How People in Power Make Mistakes

From Scott Galloway:

“The undoing of many powerful people is that they enter a hermetically sealed bubble of fake friends. Enablers, not people concerned with their well-being. When the Elon-Twitter debacle started this spring, I wrote a post about power.

“My thesis: Power, unchecked, is a psychological intoxicant. OK, this isn’t so much a thesis, as it’s scientifically proven. Research shows power causes us to downplay potential risk, magnify potential rewards, and act more precipitously on our instincts. In other words, you lose your ability to self-regulate; you need others to do it for you. . .”

The solution: Every day, every one of us needs to ask ourselves an important question: Who keeps it real for me? Who will push back, who will tell me I’m wrong … who will save me from myself and the psychosis that’s led to so many successful people’s fall from grace. ”

Example: Ed Callahan had Bucky Sebastian as his “wingman” in work and life.

The Tragedy of the Commons:  The End of a Movement?

Last Friday’s blog described the multiple losses should the merger of Vermont State Employees (VSECU) with New England FCU proceed on January 1, 2023.

The members lose their credit union; 190 employees their career paths and individual agency; local communities– their partnerships; the state of Vermont– its leading cooperative financial institution; and the overall credit union system, another pubic example of  purpose compromised by leaders’ self-interest.

The tragedy of the commons occurs when persons in positions of responsibility exploit the common resources of the community which they oversee for personal gain.

Should credit union leaders continually seek to acquire and merge sound, long serving credit unions, like VSECU, to fulfill their individual ambitions, I believe this will lead to the demise of the cooperative credit union movement.

Documented Success

VSECU’s example and innovative track record were so successful, that it was the subject of a 15- page analysis by Callahan’s September 2021 Quarterly Report.  Several of these accomplishments were republished in five articles in January 2022 on, for example this description responding to the COVID crisis.

At September 30, 2022 the credit union reported $1.1 billion in assets;  71,625 members and 9 branches;  $6.5 million in YTD net income and $102 million in equity.  Average salary and benefits per employee exceeded $100,000.

Against this documented track record of long-term innovative performance, VSECU’s merger information offered nothing about the future.   The credit union was already more than full service; it had pioneered special initiatives pursing a “greener” environment.

The continuing credit union’s leaders at NEFCU made no commitments to  VSECU’s 71,000 credit union members’  who hold $922 million loans and $980 million savings.   These members will be under the full sway of a board they did not elect and management that has no connection with their firm.

So undefined is this transaction that both CEO’s admitted in this twitter post, the consolidation would take over a full year to conclude and will require a completely new brand identity and  name.

The back office conversions, product/service alignments and leadership selections will be the top priority at a time when  members of both credit unions face economic uncertainty and anxiety from decades-high inflation.

In the Calling All Members website, the opponents point out that the two credit unions have very different fields of membership, histories, and market focus:

The continuing federal credit union’s Field of Membership will not be based on geography or residency.  It will be numerous employer groups and organizations located in Vt, MA, ME, RI, CT, MI and even groups headquarters in San Diego and San Francisco. . . our statewide cooperative built by Vermonters for Vermonters will be gone—forever.

Why Should Credit Unions Care?

Two typical industry reactions to this latest example of a successful credit union being acquired by another include:  “Not my problem” and  “Didn’t the members approve?”

I believe this pattern of sellouts and acquisitions by cooperative leaders will ultimately lead to the end of a cooperative financial system in America.  Here’s why.

The foundation of every credit union is member relationships.  Almost all credit unions were started with no capital.  They earned the loyalty of members by promising to be a different kind of financial firm.

Member-owners were invited to put their trust in their leaders and board. The  affirmation  of this process  is the democratic one-member, one-vote design.

This merger now places VSECU’s relationships under the direction of strangers.

The action is based on the illusion that size is all that matters. Credit unions have never competed on size.  It is a unique coop fantasy that coops can marry two mice and produce an elephant.

When size is the dominate goal, it becomes a trap of endless growth not creation of member value.

