Precious Good Fridays

Everyone will experience Good Fridays in their lives.   Sometimes it is only temporary–moments of doubt, distrust or feeling alone.

The Good Friday Christian story is much harsher.  It  includes betrayal, denial, false witnesses, suffering and ultimately a cruel death.

How we react or interpret these moments defines what we believe.   Some will call upon faith; some fate; others just accept these trials as the ups and downs of the human condition.

Our society has grown skeptical of public testimonies of faith.  The words often seem mismatched with the deeds or the personality of the speaker.

Until you see an example that rings so true, it erases any doubt about the power of belief.  Especially in public life.  When everything is at stake for you.  And for all those around you.

For example, the picture of a Ukrainian solo cellist playing Bach in a vacant city square asserting his artistic humanity in war.

A Profession and a Calling

The brief recording below was posted on March 5, 2022 by the Kyiv Symphony Orchestra and Chorus (KSOC).   That is ten days after the Russia’s invasion when the battle for Ukraine’s capital was much in doubt.

All religious music—including the great oratorios such as Handel’s Messiah—were banned under Communist rule.

These compositions based on Scripture,  declare God’s glory to the nations. The musicians of the KSOC see music as both a profession and a calling. Their members are graduates of the world-renowned Tchaikovsky National Music Academy and regularly perform in Ukraine and tour the U.S. and Canada.

Their response to weapons of war are words of faith.  When a prayer is sung,  God hears it twice.  In this case, first in Ukrainian, and then in English. The members of the KSOC are a witness to their country of the power of faith.  And to the rest of us when we enter Good Friday moments of deep doubt and hurt.

 

(https://www.youtube.com/watch?v=2qrryKC9vYY)

That same week the BYU singers offered this musical prayer hymn in Ukrainian.  The spirit can be uplifting and contagious.

(https://www.youtube.com/watch?v=I9IVx6bM5ck)

 

Money Changers and Temples

In his first inaugural address  March 4, 1933, Franklin Roosevelt called out financiers.  Here are some of his remarks about that segment of society.

“This is a day of national consecration. . .

“This is preeminently the time to speak the truth, the whole truth, frankly and boldly. . .our distress comes from no failure of substance. . . Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. . .

“Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. . .

“Faced by failure of credit, they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They only know the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

Yes, the money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of that restoration lies in the extent to which we apply social values more noble than mere monetary profit.

“Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy, the moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days, my friends, will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves, to our fellow men.

“Recognition of that falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing.”

One initiative to bring more options was passage of the Federal Credit Union Act in 1934.

FDR’s Biblical Reference: A Holy Week Sonnet

Cleansing the Temple   by Malcolm Guite

Come to your Temple here with liberation

And overturn these tables of exchange

Restore in me my lost imagination

Begin in me for good, the pure change.

Come as you came, an infant with your mother,

That innocence may cleanse and claim this ground

Come as you came, a boy who sought his father

With questions asked and certain answers found,

Come as you came this day, a man in anger

Unleash the lash that drives a pathway through

Face down for me the fear the shame the danger

Teach me again to whom my love is due.

Break down in me the barricades of death

And tear the veil in two with your last breath.

The Question:   Where are credit unions today with this ever lasting challenge to cleanse the temples of finance?

 

 

 

A Critical CEO Change

Today American Share Insurance (ASI) announced that Theresa Mason will be the new President and CEO.  She succeeds the retiring Dennis Adams who has served in that capacity for over three decades.

According to the release:

“Theresa is a highly accomplished Executive within the Insurance industry, having spent the past 16 years in the Columbus Market with Grange Insurance and the Kansas City Life Insurance Company where she served as President of Grange Life Insurance and directed highly effective finance, operations, sales andIT teams.

A Certified Public Accountant that began her career with Ernst & Young in Cleveland, Theresa also carries her CGMA (Chartered Global Management Accountant) and holds affiliations with theAmerican Institute of Certified Public Accountants (AICPA) and the Ohio Society of CPA’s.”

