Let's not snatch defeat from the jaws of victory
Posted by Charlie Trotter on February 4th, 2009
Please enjoy this guest post from Morriss Partee. ........................................................................................
Jeffry Pilcher, editor of the Financial Brand first alerted me that NCUA chairman Fryzel was lobbying the government for credit unions to get TARP bailout money back in November (Don’t Tarp Credit Unions). Since then, he’s written about how this affects the movement’s reputation here, and here, and so has Matt Davis, Tim McAlpine, Ron Daly, and others.
Last Wednesday, the NCUA revealed that they had unanimously ruled to fee credit unions an additional amount for insurance coverage. Naturally, credit unions of all sizes, large and small, are upset about being charged more money exactly when they can least afford it.
So what is happening here? Regular credit unions are being made to pay for their corporate credit union’s mistakes. Some corporate credit unions made some aggressive investments which are now in trouble. I thought that Corporate credit unions were created to serve the investment and borrowing needs of regular credit unions. Now, regular credit unions have to bail out the Corporates. With hard-earned member dollars. (Edward Filene is turning over in his grave.) If I were a CU CEO, I would rightfully be hopping mad about this.
Well, there’s not much that can be done about this now; it’s spilt milk. I think everyone understands that we need to band together and make tough sacrifices given the current economic dire straits.
But it would be a real shame if taxpayer money were also accepted. I hope that Wednesday’s announcement by the NCUA means that credit unions can at last get OUT of line for government dollars, acceptance of which would, at the least, tarnish the reputation of the CU movement, and at worst, destroy it by leading to the elimination of the last remnants of credit union differentiation. Since the NCUA is going to proceed with its plan to fee credit unions, we need CEO Michael Fryzel to officially state that the CU movement is now OUT of the TARP/government bailout line. Otherwise, credit unions will suffer the WORST of both worlds; having to pay for the mistakes of Corporate Credit Unions AND getting bailout money from the government, putting an end to ONE HUNDRED YEARS of self-sufficiency.
If we can weather this economic crisis, we would prove the superiority of our non-profit, democratic, cooperative way of handling our finances; the notion that putting people ahead of profits is not only the RIGHT thing to do, it’s ALSO the fiscally right thing to do! If we accept government money now, putting an end to 100 years of self-sufficiency, we would be snatching our own defeat from the jaws of victory.
But no matter how egregious it is to have to pay for mistakes made at the corporate credit union level, NOW is the time for credit unions to shout their difference and advantage to the rooftops. This economic crisis is our time to shine, just like we did during the Great Depression. No matter whether you use social media, traditional media or both, no matter if you have an increase or decrease in your marketing budget, the time to tell the world about credit unions’ chocolatey goodness is NOW.
Morriss Partee is the Chief Experience Officer of EverythingCU.com, an online, private community of 6,653 credit union professionals. EverythingCU.com is hosting a webinar this Thursday, February 5th, titled Communicating Credit Union Strength to your Members.
Agreed.
We shouldn’t have been in line for TARP in the first place. You’re exactly right, though…it is high time for our trade associations to come out officially against receiving government bailout money. We don’t need it, and don’t want it.
Did anyone see the numbers on the CUNA call today? Did anyone see just how damaging this writedown/fee is going to be to Credit Unions as a whole?
The CU world will be mortally wounded when this is all over. Meanwhile, you’ll have a banking industry flush with billions if not trillions in bailout money.
By sticking to this prideful position of “No TARP for us”, we’re ensuring the demise of any CU movement that remains.
The time to claim self-sufficiency was before these destructive investments were made and the industry was self sufficient—not after the damage is done and we are not.
The case for why credit unions need TARP money has not been adequately articulated. Is it to rescue the Corporates? Is it to prop up struggling CUs? Is it to relieve stress from mortgage defaults? Is it “just in case” things get worse? Is it money to lend in order to alleviate the credit crunch? Is it about equitable treatment with banks? Is it a blank check for all the above?