VSECU’s members have continually contributed more than sufficient resources to continue a long-term vision of hope empowered by local control and focus.  The credit union has become a financial “sanctuary” established by members’ belief and trust.

Now their leaders (senior management and board) have abandoned them for the “Golden Calf” of “instant mass,” not substance.  There has been no planning or discernment with those that built the institution and who own it.

The process of voting is nothing but an administrative fig leaf completely under the control and oversight of those temporarily in power and who have a vested conflict of interest.   Only 21% of members voted.  Of the total membership. just 316 votes (.4%)  is the difference between those supporting and those opposing.  This was certainly no vote of confidence in charter cancellation.

It would seem fool hardy to decide the fate of a 75-year old, high performing coop with such a micro thin margin of owner approval.   It also raises the question of how the voting was managed by those who advocated only their side of the issue.

Regulators Abdicate

Regulators continue turning a blind eye and washing their hands of responsibility.

Mergers are the wild west of today’s financial markets.  Second only to Crypto transactions, until that industry’s implosion is over.

Coop CEOs/boards are literally buying and selling millions of member relationships to firms with no connections, increasingly out of state, and who are unconstrained with what they can do with them. These kinds of hollow transactions and disclosures would normally attract the intense scrutiny of an SEC or FTC regulator if these were stock owned institutions.

Coop regulators would rather talk about inflation, consumer protection, fintech, DEI or other current topics rather than the elephant in their room.

Contrary to their assertion that this is just the free market at work, these are back-room deals, negotiated in private, devoid of transparency and without any public attempt to find the “best” deal for members.

Regulators avert their gaze pretending to be deaf, dumb and mute as they oversee the disintegration of the coop system.

Financial Eunuchs

VSECU’s leaders betrayed the trust members gave them.  Credit unions embody the spirit of community.  This action dissolves this special bond built by three generations of members.

The merger destroys the fundamental foundation of a cooperative leaving a financial eunuch in its place.   It has no cooperative character or roots.  Unlike a stock transaction, it lacks the credibility of a market affirming price.  In these transactions, coops have devolved into purely private entities, controlled by individuals acting to consolidate and accrete their own power.

These are not people helping people; rather these mergers demonstrate CEO’s helping themselves.

One can understand why NEFCU’s CEO wants control of 71,000 member accounts with average combined member loan and savings balances of over $43,000. And to be given over $100 million of their collective savings while eliminating this vigorous, innovative competitor.  No more “free” market choice for either firm’s members, or the general public.

This kind of transaction has no economic rationale or “market” driven basis.   There is not a firm anywhere in America, coop or otherwise, who would not line up to accept such a generous “gift.”

VSECU’s leadership had embraced the Global Alliance for Banking Values (GABV) vision of “Finance at the service of people and the planet for the real economy.

Their collective decision to transfer their fiduciary responsibilities to another firm show that corporate and personal values need not align.  It certainly refutes the biblical adage that a person cannot serve God and mammon at the same time.

The Members Will Respond

Self-interest may appear to succeed in the short term, but in the long term, it fails as a strategy.   When the vision of the cooperative is “all I want is everything” personal ambition will fail for what only a community can sustain.

People are not stupid nor uninformed about these sham transactions.  Most members follow their personal financial situation as a top priority. It is a heightened concern especially in a time of rising rates.  When member generosity and loyalty is compromised by self-interested  mergers, their support will  fade away.

These transactions will end the unique public role for credit unions. Acting like banks, they will be treated  like their for-profit competitors.

Regulators who have approved these pillages of common wealth for private gain will find themselves thrown in with all other financial overseers.  The playing field will indeed be level.

There will be no credit unions on it.  No tax exemption.  Just wealth seeking institutions led by similarly motivated individuals.

Trafficking Relationships & Destroying Good Will

The practice of buying and selling relationships is not new.  It is part of the capitalist markets drive for greater and greater market share.

It is why the states and Congress authorized the tax exempt cooperatives as an option to prevent this exploitation.

A coop system reliant on values as a differentiator cannot long continue with coops and market capitalist wannabes side by side.  For the latter will continue to prey on the former until everyone joins in the rush to get their share of cooperative gold.

