For those who want an uplifting and new musical experience, here is Dan Forest’s Jubilate Deo. An oratorio in eight languages and numerous musical idioms.
(https://www.youtube.com/watch?v=BVyCzNg6o0o)
Two 2024 Christmas Eve Scenes
The World as it is: By English artist Banksy
The World as we wish it to be: Bethesda Meeting House being reborn
Two Readings for Insight
In a beautifully composed family Christmas letter, the final paragraph is the closing stanza of a poem Walls and Bridges. It was written by the husband to his wife in celebration of their 53 years of marriage. The poem recounts his thoughts listening to a priest’s sermon in Hamilton, Montana during the peak of the 2024 election season.
You asked me why I go to church,
When so many that we know no longer do.
And I replied,
I don’t know where to find
A better explanation of the world
The way it is and the way
We want it to be.
A Cooperative Response to a Dominant Online Retailer
These Artisans Built a Coop Alternative to Etsy
The opening paragraphs of this December 11 article by Cinnamon Janzer of Next City:
In 2022, Etsy’s earnings topped $109 million in consolidated net income. “Despite significant macroeconomic headwinds, we maintained the vast majority of our pandemic gains and delivered double digit revenue growth and excellent profitability for the year,” Etsy CEO Josh Silverman said in a press release.
Days later, Silverman announced that the marketplace platform would raise the transaction fee Etsy takes from each sale from 5% to 6.5%. In response, some 14,000 Etsy sellers closed their shops and went on strike for eight days.
The article presents details of the initiative to build a better digital marketplace where members would own the platform.
The goal was to create an organization with a direct stake in the livelihood of its user artisans.
The Artisans Cooperative was launched in the fall of 2023.
The funding model is described on the website and includes both members and owners. Outside assistance from groups like Start a Coop, Operation Buffalo and Seed Commons was also important.
The effort is still a work in progress. No credit unions have apparently been involved yet. But it would seem a natural affiliation and potential further benefit of membership for the coops users.
The most important message is the artisan-organizer’s belief that people have the option to organize and manage their economic efforts with a cooperative design. Certainly a spirit much in need of rekindling in the much older and larger credit union system.
Read and ask if your credit union has this belief in its mission for its members.
The 2025 Outlook for “Normal” Interest Rates
Wednesday the Federal Reserve will announce its latest overnight Federal Funds target range. After it began its 2022 upward interest rate cycle to reduce inflation, the impact on share growth and credit union liquidity was significant.
Actual share growth in 2023 was just over 2%. This year the third quarter results indicate a n increase of only 3%. The long term average share growth since 2000 is 6.5%.
Whatever the Fed’s says about its future rate intentions. trends suggest that liquidity will continue to be a top priority for credit unions next year. This means slow share growth, longer term investments still underwater, and continued competition for consumer deposits from money market mutual funds and other consumer financial options.
The Neutral Rate
One economic variable that all market participants debate is what will be the “neutral” rate of interest for the US economy once the inflation rate cycle tightening is ended.
The neutral setting is the range which doesn’t stimulate or slow economic growth. The market got used to very low Fed Funds interest rates during period following the 2008 financial crisis through the 2021 Covid response.
However these ultra low short term rates were contrary to the history of the Fed Fund level, and related market rates, prior to that post-crisis era.
There is no consensus on what this “new” neutral rate might be. Bond traders’ and economists’ forecasts range from under 2% to the current 4% plus.
In this chart and comment below, Bloomberg’s December 15 Forecast shows the Federal Reserve governors wide divergence of outlook.
Fed policymakers’ estimates of the long-run interest rate — a proxy for the neutral rate — are divided, too. They’re as low as 2.375% and as high as 3.75% — the widest range since the Fed began publishing the figures over a decade ago. Next week FOMC members will update their estimates of the long-run rate. Keep an eye on whether the median estimate increases — and whether the range of opinion is narrowing or expanding. (Bloomberg)
Credit union funding is almost all from short term savings. A flat or inverted yield curve if the FF rate stays above 3% can squeeze the net interest margin and/or make growing deposits very difficult.
