Casino Capitalism Assisted Credit Unions in Thriving During the Crash
- How AR & VR Are Transforming Smartphones - February 2, 2024
- Bats’ Astonishing Visual Abilities - December 1, 2023
- History’s Boldest Heist – Stealing Crown Jewels - November 23, 2023
While the nation’s reckless major banks crumble like an overheated glacier by the day, the nation’s credit unions remain a relative oasis of calm, mostly separate from the vortex that is casino capitalism.
Credit unions are non-profit cooperatives owned by their members, who can use the credit union to deposit and borrow money. Credit unions have 85 million members in the United States. Your local credit union or the one at your workplace did not engage in the well-known practice of investing in speculative derivatives, nor did they provide “teaser rates” to get individuals to sign up for mortgages they could not afford.
Ninety-one percent of the 8,000 credit unions report that the overall growth in mortgage lending has outpaced that of any other type of consumer loan. The Federal Deposit Insurance Corporation (FDIC) protects them against losses of up to $250,000 per account, just as depositors in commercial banks are insured by the National Credit Union Administration (NCUA).
Because of the rules, they are well-capitalized, and they have no motivation to engage in high-risk, highly leveraged speculation to boost stock values and the value of the bosses. Why are they well-capitalized as a result of this? Commercial banks offer stock options as well.
Owner-members, who also serve as clients, hold credit unions accountable. Credit unions have no stockholders, shares, or stock options.
Even if there are some unique credit unions for low-income individuals, there aren’t nearly enough of them to encourage economic activity in these regions and provide “banking” services in areas where low-income people either can’t pay or aren’t served by commercial banks.
According to Mike Schenk, an economist with the Credit Union National Association, credit unions were able to avoid the mortgage crisis that has gripped the nation’s larger banks.
Credit unions, according to Schenk, are examples of “Investors in portfolios They are worried about the financial performance of the loans they originate because they maintain the majority of them in their portfolios rather than selling them to other investors.
Mr. Schenk admitted that as the economic slump deteriorated, credit unions were unable to generate as large a surplus and that “their asset quality had weakened a bit.” However, it is in this area that the credit union concept shines the brightest.” He claimed that credit unions may coexist with those conditions without suffering disastrous consequences.
The use of the word “model” teaches us something. Credit unions have periodically veered into commercial bank activity in recent decades, rather than adhering to pure cooperative principles. They developed a thirst for merging with other credit unions to establish larger and larger enterprises. Some even considered abandoning the cooperative model in favor of the shareholder model, as insurance and banking mutuals have done in the past.
The cooperative business model flourishes when owner-cooperators are involved in the overall operations and direction of their co-op. This is true regardless of the area of the economy in which the cooperative operates: finance, food, real estate, and so on. Owners who play a passive role in their companies allow management to depart from cooperative principles or even consider doing so.
The so-called “corporate credit unions,” which have a dreadful nomenclature and were formed to provide liquidity for retail credit unions, are currently causing some challenges for retail cooperatives. This is the one sector where retail cooperatives are now experiencing difficulties. In their commercial methods, these enormous wholesale credit unions do not quite correspond to the cooperative tenet.
Some of them are more drawn to the corporate banking model than others. They used retail credit union funds to make risky bets on various mortgage-related products. The overall value of these “toxic assets” has fallen by $14 billion across the 28 participating corporate credit unions.
As a result, the National Credit Union Administration is raising the amount of money that might be lent to corporate credit unions through its different programs, bringing the total to $41.5 billion. To create an equal playing field with commercial banks, the National Credit Union Administration (NCUA) would prefer to see retail credit unions eligible for the TARP bailout program.
To become more like investment banks, wholesale credit unions sought to attract more deposits from retail credit unions by offering higher and riskier interest rates than ever before. This established the framework for the single most major error in judgment that harmed the credit union sub-economy.
Several modern-day lessons can be drawn from the credit union model’s achievements, such as the need of being attentive to the requirements of consumer loans and keeping their investment portfolios grounded in reality. Despite widespread media coverage of Wall Street tycoons and their risky financial antics, crimes, and frauds, little is known about how credit union regulation, philosophy, and behavior helped to prevent this tragedy.
Furthermore, retail credit unions can learn something from this. Be wary of and steer clear of the seepage or supremacy of the corporate financial model, which, in its current degraded, overly sophisticated, and abstract form, has morphed into what one prosecutor described as “lying, cheating, and stealing” dressed up in posh garb.