Nothing will stop this pattern of private theft until persons of courage and confidence step up to call out this rapacious behavior.  If this fails to occur, then as predicted on the Calling All Members site the national system of cooperatives, just like VSECU,  will be gone-“forever.”


On Veteran’s Day from Ukraine

“On behalf of all Ukrainians, Happy Veterans Day and thank you for your service.

“For almost 250 years the men and women of the United States armed forces have prevailed against tyranny, often against great odds. ​Your example inspires Ukrainians today to fight back against Russian tyranny. Special thanks to the many American veterans who have volunteered to fight in Ukraine, and to the American people for the amazing support you have given Ukraine. With your help, we have stunned the world and are pushing Russian forces back. Victory will be ours. God bless America and Slava Ukraini.”

Volodymyr Zelensky

Votes Counted: Closest Election Ever

The elections this week were full of last minute drama.   There will be many consequences yet to be sorted out from the results.

In one  case the vote was especially close.  Only 318 votes separated the two sides.   The percentages were 51.1% versus 48.9%.  Certainly one of the closest elections ever.

Voting participation however was not particularly high in this critical ballot.  Of the eligible voters, only 21% cast votes.

“Highly Engaged Members”

The results were announced in this document on November 9th after polling had closed.

However this was not a republican vs. democrat political election.  It was a vote to extinguish the charter of a 75-year, innovative state chartered financial cooperative.

The official tally was 7,622 for the merger and 7,304 against.   The result is that $1.1 billion VSECU and its 71,000 member-owners will no longer have their own credit union.

It will be merged into the $1.9 billion New England FCU, officially on January 1, 2023.

Voting matters.  By law the charter belongs to the member-owners, not management or the board.  The leader’s duty is fiduciary, to always act in the members’ best interest.  Voting is the core of democratic design.

So when almost 50% of members vote against a strategy that management has tried to sell them for almost a year, such a no confidence result would cause most responsible leaders to rethink their plan.

When announced in February, the opposition was visible, public and well thought out by conscientious members who launched their own website,  Calling all Members.  The State Employees Association Board of trustees voted to oppose the merger.

Even controlling all the communication and marketing resources, member contacts and legacy relationships, the vote barely exceeded the required majority.  The members sense there is something that doesn’t add up in this charter cancellation.

The Merger Math

The merger explanation contained two specific benefits:  the NSF fee would be reduced by $10 and access to NEFCU branches would be opened.  Both “benefits” could have been done immediately without merger.

The reasons for merging was given in rhetorical phrases about future plans and a new partnership, but no specifics.

The math for coop mergers is simple,  1 + 1 = 1.   There is no increase in members, loans, capital or any objective market share measure. Instead one charter goes away along with its independent leadership and business strategy.    VSECU relationships, good will and member loyalty is dissolved after 75 years and three generations of building its unique identity.

There was not even a thank you dividend for the $100 million in collective equity now transferred to the control of a new board and management with their own financial priorities and strategy.  They have no operational or political connection with the 70,000 members who created this common wealth.

The  merger announcement included the VSECU CEO’s observation:  Our membership is highly engaged in the democratic process as member-owners evidenced by the highest credit union voter turnout ever in our history,” noted Miller. “As we look toward the future, we are excited about the opportunity this partnership promises and ready to take VSECU into our united future for all of our members.”

A Weaker System

There are other consequential problems with this transaction.  The first rule of financial soundness is to not put all one’s eggs in a single basket.  This merger increases concentration and reduces diversification for both credit union members and the Vermont system.

Separately these two credit unions competed for market leadership and innovation.  Now they are 47% of the Vermont credit union market by assets and 40% of members.  That concentration should raise both financial as well as public policy issues. As the American Banker’s lead story on February 23, 2022 described the situation, Vermont’s Largest Credit Union Merging with Rival.

Vermont’s credit union system is smaller, losing it largest state charter with total credit unions numbering just 17.  Traditionally, the state charter has been more innovative and flexible than the  federal option, but the largest example of that difference is now gone.  The political sway in state debates is lessened both institutionally and by members.

