FacebookTwitterGoogle+RedditEmail

How Credit Unions Survived the Crash

by RALPH NADER

While the reckless giant banks are shattering like an over-heated glacier day by day, the nation?s credit unions are a relative island of calm largely apart from the vortex of casino capitalism.

Eighty five million Americans belong to credit unions which are not-for-profit cooperatives owned by their members who are depositors and borrowers. Your neighborhood or workplace credit union did not invest in these notorious speculative derivatives nor did they offer people ?teaser rates? to sign on for a home mortgage they could not afford.

Ninety one percent of the 8,000 credit unions are reporting greater overall growth in mortgage lending than any other kinds of consumer loans they are extending. They are federally insured by the National Credit Union Administration (NCUA) for up to $250,000 per account, such as the FDIC does for depositors in commercial banks.

They are well-capitalized because of regulation and because they do not have an incentive to go for high-risk, highly leveraged speculation to increase stock values and the value of the bosses? stock options as do the commercial banks.

Credit Unions have no shareholders nor stock nor stock options; they are responsible to their owner-members who are their customers.

There are even some special low-income credit unions?thought not nearly enough?to stimulate economic activities in these communities and to provide ?banking? services in areas where poor people can?t afford or are not provided services by commercial banks.

According to Mike Schenk, an economist with the Credit Union National Association, there is another reason why credit unions avoided the mortgage debacle that is consuming the big banks.

Credit Unions, Schenk says, are ?portfolio lenders. That means they hold in their portfolios most of the loans they originate instead of selling them to investors, so they care about the financial performance of those loans.?

Mr. Schenk allowed that with the deepening recession, credit unions are not making as much surplus and ?their asset quality has deteriorated a bit. But that?s the beauty of the credit union model. Credit unions can live with those conditions without suffering dire consequences,? he asserted.

His use of the word ?model? is instructive. In recent decades, credit unions sometimes leaned toward commercial bank practices instead of strict cooperative principles. They developed a penchant for mergers into larger and larger credit unions. Some even toyed with converting out of the cooperative model into the shareholder model the way insurance and bank mutuals have done.

The cooperative model?whether in finance, food, housing or any other sector of the economy?does best when the owner-cooperators are active in the general operations and directions of their co-op. Passive owners allow managers to stray or contemplate straying from cooperative practices.

The one area that is now spelling some trouble for retail cooperatives comes from the so-called ?corporate credit unions??a terrible nomenclature?which were established to provide liquidity for the retail credit unions. These large wholesale credit unions are not exactly infused with the cooperative philosophy. Some of them gravitate toward the corporate banking model. They invested in those risky mortgage securities with the money from the retail credit unions. These ?toxic assets? have fallen $14 billion among the 28 corporate credit unions involved.

So the National Credit Union Administration is expanding its lending programs to these corporate credit unions to a maximum capacity of $41.5 billion. NCUA also wants to have retail credit unions qualified for the TARP rescue program just to provide a level playing field with the commercial banks.

Becoming more like investment banks the wholesale credit unions wanted to attract, with ever higher riskier yields, more of the retail credit union deposits. This set the stage for the one major blemish of imprudence on the credit union subeconomy.

There are very contemporary lessons to be learned from the successes of the credit union model such as being responsive to consumer loan needs and down to earth with their portfolios. Yet in all the massive media coverage of the Wall Street barons and their lethal financial escapades, crimes and frauds, little is being written about how the regulation, philosophy and behavior of the credit unions largely escaped this catastrophe.

There is, moreover, a lesson for retail credit unions. Beware and avoid the seepage or supremacy of the corporate financial model which, in its present degraded overly complex and abstract form, has become what one prosecutor called ?lying, cheating and stealing? in fancy clothing.

RALPH NADER is a consumer advocate and three-time presidential candidate.

 

 

More articles by:

Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! 

Weekend Edition
November 24, 2017
Friday - Sunday
Jonathan Cook
From an Open Internet, Back to the Dark Ages
Linda Pentz Gunter
A Radioactive Plume That’s Clouded in Secrecy
Jeffrey St. Clair
The Fires This Time
Nick Alexandrov
Birth of a Nation
Vijay Prashad
Puerto Rico: Ruined Infrastructure and a Refugee Crisis
Peter Montague
Men in Power Abusing Women – What a Surprise!
Kristine Mattis
Slaves and Bulldozers, Plutocrats and Widgets
Pete Dolack
Climate Summit’s Solution to Global Warming: More Talking
Mike Whitney
ISIS Last Stand; End Times for the Caliphate
Robert Hunziker
Fukushima Darkness, Part Two
James Munson
Does Censoring Undemocratic Voices Make For Better Democracy?
Brian Cloughley
The Influence of Israel on Britain
Jason Hickel
Averting the Apocalypse: Lessons From Costa Rica
Pepe Escobar
How Turkey, Iran, Russia and India are playing the New Silk Roads
Jan Oberg
Why is Google’s Eric Schmidt So Afraid?
Ezra Rosser
Pushing Back Against the Criminalization of Poverty
Kathy Kelly
The Quality of Mercy
Myles Hoenig
A Ray Moore Win Could be a Hidden Gift to Progressives
Gerry Brown
Myanmar Conflict: Geopolitical Food Chain
Matthew Stevenson
Into Africa: Robert Redford’s Big Game in Nairobi
Katrina Kozarek
Venezuela’s Communes: a Great Social Achievement
Zoltan Grossman
Olympia Train Blockade Again Hits the Achilles Heel of the Fracking Industry
Binoy Kampmark
History, Law and Ratko Mladić
Tommy Raskin
Why Must We Sanction Russia?
Bob Lord
Trump’s Tax Plan Will Cost a Lot More Than Advertised
Ralph Nader
National Democratic Party – Pole Vaulting Back into Place
Julian Vigo
If Sexual Harassment and Assault Were Treated Like Terrorism
Russell Mokhiber
Still Blowing Smoke for Big Tobacco: John Boehner and College Ethics
Ted Rall
Sexual Harassment and the End of Team Politics
Anna Meyer
Your Tax Dollars are Funding GMO Propaganda
Barbara Nimri Aziz
An Alleged Communist and Prostitute in Nepal’s Grade Ten Schoolbooks!
Myles Hoenig
A Ray Moore Win Could be a Hidden Gift to Progressives
Graham Peebles
What Price Humanity? Systemic Injustice, Human Suffering
Kim C. Domenico
To Not Walk Away: the Challenge of Compassion in the Neoliberal World
Kollibri terre Sonnenblume
Giving Thanks for Our Occupation of America?
Christy Rodgers
The First Thanksgiving
Charles R. Larson
Review: Ta-Nehisi Coates’ “We Were Eight Years in Power”
November 23, 2017
Kenneth Surin
Discussing Trump Abroad
Jay Moore
The Failure of Reconstruction and Its Consequences
Jeffrey St. Clair - Alexander Cockburn
Trout and Ethnic Cleansing
John W. Whitehead
Don’t Just Give Thanks, Pay It Forward One Act of Kindness at a Time
Chris Zinda
Zinke’s Reorganization of the BLM Will Continue Killing Babies
David Krieger
Progress Toward Nuclear Weapons Abolition
Rick Baum
While Public Education is Being Attacked: An American Federation of Teachers Petition Focuses on Maintaining a Minor Tax Break
Paul C. Bermanzohn
The As-If Society
FacebookTwitterGoogle+RedditEmail