Why This Matters

In ten states ASI is the share insurance option for state chartered credit unions instead of NCUSIF.

Today state charters hold approximately 50% of all credit union assets. The choice of share insurance is critical to a viable dual chartering system.  It allows state chartering authority to be the primary regulator.   Credit unions are closer to the legislatures and policy makers who create the laws governing their actions.

As a result, state charters have traditionally been the incubators of change for the entire credit union system.

In his final Annual Report message outgoing CEO Adams stated:

Without the option of private share insurance, I can attest that there are credit unions in America that would not be operating today. ASI has never been simply another vendor. To the contrary, we have always promoted our core value proposition as a true business partner to all of our member/owner credit unions, and our commitment to that has worked, and worked successfully, and that will never change. 

ASI’s board of directors is composed of credit unions and outside professionals elected by the credit union members.

ASI’s annual report shows the total primary insured shares of $20.4 billion with the program available in ten states.  It has received an outside audit by Deloitte and Touche and unqualified opinion following GAAP accounting standards.

HEADLINES

April 7, 2020, Wall Street Journal, (pg. B 12)  Fed Could Set Off a Lengthy Tantrum

Sub head: This time with quantitative tightening, the central bank may not give in so easily to market protests

*****************************

May 18, 2020, Wall Street Journal (pg. B 1) Virus Deals Credit Unions a Losing Hand

“Almost a third of the nation’s 5,200-plus credit unions are tied to a single employer, industry or other association. . .” The two credit unions chosen to illustrate the story’s theme were WestStar Credit Union in Las Vegas, Nevada and Endurance FCU in Duncan, Oklahoma.  The entire credit union system and these two all are doing well two years later.

*****************************

October 6, 2021, Washington Post, Fear Sells.  It’s our Job not to give in to it.  by David von Drehle

“A healthy society is not a society without problems, because no society has ever been without problems. A healthy society is one that faces problems without fear because its people have courage–and their courage raises courageous leaders.”

Enough said.

An Observer on Freedom, Democracy and Credit Unions

“Alexis de Tocqueville shows that the capacity to choose the right thing is best understood in communal and political terms.

“Praising the New England townships of early Puritan America, he points out that the citizens made their decisions in common, framing laws, electing those who would govern them, setting taxes, providing for the poor, and in all things looking only to themselves and their own responsibility. These physically unimpressive settlements in the New World enacted self-government in ways that monarchical old Europe could hardly imagine in the 17th century. . .

“Tocqueville consistently reserves the word “freedom” for active engagement in public life and a concern for the common good that counters isolated self-interest. Citizens are free when they see and respect their dependence on each other. They can best continue to do what they know to be the right thing if they are committed to political self-rule.”

Source:  Glenn Arbery, A Taste of Freedom,

 

How One Co-op Conducts Board Elections

Democracy is difficult to practice, especially when incumbents mange the process.

No one likes to give up positions or power, even if one is a volunteer.  This is true for local and national elections and in credit unions.

The press has reported on the attempt by four members of Virginia Credit Union to be considered for nomination to stand for election to the board.  Their efforts were ignored, and they were denied the chance to raise the issue at the March Annual meeting.

“The four people seeking to run for a board seat—Frank Moseley, Richard Walker, Tori Jones and Kati Hornung—have called the election a “sham” and alleged the process protected incumbent board members or their hand-picked candidates. The group said in earlier remarks that the CU’s chairman selects members of the Governance Committee that selected members to run for board seats, including the same CU chairman.”

An early account of their efforts can be found in this post,  The Fix is In.

A Shining Example of Democracy in a Coop

Shared Capital Cooperative is a lending and investment fund for co-ops of all types and sizes. They are cooperatively owned and managed by the co-ops that borrow from and invest in the firm. Borrowers and investors experience genuine cooperative finance—generating grassroots community wealth while building social, environmental, economic and racial justice.

The Coop’s vision is “building economic democracy.”