This isn’t some sanctimonious member of the credit union movement asking here. This is just a concerned taxpayer.
Before credit unions embrace TARP, they best be prepared for the reality that comes along with it. The public will wonder why some credit unions shell out taxpayer dollars for stadium sponsorships. The “volunteer” status of board members will be called into question. People will ask, “How much does that credit union’s CEO make???” Every campaign, every promo, every rate, every new branch, every Little League sponsorship will be scrutinized. (This all transitions into the topic of taxation.)
There are banks rescinding their TARP applications. Why? Because of the government’s heavy hand. Uncle Sam now sets the shareholders’ dividend. Uncle Sam now fixes the interest rates. Uncle Sam now controls executive compensation.
What’s next?
The “blank check” apparently comes with a heavy cost. Better to think about it and discuss it than act hastily.
Morriss, thanks for the link in your post. I am completely in agreement with your assessment of the situation.
The only thing I would add is that there is a huge capital hole caused by the corporates that must be filled up with new money. They can’t borrow their way out of the mess they’ve created. The only two sources of the several billion dollars they need are the U.S. Treasury and natural person credit unions.
Those CU’s lobbying for TARP funds are those who don’t want to pay for others mistakes. I understand this sentiment. I also recognize that there are myriad credit unions in California, Arizona and Florida who will have a hard time writing the NCUA a multi-million dollar check in the second half of 2009. And for these guys staring at insolvency, taking TARP money may seem like the lesser of two evils.
If you are opposed to taking TARP funds, then you are implicitly backing the CU-led bailout of the corporates. But some do our industry a disservice when they speak against TARP funds and speak against credit unions paying for the corporates’ sins. Doing nothing was not an option, and, believe it or not, I think the NCUA largely arrived at the right answer.
@Jeffry Are you calling me a sanctimonious member of the credit union movement? Awwwwww shucks, there’s no higher compliment you could give me.
@Mike – NCUA’s Corporate Stabilization Racket, errrrr, I mean Program simply addresses losses already incurred at US Central FCU (the corporate CU’s corporate CU). So the damage has already been done, the question is simply “do credit unions go to the government for a bailout, or do they take care of themselves, in-house?” The NCUA’s decision takes care of this in-house. Except they haven’t said that now that we’ve done this, that they don’t ALSO need taxpayer money via TARP. I’m guessing they’re reluctant to get out of line for TARP dollars so that they don’t lose their place, should the NCUA plan prove insufficient to cover mounting losses at US Central FCU.
And what are the names of the banks of which you speak that will wind up flush with billions of dollars? The bailout is/was needed because these banks were billions in the red.
If you dive into credit union history, you’ll find that though credit unions existed before the Great Depression, it wasn’t until that crisis that FDR passed the Federal Credit Union Act, enabling CUs to be created in every state. If the movement flourished during the Depression, surely we can weather this crisis too. Let’s not add to the problem, let’s be part of the solution. After all, THAT’S WHY WE WERE CREATED IN THE FIRST PLACE.
Thanks for chiming in here, Will. Your blog, Unrealized Losses is extremely insightful into the current mess with the whole Corporate CU network, how we got into it, and what people are saying and doing about it now. I highly encourage everyone reading this comment to read the latest posts and comments there.
Jeffry, I agree… TARP for CU’s is not really defined.
But in the case of the corporates, there is a distinct, well defined quantity of mortgage backed assets that was originally the target of TARP (before it devolved).
It should be noted that this quantity is such that should it get worse, there will be further hits. One hallmark of the current financial troubles is that these securities always seem to get worse than originally anticipated.
Plus, all the impact numbers we heard yesterday were based on Sep 08 numbers. So it will get worse on both fronts. We’re kidding ourselves if we think this is contained.
What’s going to happen to these mid-to-large CU’s pushed over the edge by the NCUA bailout? There are few options. Is it good for CU’s if there is a parade of large CU’s being bought out by banks, or something equally damaging?
We need to realize the scope of the problem here.
