Every time there is a catastrophic storm or event, it is invariably labled a "once-a-century" occurrence. That such events seem to occur every few years never seems to throw any water on application of the "once-a-century" hyperbole.
For credit unions, the current plan by NCUA to recapitalize the NCUSIF and prop up U.S. Central and the corporate network is one such once-a-century event (and fittingly, it's only been about a quarter-century since a similar pull-yourselves-up-by-your-bootstraps effort to replenish the NCUSIF took place).
Remember some of those other once-a-century events? 9/11. Katrina. Columbia. In the wake of each there were hard questions asked and fingers pointed about events leading up to them, followed by more of the same afterward over how the response was handled.
I'm not sure the current economy qualifies for inclusion with those tragedies, but that may largely depend on which side of the unemployment check you're on. What is consistent with those events, however, is the credit union community's early reaction to NCUA's $5-billion corporate resuce plan. As Credit Union Journal has led the way in reporting at cujournal.com, the plan will likely wipe out all credit union profits for this year (see related stories, page 1) and worse. One CEO predicted that if enacted as proposed, this surprise bill that was not part of any credit union's 2009 contingency planning will force his own CU to curtail its lending, not to mention any efforts to cut a little slack to struggling members-two foundations of CUs.
In both cases, neither scenario is healthy for the overall economy, and is just another piece of the puzzle created by a recession severe enough to send hardcore capitalists into, if not the arms, at least the the same zip code as socialists.
The NCUA's proposal to force natural-person credit unions to recapitalize the NCUSIF and U.S. Central may be the most sensitive issue I've seen in covering credit unions. In earlier challenges faced by credit unions, such as the success in the court system and legislatures by the banking industry throughout much of the 1990s, there was a common enemy. Not so, now. What's certain is there is plenty of finger pointing going on; what's uncertain is at whom to point the fingers.
* Does the fault lie with the management at U.S. Central and other corporates that are posting red numbers-or did they follow prudent management practices that simply were overwhelmed by an impossible-to-predict economic crash? Should management at those corporates be taking pay cuts or reducing bonuses?
* Where in the world were the regulators, specifically NCUA, which announced it didn't know until Monday, Jan. 26, about U.S. Central's large losses?
* What about privately insured CUs that use the corporates, but won't have to pay up?
The various blogs, listservs and CUSoapbox.com have had keyboards afire with varied viewpoints and reactions. There's been praise ("We needed our corporates, now they need us"), and criticism ("Credit unions should not pay for the mistakes of corporates and should be screaming bloody murder right now"). But the real debate has been over applying for TARP funds.
For credit unions, you can spell that "TRAP." Can there be any doubt that as soon as CUs accept federal bailout money the scrutiny will start over how CUs can take that money out without putting any money in?
Don't believe it? Even in the darkest days you can count on the American Bankers Association to bring a little levity to the situation - -what else could you call it? A story in American Banker last week (which is not affiliated with any bank group and is a sister publication to Credit Union Journal), quoted Camden Fine, CEO of the Independent Community Bankers of America, as saying, "It supports our arguments that credit unions have become so bank-like in their powers that they should be tax-paying institutions just like every other financial institution."
Incredibly, this is the bankers' response to a credit union plan to pull themselves up by their own bootstraps and not ask for federal assistance (which banks have accepted to the tune of hundreds of billions of dollars).
Hang onto your white hats, because the chutzpah doesn't stop there. The bank lobbyists who are spinning the credit union self-financing plan before Congress as a reason to revoke the CU tax exemption are essentially being financed by taxpayers, including you!
If the NCUA plan is put into effect and no federal funds are involved, credit union are going to need a full-fledged effort to make sure that story is told again and again. The kind of effort that comes once-a-century.
Frank Diekmann can be reached at firstname.lastname@example.org.