A second unknown is how the growing interest payments on federal budget will affect rates. Could government financing “crowd out” private market debt, that is make it more expensive for corporations to borrow versus relying on internally generated cash flows?
The Growing National Debt Interest Expense
With other aspects of the new administration’s fiscal policy uncertain–taxation, spending, tariffs, etc–the rate environment going forward looks anything but certain.
Credit unions which rely on external new member share gowth versus relationship share strategies, may find it necessary to continue to pay up to attract these funds.
The Fed’s rate announcement this week will be well reported. The difficulty will be interpreting any future direction from it.
No one knows what’s next for market rates and forecasts. However, liquidity and slower growth are likely to be an ongoing challenge for the cooperative system in 2025.
The Best Christmas Ads Ever?
This post presents ways the spirit of the season is incorporated in commerce. Some of the most memorable ads are by the John Lewis stores in England. In recent years they have become more unique and less nostalgic in their storytelling approach.
Here is an example from 2023:
(https://www.youtube.com/watch?v=Cyuqy4Eb_I4)
Sainsbury’s approach to selling food for the holidays.
(https://www.youtube.com/watch?v=I8dczAGg-Qg)
AShelter’s Christmas campaign, is a poignant film that sheds light on the harsh realities of homelessness affecting over 150,000 children in England. The story follows a young girl named Mia and her father as they journey through a whimsical, imagined world – a temporary escape from their grim living situation in temporary accommodation.
(https://www.youtube.com/watch?v=PNZd-O-O_6s)
This Christmas story from Germany ends with a family tradition familiar to all.
This video is a moment when the spirit of the season stops all shopping in a large Philadelphia Department store.
(https://www.youtube.com/watch?v=wp_RHnQ-jgU)
Which exresses the spirit of this season for you?
Data to Consider Before Jumping into Two New Financial Services
Biennially, the FDIC conducts a consumer banking survey and releases the results to the public. The report produced since 2009 traditionally measures the unbanked portion of the population. The 2023 data released on November 12 added several questions about two new financial services that have attracted much credit union interest.
The Report’s headline finding is that “96 Percent of U.S. households had credit union or bank checking accounts in 2023.” A record low 5.6 million households (4.2%) remain unbanked
Further data breaks down the unbanked by race and those that were “underbanked,” 14.2% of households. These consumers rely instead on payday loans, cash and other non-bank products.
For traditional relationships, 48.3% of banked households use mobile banking and 76.4% of all households had a credit card.
Between the surveys in 2021 and 2023, the data on new payment application shows “use of nonbank online payment services such as PayPal, Venmo, or Cash App increased, while the use of general-purpose reloadable prepaid cards decreased.”
The New Data In the Report
So much for traditional product tracking. The 2023 survey asked about household use of two newer financial services: Buy Now Pay Later (BNPL) usage and crypto purchases. Both products have raised much interest in credit union land.
For example, this December 2 article in Credit Union Times reports on the first credit union in Georgia to offer a BNPL product. The article quotes the credit unions fintech/CUSO partner providing the service: “Buy Now, Pay Later is a financial service that consumers want and are increasingly expecting from their primary financial institutions.”
The FDIC survey however reports that “only 3.9% of all households used BNPL in the past 12 months.” For many consumers, this option is just an extension of an existing credit card relationship, not a separate product.
As bitcoin passes $100,000 in value and then fell back, crypto is again on some consumers financial product short list. But how big is the market?
The FDIC data showed that “In 2023, 4.8 percent of U.S. households owned or used crypto or digital assets in the previous 12 months. A significant majority of these households held crypto or digital assets as an investment (92.6 percent) while only 4.4 percent of these households used digital assets as a form of payment.”