Founded in 1978, it is a Certified Development Financial Institution (CDFI) located in St. Paul, MN.   Its staff of 10 manages approximately $14 million in loans.  The board has eleven members elected from coops across the country.

The coop has both individual and 265 organizational members.  One board seat is voted by individuals and is not up this election.  There are six candidates for the three open board seats, each with a three-year term.

Board Election Ends Today

Voting is electronically from March 28 and ends today.   The link sent to me via email goes to an eleven-page listing of the candidates’ biographies.  The second link provides current board members’ backgrounds.   Here is an excerpt from the email:

Meet our candidates! For biographies and candidate statements of this year’s candidates please click here. For more information on our existing board, click here.

Cooperative members eligible to vote (not individual members like me) receive an email with their voting credentials. Annual meeting details are also given.

Shared Capital Cooperative’s Annual General Member Meeting and Cooperative Forum. It will be held virtually on Thursday, May 12th, from 12:00 pm to 1:30 pm CT.

The event will be free and open to the public. All are welcome! More details will be posted at www.sharedcapital.coop.

This relatively small, $16 million total assets organization, practices the democratic principles it committed to when formed.

Following Shared Cooperative’s Footsteps

This is an example of a board election/annual meeting that any credit union could emulate.   The process might prove enlivening and a confidence builder with members.  Especially as some credit unions struggle to involve members in this required annual democratic voting ritual.

This approach might result in more than a pro forma election; it could enhance member engagement and belief in the credit union!

Transparency: the Co-op Leader’s Advantage

An essential factor in  leadership success is communication.   What differentiates a co-op leader in my experience is transparency, not scripted speeches or PR prepared messaging.

But what does transparency mean?   What leadership qualities describe this skill?

Understanding this skill was an assignment  a credit union CEO gave to a consultant.  Following are responses to the request: “If you are to be scored for transparency as a cooperative leader, what are the questions you want your peers to use when evaluating you ? “

Following are some of the responses.

The Concrete Ten

  • Does the CEO share financials openly and often?
  • Does the CEO share board room interactions, themes, issues, etc.?
  • Does the CEO educate the cooperative’s members as to the “real deal” that results in their being better users of services?
  • Does the CEO openly define pricing issues so that members have input into pricing models and the rationale for prices?
  • Does the CEO allow audits of key company events openly?
  • Does the CEO explain like a marketer, educator, or peer?  Does the CEO know the difference?
  • Will the CEO present an issue until the person making the inquiry feels confident enough to explain the topic to someone else?
  • Does the CEO share enough to build trust with all cooperative stakeholders?
  • Does the CEO share to the point of risk?
  • Does the CEO share inconvenient truths about the organization when members need to be more effective stakeholders?

I added other qualities that create a positive leadership environment.

  • Does the CEO recognize and honor those who  crafted the legacy successors­ now stand upon?
  • Does the CEO admit when in error?
  • Does the CEO balance challenging words to staff with empathy?
  • Does the CEO delegate execution when there is agreement on key goals?
  • Does the CEO keep renewing the firm’s priorities even as agendas seem full?
  • Does the CEO participate in employee events and activities, social and other?
  • Does the CEO ask staff to be part of conversations with  outsiders and higher ups?
  • Does the CEO share personal interests and experiences apart from work activities?
  • Does the CEO demonstrate balance in the ability to play and have fun as well as work hard?
  • Does the CEO have open dialogue with members, the press and other interested publics?

A CEO’s suggestions

  1. Does the CEO lead with conviction, the projects or strategies that are past their full life but need pruning, as well as shiny new ideas that are just beginning (being planted).
  2. Does the CEO share with the board the areas for improvement within the Board? (i.e. the Board has weaknesses that need to be addressed)
  3. Does the CEO share with stakeholders the self-development efforts to be a better leader?

 

 

 

Learning from the Past

History is vital to interpreting human experience and meaning.   Understanding  where we have been helps us appreciate the present  and what the future may hold.

