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Banking on Credit Unions
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, he 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.
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24 Comments so far
Show AllSenator Bernie Sanders of Vermont is another advocate of Credit Unions:
http://www.gao.gov/new.items/d07593r.pdf
Switching to credit unions is another great way to reduce feeding the class war aggressors, the elites, to starve them down small enough so they can drown themselves in their coffee cups. Ralph Nader continues to trumpet the relevant truth while Barrack O'Bama plots to propagate the imperial murder/plunder machine.
I have been with one credit union for thirty years. The people are truly fabulous. I will never leave them.
Thank you, Mr. Nader. It's time the truth about banks was made public, and particularly the banks that were bailed out with OUR money. They are all practitioners of the two "exercises" cited below.
After 15 years of banking with them, I closed my commercial bank account two months ago and went with a local credit union and am very happy about it.
Initially, I decided to leave the commercial bank because of their practice of gouging their customers with insufficient fund and overdraft fees, double charges. What they do is change the order of your deposits and debits made close together so that your debits are posted before your deposits are posted, even if their online banking originally shows the actual order. Then they charge customers twice, an insufficient fund fee and an overdraft fee for each bounced check before posting deposits.
Some people have been charged $600-$700 in one day for a chain reaction. If you already have some money in the bank, they re-arrange the debits so that the largest one is withdrawn first (even if it was debited last) and then charge IF and OD fees on all the rest before crediting your deposit. They say they have the legal right to do this, though a few states are considering legislation that would require banks to process credits and debits as they are received, not rearrange them so many little debit amounts bounce.
Then there's their practice of "secret life insurance" that they take out on employees.
http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202427898741
Employees are unaware that their employer has used their names, addresses, age information, SS #s, etc., to take out life insurance on them. Then the banks do "sweeps" of public records to learn when people die so they can cash in the policy. It is a despicable practice, and is probably illegal. Some banks have had to give the money to the deceased individuals' families.
Almost all the giant banks do this and have billions waiting to come to them through these secret life insurance policies.
Anything to make money while defrauding their customers and employees. So in my book, they're all thieves, and I want nothing to do with them.
Quis custodiet ipsos custodes? (Who will guard the guardians, watch the watchers, etc?).
It is typically called "dead peasants", "dead janitors" or "key person" insurance.
"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."
whether using a cooperative model or not, the institutions that serve the public are better institutions when their operations are transparent to the public they serve. The internet makes possible a public involvement not possible otherwise.
Every financial institution doing business that impacts the general welfare should be required by its charter to make its operations transparent to the public in a way the public responds to articles here at CD. When the public has access to vital information it cam make informed comment. If the officers of these institutions conduct their business in a fishbowl, they will be very cautious.
In general, the failure of the private banking system we are experiencing is a result of the fact it is private and its operations hidden from public view. When one understands that the system of money & credit we use to fuel our economy is in the nature of a public utility, then it is wrong to conceal from the public the critical operations of the system.
If the operations of an Enron were required by corporate charter to be made available to the public view and not merely regulators, Enron economics would have been nipped in the bud.
It is possible today through the internet to make all government operations visible to the public. Of course, vital information is kept secret even from Congress because knowledge of what is going on implies the power to influence what is going on.
Obama's strategy with the stimulus bill, to make the money allocations public via the web, could become a precedent for all government operations. At present, no one knows where the government budget goes, not even Congress. Aside from the fact that 30% or more of the national budget is "black", there is no effective oversight even over the public sector.
Our representative system is not democratic because the people act through their representatives rather than directly. However, laws that compel transparency in government operations and budget decisions and provide for public comment could make our republic more democratic.
The failure of our system to represent the public interest is so often laid at the doorstep of the people. The people are passive and apathetic, the people aren't involved and happy to be so, and blah, blah. This people-bashing ignores the fact that the people are always kept in the dark.
If we had a public financial system operating in the light of day, we would not be in this crisis. The operations of the credit unions testify to that. This crisis is purely the result of private interests operating in secret in the name of the "free market" so that they can hijack the public interest.
