This page contains a single entry from the blog posted on September 25, 2010 10:41 AM. The previous post in this blog was Reality Friday. The next post in this blog is Merritt Paulson's Lents legacy. Many more can be found on the main index page or by looking through the archives.

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Saturday, September 25, 2010

More bad news for credit unions

We've been tracking for a while the recent assessments against credit unions to cover the failures of some big "wholesale" financial outfits that they all deal with, and insure. In light of yesterday's news, those numbers are probably going to get worse, draining profits and exacerbating losses for even longer than previously expected.

To our untrained eye, it's looking more likely that a taxpayer bailout of credit unions may be necessary at some point. That, and a bunch of consolidations in which the stronger "retail" outfits swallow up the weaker ones, who won't be able to handle all the coming insurance tappers unless a miraculous economic recovery materializes soon.

Comments (4)

The give:

"With the legacy assets isolated and funded in asset management estates, NCUA will implement a long-term funding mechanism. A securitization trust will be created to issue guaranteed notes backed by the full faith and credit of the United States. The legacy assets will be used to collateralize these notes. Barclays Capital, Inc. New York, New York, an international investment bank with a presence in all the major markets around the world, is the agency’s primary partner in this undertaking and is providing the expertise and support necessary to fully execute the securitization plan."

The take:

Substantial increase in regulatory oversight, improved asset quality and capital requirements, qualification standards for central CU board positions.

Ask your own questions:

NCUA Town Hall, October 5, Doubletree Hotel Portland, 1:00 - 4:00 PM PDT
Registration required.

Whatever happened to the concept of personal responsibility?

If these investors had been forced to eat the stupid loans they made no bailouts would have been needed.

One example: I read that David Stern (the current NBA commissioner) was quoted as saying that the reason we are probably going to have a 2011 lockout was because of "contractual problems". Well, he's the one who signed the stupid contracts!

The same goes for a bank that gives a zero down interest-only loan to someone with no proof of income or collateral. If you're going to run your business that stupidly you deserve to lose it.

Are we going to enforce personal responsibility or are we going to continue down the road of forcing others to pay (usually those least able to pay) for the sins of a few well-connected individuals?

I guess it depends if the CUs invested heavily in RE assets back then. We use FirstTech and they are just starting (I think) to finance housing - Which is probably not a bad idea today.

It sounds like wholesale CUs are part of the "too big to fail" mentality where they grow the assets and then search for a return wherever they can. I'd be curious to see how many local CUs are part of a bigger assn like this.

Steve - I've been a First Tech member for sometime. They've been quietly financing housing for awhile. I think they are just marketing it more now.

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