Our perspective of the past can change as events unfold.   What may have seemed wise or foolish at the time can now be viewed with greater clarity.  This capacity for self-reflection is critical when making decisions today.  It is called wisdom.

Calling for Wisdom by a Board Member

At the March NCUA Board meeting during the staff’s update on the Corporate Resolution Plan,  Rodney Hood observed:

But with any significant challenge, there are opportunities to learn lessons.  One lesson I would take away from the failed corporates is patience in the resolution process.  So I am glad that we are going to look back at the failed corporates, not to second guess or question decisions, but to learn from this experience as history can repeat itself. 

The Largest Loss Ever for Credit Unions

The liquidation en masse of five corporates was the largest projected loss ever.  NCUA said it would cost credit unions between $13.5-$16.0 billion.  The latest corporate AME numbers estimates the actual loss to the NCUSIF will be just over $2.0 billion and that is from just one corporate, WesCorp.

Absent an effort to understand how these projections were made, everyone will offer stories and interpretations that may be totally at odds with the facts as they unfolded.  In the desire to portray the resolution as a success, the most important lessons may be lost.   The seeds for future mistakes, remain unrecognized.

One example where the learning might begin is the liquidation of Southwest Corporate FCU.

Modeling for Failure

Unlike US Central and WesCorp, Southwest was not in conservatorship when seized.  It was being managed by its board and senior managers who made extensive monthly disclosures about the status of their credit union and every aspect of its investments.  The last report they issued was for July 2010 and was 21 pages of detailed information.

On September 24, 2010 NCUA issued an Order of Conservatorship on Southwest.  It was exercised “without notice” and warned that “Any business following service of this Order may subject members of the Board of Directors and management to civil or criminal liability.”  An explicit threat not to contest the Order.

A second document Grounds for Conservatorship included the following facts:

The credit union was solvent with “$88.6 million or 1.06% of  Southwest’s daily 12 month average net assets.”

The $88.6 million in remaining capital was after having “recorded OTTI charges totaling $496,258.357.” The Grounds document did not point out, as did the corporate in is July 2010 update, that only $49.7 million of actual losses (10%)  had been incurred. These investment write downs were based on modeling of  projected cash flows years, even decades,  into the future.

OTTI is not an allowance account.  It is a reduction in the value of an asset.  Under the accounting treatment at the time, improving loss projections based on the same modeling may not be recognized or netted with increasing loss projections.

In addition to its low solvency ratio NCUA declared it “marked to market” the investment portfolio resulting in a Net Economic Value (NEV) shortfall of ($718 million). This determination was accompanied by the statement that there was “with minimal opportunity for material improvement.”

Yet in the six-month period ending June 30, 2010 the negative NEV had improved by $382 million (35%).  The recovery had been underway since September 2009 and the market dislocations affecting the values of securities had begun to normalize.

But NCUA rejected these recent improvements asserting ‘future OTTI losses will continue to deplete its capital, negatively affect NEV, negatively affect its overall risk profile and decrease member confidence.  Even if NEV continued its recent slight improvement, the losses are more than Southwest’s balance sheet can absorb.” 

It further claimed: “Though a slight improvement in the increase in the fair value of the investment portfolio, the NEV increase is overwhelmed by the enormity of losses and the potential for additional OTTI charges from high risk investments.  The prospect of significant and sustained NEV improvement remains bleak.”  

A $1.5 Billion Modeling and Forecasting Error

 

Instead of a $718 million negative  NEV outcome and dire predictions of greater losses, the December 2021  projection is that SW Corp shareholders will receive $736 million in returned capital and liquidating dividends.  This is a $1.454 billion change in the actual economic value of the credit union.

The projected $736 million now being returned to shareholders equals 8.8% of the assets at the time of the seizure, or more than eight times the 1% solvency asserted by NCUA when placing the corporate in liquidation.