Here’s What’s Next

From VSECU’s  press release:

The two credit unions will continue to operate separately as VSECU and NEFCU until January 1, 2023. On that date, VSECU will become a division of New England Federal Credit Union. No changes will occur for members of either credit union while integration of systems, services, and products occurs. While there is no firm deadline for the conclusion of the integration, it is expected that the combined credit union will operate as one entity later in 2023.

Currently, it’s banking as usual at VSECU, soon to be a division of New England Federal Credit Union, until we identify and create a new name for our combined organization.”

With  50% of  “highly engaged” members opposing  this cancellation of their independent charter, how many others feel the same way?    The new name, organization and operational integration is over  a year away.   How many will wait around to see what this new identify and “vision’ looks like?

Banking Values?

A number of years ago VSECU became one of a very few American credit unions to join the Global Alliance for Banking Values.

The vision of this global network is:  Finance at the service of people and the planet.

Our collective goal is to change the banking system so that it is more transparent, supports economic, social and environmental sustainability, and is composed of a diverse range of banking institutions serving the real economy.

In support of this effort VSECU announced its own expanded vision five years ago:

 “To inspire a movement that brings people together to empower the possibilities for greater financial, environmental, and social prosperity.”

The goal? To align our organization with a larger movement of values-based and impact-driven organizations in Vermont and around the world.”

Two major initiatives were begun as part of this restated purpose. One was called Powered by VSECU to stimulate social and economic opportunities through innovative partnerships around the state.

The second was Alternative Capital, to help small businesses and coops raise financing including direct investments in coops.  VSECU was  one of the few credit unions making these coop investments.

This new vision from 2016 lasted just five years.   The merger has no expressed vision.  The credit unions will continue what they were doing until they figure out the combined operations and develop a new name and brand.  Both credit unions are giving up their historical legacies.

Many VSECU’s members sensed that this combination promised nothing and took away what the valued.  The fact VSECU management gave up on their vision less than five years for an undefined merger, foreshadows a challenge retaining  the trust of the members who built this organization.

What is Being Lost

More is at stake than just member-owner patronage.

At a time of increasing economic uncertainty and record inflation, the one institution members have counted on is no longer theirs.

Members have lost their capital, their independent leadership, their long established relationships and their unique identity.

Moreover in this stressed economic moment, members of both institutions will spend millions of dollars on vendor contract cancellations, product and operational conversions, and payments due when benefit plans are terminated.

Both sets of employees will eventually be rationalized.   No organization needs two marketing, HR, mortgage lending, and operational leaders.   There is no efficiency from scale without redundancy reduction.  Aspirational professional career paths are eliminated.

The credit union system in Vermont loses its state leader and its ability to influence local regulatory and political institutions when change is desired.   Larger credit unions tend to separate their self interest from the system that spawned their creation in the beginning.

The national credit unions system has lost one of its examples of green leadership.  VSECU Eyes a Green Future in Vermont, is just one story of a series at portraying the credit union’s business innovations. The stories exist no more.  The institution is gone.  Size becomes the goal, not values.

The Betrayal

With widespread opposition and an absence of any concrete benefits or plans, the merger has cost thousands of members and multiple interdependent organizations real losses.   The transaction comes at a time of heightened vulnerability for members and institutions.

Positive momentum is lost.   Priorities become institutional assimilation projects, not serving local communities.

As one member read the posted results he wrote that within a year or so employees will be gone to “pursue other opportunities” and collect the benefits from their terminated plans.  He ended saying:  The board and senior leaders were hired to serve the members. What makes me deeply sad is not the money, it’s the betrayal.”

To build a successful credit union on a foundation on member loyalty and trust takes years.  Both can be lost overnight.  In a single election.


On Failing Retirement

At a recent class reunion, one of my peers admitted to “failing retirement.”  His projects and interests kept him busier than a full time prior job.

It reminded me of this story:

An old physician, Doctor Gordon Geezer, became very bored in retirement and decided to re-open a medical clinic.

