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.

By contrast, credit unions are cooperatively owned by their customers (or “members,” in credit union parlance), so the conflict between the desires of depositors and shareholders doesn't exist. As such, the institutions' policies conformed to the more conservative risk preferences of their depositor-owners, and they thus weathered the financial storm better than their for-profit competitors (for more information on the specifics of this, see this document).

If one accepts this logic, it adds another layer of injustice to the already much-maligned bailout of the banking industry. Despite the cries from the banking lobby and their cronies that the sky would fall had the “too big to fail” banks been permitted to go under, it is clear that the cooperative credit union sector of the financial system was still in relatively good health. As such, rather than causing economic anarchy, the fall of the likes of Bank of America and Citigroup might have created a void which credit unions, as superior institutions that had better stewarded their members' money, could have quickly filled. Though membership growth rates demonstrate that many people have discovered the superiority of credit unions over banks in the years since the financial crisis, they pale in comparison to the potential that the credit union movement had in that moment to become America's dominant financial institution.

Ultimately, the possibility for a wholesale transition to a cooperative, people-powered financial sector was neutralized; not by market competition, but by the political influence of Wall Street. Faced with the stark and terrifying consequences of their reckless behavior, arms were twisted and Congress, after a breathless week, wrote a blank check to save the industry of their biggest donors. That bailout was a powerful injustice: not only was it an affront to the American taxpayer, but it was a slap in the face to credit union people everywhere. At the moment when long years of quiet growth and sound management were on the verge of paying off, the Federal government lent historically unprecedented resources and backing to the very organizations whose malfeasance drove the economy off a cliff.

As such, I have decided to make my way down to New York City today to stand with the folks undertaking the occupation of Wall Street as a proud and affronted credit unionist. The financial crisis of 2008 should have been the moment when the selfless work of Alphonse Desjardins, Ed Filene, Roy Bergengren, and countless other unsung credit union heroes reached its full fruition with the establishment of a financial system that is truly “for all the people.” Instead, it served as one more example of the stranglehold that corporate banking has on the American political system. As such, I encourage credit union people in the New York area to come down and join me in helping to spread the credit union message of hope among those challenging the political clout of the big banks (I'll be the one with the sign that says “Credit Union Power”). Let's make some credit union history!

P.S. If you can't make it in person, but would like to lend your support, visit Feed The Protest.

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