Again the urgency to offer purchases or other transactions involving bitcoin or other crypto “currency” would seem to be tempered by both the uncertain nature of the product and its relatively low penetration of households.
The good news is that traditional financial products are used by almost all households and mobile convenience continues to expand.
Signs of the Season
Friday Thoughts
Two comments on yesterday’s blog NCUA’s transition in 1981:
- Ed Callahan was a leader who made you feel we were part of something big.
- from a George Will column: “Musk was ten years old in 1982 when Ronald Reagan appointed entrepreneur Peter Grace to purge government of waste and mismanagement. . .Grace’s commission produced 2,478 recommendations including this: Electricity produced by the Hoover Dam was being sold to parts of three Western states at Depression era rates that were one-fourth to one fourteenth of the rates paid by unsubsidized Americans. Congress responded to Grace’s proposal-stop this-by stampeding to extend for thirty more years this way below market price for a federal resource.”
- From Canada-an example of accountability:The Alberta government fired the entire board of its pension manager, saying the $116 billion Aimco increased compensation and staff, but not its returns. (an example for Coop Boards?)
- Why CEO’s who offer their credit union in merger to enhance their retirement benefits: “People love unjust gain because money is their highest trust.”
- On the challenge for informed public discourse: Reducing complex issues and any public policy into one sentence is not conducive to the civility, magnanimity, and intellectual processes needed for a free society to flourish. Doing so performs a double disservice, in that even while it redirects one from issues to personalities it also kills the search for truth by ignoring the need for real arguments, even ones made with magnanimity. The human mind was created to seek and know the truth. . . Democracy requires compromise, and compromise requires the two virtues lacking most in American society–prudence and humility.
- What hope is there, then, now that technology and social media have only deepened the virtue deficit? To paraphrase the great orator, Cicero, who lived at the time of the Roman Republic’s decline into instability, impiety, and autocracy, “silent prudence” is always better than “loquacious folly.”
- We may live in an age of succinct folly but the first part of Cicero’s dictum still applies.Silence involves listening, for one cannot argue without first listening to one’s opponent. As the writer of Ecclesiastes reminds us, “The words of the wise are heard in silence, more than the cry of a prince among fools.” Thankfully, Solomon has not yet called and asked for his wisdom back.
Post Election Back to Work: The Change in Employment Patterns in Communities
As consumer focused financial providers, changes in local employment patterns can have a profound impact on members’ and their credit union’s financial outlook.
Credit unions have always walked toward members and communities in difficulty, not away. The importance of a local credit union option is especially critical for those living in areas of slower growth and/or lower paying job opportunities. Now a study has tried to identify those cities whose economies trail national averages.
In the FDIC’s Second Quarter report, there is an article U.S. Industrial Transition and Its Effect on Metro Areas and Community Banks (pgs 45-74).
The study covers fifty years from 1970-2019 in the shifting employment patterns from higher paying industrial occupations, such as manufacturing, to an economy based on service industry and technology.
The study uses Metropolitan Statistical areas (MSA’s) and developed a “transition score” for ranking the areas showing those most impacted by the decline in higher-paying to lower-paying employment.
Of the country’s 387 MSA’s (cities over 50,000) those with higher transition scores had slower economic growth, were mostly smaller in population, and located in the Northeast and Upper Midwest. The two study tables below show the MSA’s with the highest employment transition scores along with the change in total employment over the past fifty years.
Of the 54 MSA’s in states with the highest number transition scores, Pennsylvania led the states with ten.
(note: for highlighted MSA’s above the study presents analysis of each showing why they reported high population growth)
Additional tables and graphs illustrate both the distribution of the highest scores and the lower impact scores among the largest MSA’s which tend to have a more diversified industrial employment base (table 3 page 55).
