About That Level Playing Field: The Bankers Are Actually Right
You know, now that I come to think of it, the bankers are right: the playing field really isn't level.
Lost in all the activity and hearings and noise surrounding the federal government's bailout (or "rescue," if you prefer that spin) of America's largest financial institutions is the potential effect it will have on an argument nearly as old as credit unions themselves.
You've read it on these pages and others, heard it at various credit union association meetings, and seen it on the websites: the bank lobby's incessant drumbeat to the press, Congress and state legislatures that the retail financial services "playing field" isn't level. And by that, if you haven't already heard more often than a negative political TV ad, they mean it's tilted in favor of credit unions as the result of their federal corporate income tax exemption.
Given that, one would just naturally conclude America's banks would be loathe to accept so much as even a finger of a handout from the federal government. Except, as you just may have read between coverage of the latest O.J. trial, the federal government is prepared to inject as much as $250 billion directly into banks as part of its larger $700-billion bailout package.
Keep in mind that that $700 billion is a federal government budget figure, meaning it's just a starting point meant to be nothing more than a fond remembrance to someday, a trillion dollars later, be looked back upon-and it also has to be borrowed. Total U.S. credit union assets as of mid-year were approximately $810 billion-it's as if the federal government wants to take the accumulated savings and borrowings of 85 million CU members and give it to the banking industry.
Some of the biggest banks-and American Bankers Association dues payers-will be cashing Uncle Sam's checks. Twenty-five-billion (each!) to the likes of Citigroup, JP Morgan Chase (this one may only be payback, as J.P. Morgan himself helped bail out the federal government twice in his day), Wells Fargo, and Bank of America (which now really is Bank OF America). Some reports have stated that when all is said and done, thousands of banks will receive aid from the feds.
A Wee Bit of Irony
All of this comes with a pretty large dollop of irony. Over the years the bank lobby has produced numerous studies-and prodded others out of the Treasury-on what the credit union tax exemption "costs" the federal government.
In 2005, for instance, the Independent Community Bankers Association took to Capitol Hill a study from the Tax Foundation that suggested from 2004 to 2014 the CU tax exemption would lead to $31 billion in lost federal revenue. Set aside for a moment any and all flaws with that argument, and the credit union trade groups have cited plenty, it all seems sorta quaint now, doesn't it. Thirty-one-billion dollars? That's less than two of the largest banks alone will receive (and yes, we do know the hope (prayer) is the feds will be able to sell its ownership position, perhaps even at a profit, in the future, but whose betting on that?)
Speaking of costs, several analysts are predicting banks (and CUs) will be dealing with new and tougher regulations as a result of the meltdown by the banks. That probably will not be mentioned in any bank-sponsored studies.
So, with the level playing field accusation put back in the Rhetorical Closet, the banking industry may want to start adopting a page from credit unions, which used much of International Credit Union Week last week to remind folks they are member-owned. Given that most U.S. bank customers are taxpayers, and that taxpayers have now put up the money for those ownership stakes, it only stands to reason that banks will want to note that they are (at least partially) customer-owned.
* The Credit Union Journal frequently carries news of robberies, embezzlements and other unsavory acts. The perpetrators are often looked down upon by police and district attorneys, and news reports are hardly flattering. But that's not true everywhere. In Ireland, the Limerick Leader reported that a local credit union was being used to stash funds stolen by two "respectable" Limerick men.
* Speaking of how nationality can affect one's viewpoint, CUNA Chairman Tom Dorety was explaining to a World Council of CUs conference how charter conversions happen in the U.S., and what happens to members' equity. That netted this observation from Phylip Doughty, CEO of MECU in Australia: "That's bloody outrageous. You're telling me that these buggers keep the earnings and then make CU members buy back what they already own? Don't ever complain to me about regulation, mate. Your lot clearly don't have any regulation at all!"
* In Portland, Ore., I recently saw a bus stop bench on the back panel of which was an ad for a local mortgage broker. Someone had vandalized the photo of the woman who was a broker by taking a black Magic Marker and blackening her eye. The vandal likely has no idea just how fitting his workmanship was.
Frank J. Diekmann can be reached at firstname.lastname@example.org.