Precisely Mike. What is the scope of the problem? Where is the due diligence? Where is the strategic analysis? Where is the dialogue and debate? Where are the numbers? Where would the dollars go, for what, and how much are we talking about? Where is the data? Where are the percentages and projections?
NCUA, CUNA and NAFCU are throwing suggested solutions (re: retail CUs and TARP) without ever really defining what problem(s) need to be solved.
@Jeffry – Take a look at the Unrealized Losses blog to see the problem (huge losses at US Central FCU to the tune of $1.2 billion-at least). The problem, and losses are real. The only question now is how to fix the problems/losses/corporate cu system.
@Jeffry – Indeed, I would love to see open, online dialogue about what is going on, straight from the horses’ mouths. I would love it if there were a central spot for all the dialog surrounding this. I would love it if the proposals for how to fix the mess and the system were public, so that the public (and those in the CU industry) could see the suggestions being offered by people in the credit union movement. The NCUA is requesting comments; but they disappear into a black hole. CUNA also requests that you CC them on your comment to the NCUA, but they too disappear into a black hole. Where’s a good spot to ask for public display of these proposals and comments? Right here? On the Unrealized Losses blog? Somewhere else?
A few months ago, before the Corp CU issues surfaced, it was nice to be able to say “credit unions don’t need the government to bail us out” – in fact, I used those exact words in a radio spot! But the industry as a whole does need the funds now. And we’ll come out looking the good guys if we take the money and be completely TRANSPARENT about how we use it. And let anyone compare our Volunteer BOD and our CEO salaries to those of the big banks. We’ll still come out smellin’ like roses. And it won’t be to the detriment of our entire industry. I wish the NCUA hadn’t rushed to this decision.
Yes, the Corporate system needs relief. If the industry wants TARP funds for that instead of implementing NCUA’s plan, then fine. But there’s still a lot of clamoring for TARP money to go to retail credit unions, and who would get how much for what still seems very vague.
@Sandy Even if you were right about public perception of credit unions post-TARP (while, respectfully, I disagree), it would open the door to far worse consequences than the short-term strain NCUA’s proposal will inflict. Accepting a taxpayer-funded bailout would remove all justification of our federal income tax exemption. For grins, calculate how much 34-39% of your credit union’s annual net income would be. Now, multiply that amount by how many years you plan on remaining in business. That’s the cost of taxation…and, should/will likely be the cost of credit unions’ acceptance of TARP funds.
While I think our regulator and our trade associations have done a horrible job of, among other things, keeping their story straight throughout this credit crisis’ life cycle, I do believe the NCUA’s current proposal is the best long-term solution to our corporates’ struggles. Will it suck for a few years? Yes. Have banks received an unfair advantage with their huge TARP capital injections? Possibly. But I’d also argue that our tax exemption is an advantage. Our mission is an advantage. And if we can solve this problem ourselves, we will end up the better for it.
The credit union system currently has, collectively, around 11% capital – even though 7% capital is the standard for a well-capitalized institution. Those capital requirements are there to protect members’ assets in case of a rainy day. As my CEO has said, “it’s raining.” Dipping into that capital and cutting any fat we may have in our operating budgets will be absolutely no fun. Pissing away our core values because of short-term financial expediency will be even less fun.
CU Warrior is spot on – again.
A congressman from Maryland has just introduced a bill that would require all TARP recipients to publicly disclose all expenditures. Not just CEO salaries, all salaries, travel expenses, car allowances, office furniture, remodeling, etc.
I’d like to think that all credit unions are using their members money wisely and that this level of scrutiny will only HELP tell our story…..
So, what if the government says NO to CUNA’s TARP plea – again? Right now I see the government saving us from ourselves. They are NOT treating us like “second class citizens” as one CUNA argument stated. They are treating us like financial cooperatives. Someone has a copy of those Seven Cooperative Principles in Washington and they’re holding us to it.
Accepting TARP money means we change religions. Period. I for one am not willing to do that.