I got my start in this financial reporting business by covering one of the real positive feel-good stories of the 20th century: the savings and loan crisis. It was sort of like getting your dream job of covering the NFL as a beat reporter and having the editor saying your first assignment is to talk to Mike Vick about something to do with dogs, and you're envisioning a nice human-interest piece about a quarterback and his love for man's best friend.
Savings and loans spent a good part of their lives as the homey places sometimes known as buildings and loans, where the George Baileys of the world helped the little guy to better his meager lot and lead a wonderful life. That all changed in the late 1970s with deregulation, as some of you will recall (and the rest of you need to). I'll skip the details here, but the unprecedented failure of the savings and loan industry was described in one book as "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time." Another book about what had happened to America's once-trusted S&Ls was titled, "The Greatest Ever Bank Robbery." And that was just the stuff we can print here.
It all hit home for me when two people I knew who were attending the same S&L conference I was in San Antonio had their employer seized by regulators-while they were at the meeting. Those years would spawn names and acronyms and hearings and memories that would live in infamy. The Keating Five (current presidential candidate John McCain would find himself dragged into that). Neil Bush. The RTC. Fizz-lick. FIRREA.
Ironically, the institutions more affectionately known for most of their lives as "thrifts" ended up being anything but thrifty for taxpayers. You can go online and read numerous accounts of what the final tab was/will be.
So why this bumpy ride down Bad Memory Lane? As Credit Union Journal has been detailing online at cujournal.com for the past few weeks and as we report on page 1 of this issue, the nation's credit union community has a festering sore that appears is on the verge of infecting and spreading. Credit unions in Michigan, Colorado and other states stand to lose millions of dollars, perhaps a lot more, after playing in the Florida housing speculation game. That's the thing about red-hot markets; a lot of times all you get is burned
Wait just a minute, you say. That's a billion-dollar-plus leap from loans gone bad at a limited number of credit unions to the s&l fiasco. You're right. But let's not be too quick to dismiss some Mini-Me parallels just because the Happy Meal is meal du jour in Credit Union Land.
I've written here before and told reporters often that it takes a thousand stories to build credibility, just one to tear it down. Credit unions have a dozen or more statewide advertising campaigns running all over the country with a message of homespun financial control and local member ownership.
That advertising will have a hard time overcoming the mess in the press this Florida loan situation could become. Credit unions are suing other credit unions. In Colorado, members are blogging away expressing outrage that their local deposits somehow ended up in a place called Lehigh Acres, Florida. Questions are being raised over why Colorado's state regulator kept secret the fact it had dismissed the management and board at Norlarco Credit Union and placed it in conservatorship. Hadn't everyone seen the news reports of customers of Countrywide Bank lined up to withdraw savings just a week before? When it comes to your money, even a vague rumor is enough to get folks to "run."
But here's where credit unions had really better not count on everyone being blinded by the white hat. It doesn't really matter what the eventual cost of the bad loans in Florida might be. A few years back I was part of a panel at a credit union conference, (demonstrating that if you don't charge a fee you're panelist material). One question from the audience had to do with the then emerging area of credit union business lending and the related risks. The other two panelists spoke to how to mitigate the financial risk of such loans. Having only been on the receiving end of a business loan and never having made one, I sought to offer something different in my response, and pointed to the other potential risk-that to the good name of credit unions. "It doesn't matter if a credit union or credit unions are adequately reserved should some business loans go sour," I told the group. "If I'm the banking industry, I've got four words for Congress and state legislators: Savings and loan crisis." CUs are kidding themselves if they don't think bank trade groups aren't Googling away and filing coverage of these CU bad loans to share with legislators. Hey, this is the same banking industry that has most recently stated the CU tax exemption is weakening homeland security.
I recall talking many years ago with a rather glum president and owner of a family-owned S&L as he watched his industry flush away the good work it had done in communities in the name of loans to strip mall developers and office towers several states away. I wonder what advice he'd have for credit unions right now.
Frank J. Diekmann can be reached at fdiekmann
