WASHINGTON-While corporate credit unoins must accept their share of the blame for blindly investing their funds into US Central, which loaded up a significant portion of its mortgage investment portfolio with certain securities, it should be noted that natural-person CUs did the very same thing, reminded NAFCU President Fred Becker.
"Natural person CUs just dumped this money into the corporates and didn't take care of it," he said. "You can't rely on somebody else with regard to where you putting your money or your members' money."
In an interview with Credit Union Journal, Becker noted that famed investors such as Warren Buffett have repeatedly conceded that they never saw the mortgage crisis coming the way that it did. While some warning signs existed, it is always easier to see how the bubble built and then burst in hindsight. Major investment banks, retail banks and even corporate credit unions relied heavily on rating agencies which stamped "AAA" ratings on mortgage-backed securities that eventually fell apart and institutions took huge hits as they tried to diversify away risk with different types of MBS while still maintaining huge concentrations in that market.
"We forgot the rule that you can have a once-in-a-million-years flood. You can have two of them two years in a row," said Becker. "We got overtaken by euphoria of the time. We thought that bad times would never happen again, that we could diversify risk, that we could never have that million-year flood."
While he refused to lay blame at the feet of management executives and board members at corporate credit unions for making bad calls, Becker did say that those individuals should take responsibility for actions that led to major losses and failures at corporates.
"When accepting the responsibility of serving on a board, there are certain fiduciary standards they must meet," he explained. "The decisions made by the two largest corporate boards impacted thousands of natural-person credit unions. There is a law that sets a fiduciary standard of behavior when you're sitting on those boards. If you fail to meet those standards, you can expect to be treated like any other board member of a large corporation that fails."