Great article. I bet Paul Krugman that ex-Enron advisory board member, Fed cheerleader, praiser of sweatshops and now nationalized bank fan, doesn't like credit unions since he hates monetary policy that promotes saving and loves debt and huge deficits.
Credit Unions, he 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."
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credit unions don't take risks and refuse quick profit schemes.
Yes, it is interesting to think of this "model" as conservative banking because for me, the idea of a cooperative always played into my liberal bias. Nonetheless, this is an area of discussion where my card carrying NRA, staunch Republican, 88 year old great uncle of mine and I agree without reservation. Crazy what brings family together these days, eh?
My very first bank account (age 12) was in a credit union, and for the last sixteen years I've banked with a credit union (non retail); I feel lucky.
Conservative is only a bad word when it comes to politics, in many other things it's pretty much a good idea. My first account was with a Credit Union too, about 10 years ago I think, I don't really remember...right now I have a Wachovia account because my parents have one as well and they can instantly transfer money into my account when I run low...an internship right out of college doesn't pay all that well. But I plan to go back to a credit union when I get a permanent job..I should start looking for one.
In "One flew over the Cuckoo's Nest", the book, McMurphy wins his fight with Nurse Ratched. He's still dead, but everyone else was in the asylum voluntarily. McMurphy had been this catalytic figure and after he dies, everyone else leaves, leaving Nurse Ratched with nothing. I think that Ken Kesey was offering an (the only?) optimistic scenario...
20 year credit union member... they fought the bankers and legislation to change their charter in the 90's to make them more like banks... and won... the bankers didn't like this "competition"... and my credit union solicited... and i donated... to the cause... bankers didn't like this "competition"... the same said reason they gave for dergulation and driving off the financial cliff...
$5 minimum ot open a credit union account
then
$1 minimum for basic checking and free basic checks and 5 free atm withdrawls /month...
if you're a member at one... you can us all of then nationwide... 1800+... and their atms... 27,000 plus... every 7-11 for starters...
visa - just went DOWN to 7.99%
master card... like 8.6%
home equity
car
mortgage
online banking
telephone banking
and may more features to numerous to mention...
one last thing... their people are friendly... try to help... not just sell you more "complete relationship" crap...
i laugh at all the losers still in retail commercial banking... jsut drove by a WaMu branch... SPACE AVAILABLE - LEASE - and the outlines of the logos where they were removed...
I love Ralph Nader. Too bad Common Dreams did not let him write more during the campaign. Now we can see that he is no 'spoiler'. He is a good honest intelligent man with concerns for the working class people of this nation.
He is a great guy but unfortunately he lacks an infrastructure, a viable movement, support, long term planning, and team spirit. His running a one-man show once every 4 years along with his at-best cultist support is what killed his candidacy. Besides, Nader has to do more than tell the truth. He has to frame it as acceptable so that the electorate will actually take him seriously. The way the Nader die-hards are expecting Nader to win is like expecting Linux to take over the average user's windows-installed desktop PC.
P.S.: Yes, I know every candidate has its set of cultists.
Something you might be interested in knowing: the kernel of the Mac OS, is based on FreeBSD, which is a Unix type operating system similar to Linux, which similar goals.
And Linux or FreeBSD is fairly popular as an OS choice among users of so called "netbooks", ie the really small and light notebooks that have become popular recently. Enough that Microsoft is concerned enough to figure that into its strategy for Windows 7.
It is amazing how MAC OS and Microsoft can base their kernels on that of another OS just like the Republicans and Democrats basing their ideas on those of 3rd parties. See, the Democrats and Republicans know how to steal away ideas from 3rd parties and take credit and ownership for it. The only way to stop this theft is to have a strongly united 3rd party just like the days when labor unions and community team spiritedness were strongly united even in the days of the Great Depression. The way I see it, in both the Linux realms and 3rd party realms, there'll be a lot of divisions and condescending insults between the know-it-alls and newbies while their real enemies can easily cash in on their weaknesses and laugh their ways to victory. United we stand, divided we fall.
