No doubt the recent economic challenges have offered many lessons to credit unions. For Louisiana Corporate, three stand out:

You can't be a market timer. While everyone asserted that the recovery was just the next quarter away ... to stay liquid and the economy would get better ... that MBS would recover-it didn't happen. Three years later, we're still waiting.

Don't fight the last war. Following the S&L crisis, the focus of regulators was on interest-rate risk-credit risk was hardly a topic of conversation. An AAA security was considered as good as an Agency, and the regulations were written that way. But this time, the focus was on credit risk. By forcing institutions to stay short in an attempt to avoid credit risk, they are taking on interest-rate risk-and creating similar issues from the past. Staying short to avoid credit risk is like speeding down a dangerous stretch of road so you can reduce the amount of time you are exposed to danger. It's not the best answer.

Don't follow the follower. And don't even follow the leader. In the CPA world, this is referred to as non-subordination of judgment. When we think back on the advice offered by influencers within the industry-the insolvent corps, the regulators, industry leaders-the initial message to credit unions was not to worry about unrealized losses-"We have the liquidity to hold the bonds and the bonds will pay." Now, it's become clear that advice was off mark, especially when unrealized losses began to exceed capital-something the Wall Street Journal reported as a legitimate concern.

David Savoie
Louisiana Corporate Credit Union, Metairie, La.

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