He put a sign up outside that said: “Dr. Geezer’s clinic. Get your
treatment for $500 – if not cured, get back $1,000.
Doctor Digger Young, who was positive that this old geezer didn’t know beans about medicine, thought this would be a great opportunity to get $1,000. So he went to Dr. Geezer’s clinic.Dr. Young: “Dr. Geezer, I have lost all taste in my mouth. Can you please help me?”

Dr. Geezer: “Nurse, please bring medicine from  box 22 and put 3 drops in Dr.Young’s mouth.”

Dr Young: ‘Aaagh! — This is gasoline!”

Dr. Geezer: “Congratulations!

You’ve got your taste back. That will be $500.”

Dr. Young gets annoyed and goes back after a couple of days figuring to recover his money.

Dr. Young: “I have lost my memory, I cannot remember anything.”

Dr. Geezer: “Nurse, please bring medicine from  box 22 and put 3 drops in the patient’s mouth.”

Dr. Young: “Oh, no you don’t — that’s gasoline!”

Dr. Geezer: “Congratulations! You’ve got your memory back. That will be  $500.”

Dr. Young (after having lost $1000) leaves angrily and comes back after several more days.

Dr. Young: “My eyesight has become weak — I can hardly see anything!”

Dr. Geezer: “Well, I don’t have any medicine for that so, “Here’s your $1000 back” (giving him a $10 bill).

Dr. Young: “But this is only $10!”

Dr. Geezer: “Congratulations! You got your vision back! That will be $500.”

*Moral of story* — Just because you’re “Young” doesn’t mean that you can outsmart an “old Geezer”

Elections. And Truth?

This poem published in 1901 is about the  legendary Muskogee orator and chief, Crazy Snake, who led resistance to federal allotment of Muskogee lands.

The author, DeWitt Clinton Duncan, was born in the Cherokee Nation in Georgia in 1829. A poet, short story writer, and essayist, he was an attorney for the Cherokee Nation and a translator of Cherokee law, as well as a teacher of Latin, English, and Greek.

The opening line is an allusion to line thirty-three of William Cullen Bryant’s poem “The Battle-Field,” which reads “Truth, crushed to earth, shall rise again”—an idea which this poem sharply contradicts.

Which “truth” will rise today?

“Truth crushed to earth will rise again,”
   ’Tis sometimes said. False! When it dies,
Like a tall tree felled on the plain,
   It never, never more, can rise.

Dead beauty’s buried out of sight;
   ’Tis gone beyond the eternal wave;
Another springs up into light,
   But not the one that’s in the grave.

I saw a ship once leave the shore;
   Its name was “Truth;” and on its board
It bore a thousand souls or more:
   Beneath its keel the ocean roared.

That ship went down with all its crew.
   True: other ships as proud as she,
Well built, and strong, and wholly new,
   Still ride upon that self-same sea.

But “Truth,” and all on her embarked
   Are lost in an eternal sleep,
(The fatal place itself unmarked)
   Far down in the abysmal deep.

Let fleeing Aguinaldo speak;
   And Oc̅eola from his cell;
And Sitting Bull, and Crazy Snake;
   Their story of experience tell.

There is no truth in all the earth
   But there’s a Calvary and a Cross;
We scarce have time to hail its birth,
   Ere we are called to mark its loss.

The truth that lives and laugh’s a sneak,
   That crouching licks the hand of power,
While that that’s worth the name is weak,
   And under foot dies every hour.

NCUA’s 9.6% Increase in the Proposed 2023  Budget Shows the Need for A Better Way for Spending Oversight

NCUA’s 2023 Staff Proposed Draft budget is 84 pages. It adds 25 new positions and an 80% increase in spending on the Merit technology system.

CUNA and NAFCU provided 8 and 9-page detailed suggestions for changes.  Credit unions pay all NCUA’s expenses. The two trade associations critiques are an excellent starting point for readers who want to see the critical issues.

A Longer Term Spending Perspective

Two weeks ago I posted a blog called NCUA’s budget hearing and inflation that included a chart from the Bureau of Labor Statistics showing the 22 year cumulative price increases for many sectors of the economy.  The largest was the 240% gain in hospital services followed by college tuition and fees at 180%.

