Duh! It's Time To Learn The Investing Business
Editor's note: the following letter is in response to "The Great Debate: Are Credit Unions Safer Now?" from CU Journal, July 9.
Duh!!! There were three legs to the corporate stool: Investments, liquidity (LOC), and end-clearing. Guess which one caused all the losses? If you guessed the first one; Ding, ding, ding! Go pay your assessment with full knowledge of why it happened! NCUA has chopped off that leg of the stool. What's left isn't sexy, but it won't sink the entire credit union industry! End of debate!
Does that mean that CUs will have to make their own investments? Another DUH! Fact is; they never should have done their investing with the corporates in the first place. With a "stupid-corp" you would have to pay a penalty if you touched the balance of your investment. You also couldn't transfer the funds. Why would anyone in their right minds sign up for investments with such prohibitive parameters? At least with a broker, you know what you bought.
Did anyone know what the corporates were actually invested in, or that they had double-downed on your funds? NCUA took out these big question marks with your members' money. You should be glad that they did; now you will know what and how your funds are invested, because, you actually made the investments yourself. And, your investments will benefit your members, not the staff of a separate organization.
OK, I get the cross-subsidy of programs, but, now with 20-20 hindsight, how'd that all work out? I think most would rather have paid the full price as we went along instead of the shenanigans that cost us all umpteen-billion in assessments.
So, what do you get with a broker? You have marketable and liquid investments. Easy to sell and, shock of shocks, you may actually receive a premium on the investment instead of a guaranteed penalty.
Your choice: pay a penalty at a stupid-corp or sell at a premium (or at least without penalty. I know how I've handled my investment for the last 12 years. Yes, I understand the "let's all hang together" argument, but while you were cutting back on salaries, staff, and benefits, the corporates were rolling in the dough with defined benefits that would bankrupt a small city, and paying salaries that would choke a horse on their roll-the-dice investing program with your members' monies. They actually thought that they were some large CU instead of an organization with "assets under management."
So, you have to do your own investing now. Great! Get out there and learn the business. What? You thought you only had to learn how to lend? Silly you! Just as you learned the ins and outs of lending, you have to learn the same on investing. Just because you haven't done it before, don't be afraid. Just get out there and learn. Those who deal with indirect lending already know the broker-management tools. Call another CU that does investing, talk to a broker, stay with what you know (CDs and straight agencies) initially, and expand as you are comfortable.
We know the price of paying a middleman (corporates) to do your investing. You need to learn the ropes of doing it on your own. After all, you've got a pretty good handle on lending by now. You can do the same on investing. A word of caution though: just because it's permitted, doesn't mean it's safe and productive. The holders of munis are now learning that lesson.
The early-adopters of indirect and sub-prime lending learned their lending lessons; you need to learn investing as you go and continue to expand your knowledge.
Gregg Stockdale, CEO
1st Valley CU, San Bernardino, Calif.