Yes, yes. I agree that Nader is the best. And, not only did CD keep him off their website last year, they published anti-Nader screeds through most of 2008. What a shame. Corporate media shut him out, and so did alternative media. Now, the shills and dopes want us to think that was somehow Nader's fault.
Anyone remember the many "blind taste tests" that matched voters' opinions on the issues with presidential candidates' positions (revealing which candidates held what positions only after the survey questions were answered)? As I recall, Dennis Kucinich -- who is very much like Nader -- won every one of them. This shows the Nader/Kucinich agenda is more popular than any other. But, since corporate media shut out both of them, most voters don't know who they are. That's the real reason they don't get a majority of votes in national elections.
Perhaps IRV (instant runoff voting) is the answer. IRV would eliminate "strategic" voting. Taking control of televised debates away from the two parties is another step in the right direction. Public financing of campaigns is another.
Thank you, Ralph, for your continuing efforts in the public interest.
The credit union model is alive and well in Canada, and surprisingly,and no thanks to our neoconservative minority government, which was in the process of relaxing Canadian banking regulations that separate investment from banking,to allow the same, now failing American banking/investors models to set up shop here, had to quickly reverse those few regulations they relaxed as the US mess reared its ugly greedy head.
the Canadian Mortgage industry is just fine as well , so much so that our systems are being looked at by the worlds governments.
several years ago the Liberal party of Canada (way left of the US Democratic party, but considered centrist here ), refused to allow investment firms and banks to merge.. the neoconservatives all screamed "it will destroy the economy".. funny how that turned out.
I have been looking to start up an financial institution at my university and a credit union was the first thing I thought about. After lots of discussion it seemed like a lot of red tape and hoops that I would have to jump through, I never thought it was going to be easy. Then I stumbled upon this, www.commongoodbank.org which is a bank but with a cooperative organization and a lot more. It integrates non-profits, local businesses, and local currency to attempt to bring stability to a community. It also sends money out of the community to projects that the "investors/depositors" decide upon. SO at this time I am looking into this and credit unions to see what is best for my circumstance. Let me know what you think, any comments would be great!
By the way, I like the idea of credit unions and sorely miss them. Unfortunately, too many rightwingers in my state look at them as somehow "relatives of the satanic labor unions". Until Main Street learns to embrace labor and credit unions, I'm afraid Wall Street will win again and continue to gleefully abuse Main Street. :(
I agree. There needs to be a people's market for credit unions. Unfortunately, so much ownership has been given to banks that we're in for a long fight to convince others that credit unions are a viable alternative to commercial banks. I'll see if I can reframe the issue based on George Lakoff's famous idea of reframing the debate.
Terrance Mitchell
Redfield, South Dakota
When President Obama presented the members of his Economic Advisory Council (or Advisors), did anyone notice any representative of Consumer organizations? It would seem to me that a 'consumer sector' of our economy is pretty important, and economic policies addressed to and for this sector should have a seat at the table, and advocate for Credit Unions as well as represent all the consumer protective organizations that address issues affecting "Main Street" folks--you know, all those who went to polls and voted for Obama.
For those with a credit union in their community, I heartily recommend checking it out. They are much more community and shareholder (you) friendly than commercial banks.
Just like the good old AFL-CIO and other labor unions, the credit unions are trying to out corporate their corporate enemies which are the banks. Labor and credit unions used to obsess less about money and focus on real growth, sustainability, and hard working and earning pride. Unfortunately, none of this is showing these days. Too much self-righteousness to kill off any real hope.
Here's some more info about credit unions and their history.
http://en.wikipedia.org/wiki/Credit_union
Terrance Mitchell
Redfield, South Dakota
"They are federally insured by the National Credit Union Administration (NCUA)".
This is very misleading since it is a private organization, not Federal Government with unlimited power to print money like FDIC who although private is in reality backed by government. Relying on the government to bail out credit unions in a crisis is not guaranteed like FDIC. Agree that holding your own loans is much more responsible than the banks that irresponsibly issued loans to anything walking, collected their finders fees and passed the loan on to the next sucker with the final sucker being the US taxpayer.