The projections and modeling were wrong.  The credit union had expensed hundreds of millions in  unrealized  OTTI losses that never took place, but were based on faulty assumptions.

Three of the other corporates had similar circumstances  Even in WesCorp’s situation, in which there will be no payment to shareholders, the estimated loss to the NCUSIF has gone from $6.2 million to just over $2.0 billion.

Next Steps in Understanding

 

A first review effort would be to update the projected versus actual loss experience on Southwest’s legacy assets.  The complete spreadsheet of legacy assets updated through September 2017 (when the TCCUSF was merged with the NCUSIF) is here.

How accurate were the OTTI write downs? What percentage of the $736 million payouts are from recoveries in the value of  “legacy assets”?

What can we learn further from the corporate resolution plan?   Especially in today’s economic circumstances?

Certainly the value of patience, in that there is a cycle of value with almost all assets in a dynamic economy.   This perspective could be especially important in this time of rapidly rising interest rates.  These increases  will temporarily depress the market value of many loan and investments assets on the books prior to Fed’s change in monetary policy.

The lessons should be more profound than relearning about fluctuations in economic value.  These might include the shortcomings of relying on “experts” like Black Rock and PIMCO for understanding what management options might be; or hiring Wall Street to design cooperative solutions; or even the native intelligence and insights of some of the corporate leaders who were summarily dismissed.

“No reasonable alternatives to conservatorship are evident.”

This assertion about the future of Soutwest in NCUA’s Order is perhaps the most important factor to assess.   What alternatives were evaluated?   By whom?  When?

One of the significant advantages of cooperative design versus private organizations is their dependence on member support and trust.   This factor is embodied in their democratic governance structure.

However, if those who lead an organization directly or through regulation do not honor this capability, then the advantage is loss.   The temptation to ignore, overrule or act based on solely on position and authority will sacrifice the long-term viability of an institution or even a system.

If NCUA demonstrates the ability to reflect on its own actions, transparently and in common cause with the industry, it could result in a leadership action that could resonate throughout the cooperative system—and perhaps beyond.

Why the Ukrainian People Will Be Victorious

This arrangement of a familiar American spiritual is by John Rutter, an English composer who in March composed an anthem to honor the Ukrainian spirit.

The recording below is by the Kyiv Symphony Orchestra and Chorus, two and half years ago.  In Ukraine.

For me it celebrates the indomitable spirit of the people, their artistic joy, and the universal longing all share for peace.

From November 18, 2019:  “I ain’t going to study war no more”

(https://www.youtube.com/watch?v=qJCI22_GDjI)

Ukrain is a democratic country in which courageous leaders arise, respected in their generation and to be honored by those to come.

Winston Churchill in July, 1940, after Poland, Belgium and France had been conquered, foresaw this present moment when he said to the world at that time: “And now it has come to us to stand alone in the breach, and face the worst that the tyrant’s might and enmity can do. Bearing ourselves humbly before God, but conscious that we serve an unfolding purpose, we are ready to defend our native land against the invasion by which it is threatened. We are fighting by ourselves alone; but we are not fighting for ourselves alone.”

 

Spring Storms

from “The Land”  (1926)

by Vita Sackville-West
That was a spring of storms. They prowled the night;
Low level lightning flickered in the east
Continuous. The white pear-blossom gleamed
Motionless in the flashes; birds were still;
Darkness and silence knotted to suspense,
Riven by the premonitory glint
Of skulking storm, a giant that whirled a sword
Over the low horizon, and with tread
Earth-shaking ever threatened his approach,
But to delay his terror kept afar,

And held earth stayed in waiting like a beast
Bowed to receive a blow. But when he strode
Down from his throne of hills upon the plain,
And broke his anger to a thousand shards
Over the prostrate fields, then leapt the earth
Proud to accept his challenge; drank his rain;
Under his sudden wind tossed wild her trees;
Opened her secret bosom to his shafts;
The great drops spattered; then above the house
Crashed thunder, and the little wainscot shook
And the green garden in the lightning lay.