Average hourly wages had increased  100% and overall inflation was 74.4% in this time frame.

In this 22 years the US population has grown by 50 million. Each of these economic sectors are serving many more customers with more products and more facilities than was the situation in 2020.

NCUA’s proposed 2023 budget would result in a 283% increase for this same period, higher than any other economic sector.   Meanwhile number of NCUA insured credit unions has fallen from 10,316 to 4,853.

NCUA’s budget process is one sided.  It details all spending request but provides  no cost control or expenses reductions.  An example is this excerpt from CUNA’s analysis of administrative costs:  Specifically, the budgets for contracted services, administrative expenses, and rent, communications, and utilities are proposed to increase by 30.3%, 10.8% and 21.8%, respectively.

Without external oversight, the budget process becomes a PR exercise with scripted answers and no independent review.   Board members readily give in to the inflation rationale.

NCUA’s budget grows inexorably faster than every other sector because there is no check and balance.   The agency is answerable only to itself.   Or as one board member frequently observes, “NCUA is a monopoly.”

Chairman Ed Callahan’s Last Congressional Hearing

For there to be accountability over NCUA’s spending, the process should be changed.  The example of former NCUA Chairman Ed Callahan’s final Congressional testimony suggests a possible solution.

On April 24, 1985 Ed appeared before Chairman Boland’s  subcommittee of the House’s powerful Committee on Appropriations.  He presented the CLF’s 1986 appropriation request.

The following are excerpts from Chairman Callahan’s opening statement:

For fiscal year 1986 we are requesting a $600 million in new loans, the same number as the previous five years. The expense limitation $850,000 is the number as the current fiscal year and has been unchanged for the past four years. . .

We believe the lending limit is adequate to meet the needs of over 18,000 credit unions. . . Our agents, the 42 corporates,  have reported minimal increases in loans even though loans outstanding at their member credit unions have increased 44% the past two years. . .

The CLF’s loan balances of $288.5 million represent a very slight increase since our fiscal year end. . .

Mr. Chairman, today the (CLF) system provides services to more credit unions at a lower cost and with fewer employees than at any other time in its history.   Credit unions and we are proud of its success.

At the time of this hearing, NCUA insured 18,000 credit unions with six regional offices and a DC headquarters.  Total employment was 600. The CLF’s bottom line of no increases in operating expenses for four consecutive years was the same outcome for both the NCUSIF and  agency’s operating budgets.

In contrast, NCUA’s total spending has grown over 200% more than the economy’s total inflation for the past 22 years.  The solution to NCUA’s open-ended spending is to make the entire NCUA budget subject to Congressional oversight and approval.

A Better Way:  Put  NCUA Spending “On Budget” for Congressional Review

All CLF spending was subject to Congressional oversight until the 2008/2009 crisis changed this annual approval process.  Congress no longer reviews CLF lending or expenses.  The CLF’s coverage has never been as comprehensive or meaningful since.

Currently the NCUA is seeking to extend the CARE Act provisions enlarging the CLF’s capabilities. This legislative request  is an ideal opportunity to put the CLF back on budget along with the remainder of the Agency’s spending.

In the real economy, constraining costs is the first responsibility of leaders when facing unprecedented inflation and the prospect of an economic downturn.   Personnel and other resources must be redirected to immediate priorities, rather than just adding staff for new initiatives.

Both efficiency and effectiveness concerns were raised in NAFCU and CUNA’s detailed budget responses.   However, these comments come with no formal authority. NCUA routinely restates its positions, such as the need for consumer examiners or more specialists.   Board members, with rare exceptions, just support each other’s spending priorities.

Putting the NCUA on-budget would open up the process to independent monitoring and public commentary.   Congress would review and approve the spending as well as the underlying “themes” or policy justifications.  As the NCUA’s taxpayers,  credit unions would then have a meaningful way to comment on NCUA’s budgets and operating performance.

It worked for the CLF.  It would be a better way for insuring accountability for NCUA’s performance today.