Tuesday, September 20, 2011

Credit Unions and the Wall Street Occupation

My first real awareness of and appreciation for the credit union movement was a direct outgrowth of the 2008 financial crisis. Like many Americans, I was deeply shocked by both the fraudulent excesses of the banking industry and the collusion of government regulators which combined to plunge our economy into a recession from which we've yet to extricate ourselves. In order to try and better understand what had happened, I began reading widely in economics, and, in the process, stumbled upon the powerful alternative to the current financial order that is the credit union idea.

The thing that initially fascinated me about credit unions in the context of the financial crisis was the fact that they were, on average, far less negatively impacted by it than for-profit banks. Sure, they struggled as the economy turned sour and a few failed, but their woes were nothing compared to the apocalyptic crisis that engulfed the for-profit banking sector.

After a fair amount of research, I came to the conclusion that this advantageous outcome can be largely attributed to credit unions' cooperative ownership structure. In a for-profit bank, the depositors and the shareholders are two different groups of people. The shareholders, who legally have an absolute say in the direction of the company, generally want their bank to take risks which have the potential to pay off in the short term. On the other hand, depositors generally prioritize safety over returns, but, because they have no say in a for-profit bank, the banks took on too much risk for their own good, which ultimately led to the massive Federal bailout.

Tuesday, September 13, 2011

Book Review - Debt: The First 5,000 Years by David Graeber

Upon the recommendation of several people, I recently acquired David Graeber's new book Debt: The First 5,000 Years. With a title like that, I assumed that it'd be a conventional and somewhat tedious work of economic history. However, since debt is ultimately at the root of the whole credit union project, I figured that getting a long historical view of the phenomenon would be worth the slog. As such, I brewed up a cup of tea, hefted the substantial tome, and began to read.

Within the first twenty pages, my expectations of a dry economic history narrative were completely blown out of the water. Graeber, it turns out, is an anthropologist, not an economist, and that perspective is powerfully evident throughout the text. Instead of accepting the commonly held assumptions of economists and lay people on the origins of money and debt, he uses his encyclopedic knowledge of human cultures to refute many of those premises with hard, specific evidence, and offers an interesting new lens through which to view the development and role of debt in both the historical development and the lived reality of human societies. Indeed, Graeber's insightful argument covers so much terrain that it would be virtually impossible to do it full justice in a short book review. As such, I'll limit my observations to a few key points and their implications for credit unionism.

Tuesday, September 6, 2011

Book Review - Cooperative Banking: A Credit Union Book by Roy F. Bergengren

Not to be confused with his unimaginatively titled later work Credit Union: A Cooperative Banking Book (1931), Roy Bergengren's Cooperative Banking: A Credit Union Book (1923) was his first full length publication. Having been hired by Edward Filene a mere three years earlier to direct the project of promoting credit union development first in Massachusetts and then nation-wide, Cooperative Banking is a fascinating reflection of both the state of the credit union movement and Bergengren's thinking near the beginning of his long career as a credit union champion.

The most apparent difference between Cooperative Banking and many of Bergengren's subsequent works is his focus on international examples of credit unionism. In his later books, the bulk of Bergengren's writing draws upon his experiences with an enormous variety of domestic credit unions for evidence and emphasis. However, the pool of domestic examples from which he could draw in 1923 was fairly small given the fact that only a handful of states had passed credit union enabling legislation, and even the Massachusetts movement (the strongest and most organized at the time) boasted a total membership of less than fifty thousand. As such, instead of leading with a description of the sparse credit union development in America, Bergengren first introduces the readers of Cooperative Banking to the promise of the credit union idea by providing an overview of the success of cooperative banking in Germany under the leadership of Friedrich Raiffeisen and Hermann Schulze-Delitzsch. After outlining the process by which the movements founded by these two men grew to an enormous scale and helped to ameliorate many social problems, Bergengren argues that the two models of credit union development that had emerged over the previous decade and a half in America were not unprecedented new socio-economic experiments. Rather, they represented the spread of successful systems that had been subject to continuous refinement for more than half a century before reaching the United States.