As one would surmise, MSA’s with high employment transition scores had slower income growth than the nation as a whole. (chart 4, pg 57)
In the four metro areas with the highest scores above, there were a number of other negative economic factors in addition to the erosion of manufacturing. These included total employment and population declines, slower per capital and GDP growth versus national averages, natural disasters and a lack of amenities such as universities and favorable weather.
Impact on Community Bank Performance
The report’s final pages analyze the performance of banks whose headquarters were in one of the 54 MSA’s with the highest transition scores, that is communities impacted by the greatest change in employment patterns. Following are some of their conclusions.
While overall performance is generally lower, these banks performed better than other community institutions in periods of high economic stress. In terms of structure, consolidation occurred as in the industry at large, such that only 31% of high transition communities were left with a local institution by 2019. New charters were less frequent in these MSA’s. But bank failure rates were lower.
In the highest transition scored MSA’s, banks had weaker branch and deposit growth, slower overall financial activity including pretax ROA.
The reason for these banks better performance during the two periods of economic crisis, was that their balance sheets contained more single family residential loans and lower exposure to commercial and industrial loans than institutions located in a less impacted MSA’s.
The Takeaways for Credit Unions
Credit unions are no strangers to changing employment patterns in their market areas. Many were originally chartered with employer based FOM’s. The deregulation of the early 1980’s allowed both state and federal charters to diversify their member base and seek other growth options.
The banks that were most resilient during these employment transitions focused more on first mortgage lending and less on commercial. Credit unions are almost exclusively consumer and real estate focused lenders. Even when an industry or local employer closes, the members tend to stay local. And need their credit union more than ever.
The study shows the external context matters in overall performance. It shows the obvious–that slower economic growth tends to correlate with lower financial performance. It also reinforces the critical and crucial role locally-focused financial firms have in these community transitions.
There is a cyclical pattern in much economic change. A high growth area becomes crowded, expensive, and loses appeal versus communities with lower home prices and more stable institutions. The role of credit unions as local economic actors is vital in both communities.
Many commentators suggest the latest election outcomes were driven by voters’ dissatisfaction with their economic situation, especially inflation.
Credit unions have the chance to take the lead in giving these members a hand up.
As other firms may rush to the high growth market attractions, the study shows that sustainability in times of deep transition is not only possible, but critical to the bringing the time closer when good fortunes return.
Veterans Day: Thank You for Your Service
Many times on national holidays, Veterans Day or other civic events, I have heard these words of thanks. But the people who should also be recognized are those whose duty was on the home front. They too served, often out of immediate contact, coping with life in a foreign county and very much reliant on their own initiative.
When we arrived in Japan in April of 1970 the Navy put us up in local Japanese hotel, outside the Yokosuka Navy Base. I was the new Supply officer on the USS Windham County (LST 1170) homeported there.
Three days later, after restocking the ship, I was gone for a four month deployment. Our initial role was a joint U.S. Navy-South Korean amphibious exercise off the coast of Korea, called Operation Golden Dragon. Then on to transporting marines from Okinawa to their firing-training range near Mount Fuji and back. And then further south to the Philippines and Vietnam. With a cruising speed of about 7 knots, we spent a lot of time on the water.
My life was structured on the ship. My wife, Mary Ann, had to find housing, buy a car, learn to shop in local Japanese stores and take care of Lara, and then Alix. We would exchange letters often arriving days or weeks after being written-sometimes in stacks of five or more at a time.
Mail call was the only contact we had when deployed. No telephone, no Internet, no live connections. The wives were not supposed to know where we were, what we were doing or when we would be back to home port.
Mary Ann took our two girls to play on the beach in Hayama. The seaside town is where the Emperor’s summer palace is located. For the first 15 months we lived there “on the economy” in a Japanese family’s compound. Even after we moved into base housing, Mary Ann would take our two girls back to the beach and meet with our Japanese friends.
That’s Mt Fuji in the background hovering like a cloud.
So when people express appreciation today to those who wore a uniform, it is vital that we honor those who also served on active duty by their side for just as long and with equal devotion.