to mining.

By the 20th century, they're looking for the next big thing, and a city that started out as a health resort turned to tourism and eventually to the military.

Q: Your grandfather conned customers of his building and loan, a kind of bank created to help people buy homes in the days when it was tough for ordinary families to borrow money. How did they work?

They began in the 19th century and were supposed to enable working-class people to buy their homes before they were in late middle age, which had been the case before.

But in the 1880s, you find a completely new business model which moves away from the old philanthropic style toward a for-profit corporation model. They revive in the early 20th century, and by the 1920s, they're booming.

But you also see the entry of people like my grandfather as the industry is hijacked by unscrupulous businessmen who treat customers as honeypots.

Q: How did these con artists rip off customers?

They offer rates of interest that they can't sustain. In the case of my grandfather, he was able to leverage the money that was coming in to finance a very swell lifestyle for himself, his family, and his mistress.

Q: What makes this kind of swindle unique?

As Americans, we tend to idealize Main Street capitalism. That's deeply ingrained. When a person is embedded in your community, is part of the various lodges and fraternal organizations in town, and may even teach Sunday School, the assumption is that that person is honest.

But when you look at the '20s and '30s, you can see that a lot of these building-and-loan operators were operating Main Street businesses. These bankers had face-to-face contact with their depositors, yet they had no compunction about ripping them off.

Q: What was the hardest part about writing this for you?

It was discovering how much money my mother had inherited and how they could have spared some of that money for these depositors who were struggling and sometimes failing.

We didn't live extravagantly, but both my sister and I were college-educated, and we were were quite comfortable.

It made me ask whether the only thing standing between the life of my uncle on my father's side – he'd been a gas jockey – and the trajectory of my own family was my grandfather's deviousness and how much it underwrote our lifestyle. That is difficult to contend with.

Q: Is more regulation the answer to prevent people from being scammed?

It's fascinating that we tend to forget these financial scandals.

They don't get lodged in our memory, and we're much more apt to cling to fairy-tale versions of capitalism such as the one Frank Capra tells in the movie "It's a Wonderful Life," where the building-and-loan is represented by the kind-hearted, generous George Bailey and not my grandfather or other men like him.

In fact, this scandal suggests that unfettered capitalism ultimately will harm people even at the smallest local level.

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