Category: Observations

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The Greatest Generation: What They Did for Credit Unions

Tom Brokaw’s characterization of my parent’s generation as the “greatest” is recalled every time a WWII commemoration is presented.

But as the recent celebration of the 75th Anniversary of D-Day is overwhelmed by present events, it is important to remember another vital contribution this same generation made when not fighting a world war.

Children and young adults born of Depression-era parents, also accelerated a self-help movement for economic democracy that continues to thrive today. It is the $1.5 trillion cooperative credit union system which counts almost a third of Americans as member-owners.

The seeds were laid from 1909 to 1934 in states that passed over 25 laws authorizing cooperative charters. That pioneering “proof of concept” provided the credibility to pass the Federal Credit Union Act in 1934. Now credit unions could be formed anywhere in the country.

A Chartering Tsunami

What happened next is as dramatic a change as occurred in any post-war industry in America. For with the encouragement of the Bureau of Credit Unions housed in a small niche of the Department of Agriculture, the credit union option flooded across the US.

From a first-year total in 1934 of 78 new credit unions, the total of active federal charters peaked in 1970 at 12,977. Except for the war years of 1943-45, the net growth of new charters was 300-400 per year, with a high point of 852 new credit unions in 1954.

By 1970 the total of all credit unions was 23,687 of which 10,132 were state-chartered.

How could this dramatic expansion in just one generation have taken place?

Two Who Helped Build the System

Just as the war years produced leaders and heroes, so also did this national chartering effort by those fighting for consumer choice in a financial service industry dominated by for-profit firms.

Many factors aided the dramatic growth of cooperative charters: the need for consumer credit, the support of employer-sponsors, the creation of support organizations for the credit union system, and the post-war economic boom. However, these favorable circumstances still needed cooperative entrepreneurs.

One of Those Was Louise McCarren Herring (1909-1987)

I first met Louise while at NCUA in 1982 where she was escorted by Sam Rizzo, the President of the National Deposit Guarantee Association (now called ASI), a cooperative state-chartered insurance alternative to the NCUSIF.

Her stories about participating in the founding of CUNA in Estes Park, Colorado in 1934 were memorable as she was sole living participant from that event.

But more significant than being present at the beginning, was her role in chartering hundreds of credit unions throughout the state of Ohio, including 17 within the Kroger Company’s grocery store chain  where she had found her first job.

Louise’s contributions were more than chartering. She helped create organizations that were essential to the growth of the emerging credit union support system including leagues, centrals, and alternative deposit insurance. She was an ardent supporter of choice and dual chartering.

Her passion for cooperatives was unabated late in life. She believed everyone should have an opportunity to belong to a credit union. During deregulation when credit unions were arguing whether credit unions could have member overlaps, she defended the opening of the charter and the importance of serving entire communities with the logic: Poverty is not a common bond.

The Organizer

Lance Barden (1896-1967) helped organize 400 to 500 credit unions. After WWI service and college, he joined the US Farm Credit Administration (FCA) in Berkley, Calif. While there he formed a credit union for the employees and served as both manager and treasurer.

A year and a half later he was appointed federal credit union organizer in the FCA’s credit union section for northern California.

In the book The California Story, his wife describes his work as a credit union organizer. “Our entire lives were wrapped up in credit unions. Even our weekends; managers of small credit unions would visit us regularly on Sunday afternoons and Lance taught them bookkeeping and accounting.’’

Lance was sent to Hawaii in 1936 to continue credit union organizing. The plan was to stay two weeks and start a half dozen or so. Instead he stayed the entire winter and organized close to a hundred.

He also helped to form leagues in California and Hawaii. His work became a family vocation and commitment. His son and daughter became credit union CEOs. His granddaughter Sue Longson became CEO of a credit union in her teens and continues as a consultant today.

Lance’s example of hard work, sharing firsthand experiences and an exceptional commitment to the cooperative model demonstrates what one government employee can accomplish. While verifying specific numbers of new charters is difficult, what is clear is that whatever the final count, he helped to found more credit unions than NCUA has chartered in all the years since 1985.

Lance’s wife told a story that illustrates Lance’s belief in the credit union model. When he organized a new credit union, he would ask for the money right on the spot. “Right then and there. There was one time a very poor man had just died. The credit union didn’t even have its books setup, but Lance lent the first nickel he collected to the man’s family for his funeral.” He always said, “When you give your money to a credit union, it will be put to good use immediately.”

The Greatest Generation’s Gift to Us

This phase of credit union history is about more than new organizations and building organizational support. Lance and Louise’s contribution was more than hundreds of new charters. What they “paid forward” was a set of values along with institutions to sustain those ideals.

Recent events have shown how cooperative institutions can be quickly and quietly merged or closed.  The loyalty of generations lost.. Objective accomplishments are overlooked.. Shared values are the foundation that sustains cooperatives.

The greatest generation paid forward an enormous legacy for their children  Can we maintain and extend this inheritance?. Should  we aspire to do anything less?

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Cooperatives and Avoiding the “Blame Game”

After the Bay of Pigs fiasco in which a CIA backed Cuban exile group landed in Cuba to overthrow Castro and were defeated within days, President Kennedy took full responsibility with the observation “Victory has a thousand fathers, but defeat is an orphan.”

Unfortunately that is not true in real life. Whenever a problem shows up, especially one that results in real loss and tragedy, there are plenty of persons willing to point out those responsible for the defeat. It is called the “blame game.” Its purpose is to shift responsibility away from those responsible for resolving problems to those who caused the “defeat.”

The whole taxi medallion crisis, centered in New York City, is a case in point.

The New York Times ran a series of three articles two weeks ago showing the harm caused to almost 1,000 individual medallions owners by the dramatic declines in value since 2014. This three-part series was just converted to a video broadcast in a 30-minute Hulu special in The Weekly.

The fingers of blame are pointed everywhere: at the taxi-limousine commission, the New York city council, the medallion brokers, the multiple bank and credit union lenders, the regulators. And of course the external-event-defense: Uber and Lyft’s ride sharing economic disruption. NCUA in its public statements has blamed the credit unions, boards, disruption and even admitted its oversight of “concentration risk” was not as diligent as it should have been. But no matter, NCUA just took over $1.0 billion in cash and paid off the shareholders, gave the loan medallion portfolios to external servicers, and washed its hands of the problem.

And that is the real problem. Credit unions were formed to walk toward members and their difficulties especially in times of trouble. Instead of encouraging and helping the medallion borrowers at the time of greatest need, NCUA cut and ran. Most of the taxi medallion credit unions had fully reserved for the potential losses as values fell to cash only sales of around $200,000. In one case a merged credit union had not only written down the values, but still had loss reserves of over 50% for the amounts still on the books. But the examiners prohibited the credit union from rewriting loans or making other accommodations that were in everyone’s best interest. As one CEO said, the examiner’s goal was to put the credit union out of business.

The billion dollar cash outlay for the liquidations of LOMTO and Melrose locks in losses at the time of lowest value. And therefore the greatest loss. No upside potential is possible. In the NY Times Hulu video story, an advocate for the medallion owners states that the income from a taxi license would support a loan of $400,000; but that value can only be realized if someone is using it to generate income. Meanwhile hedge funds are paying cash at foreclosures because lenders and regulators have shut off any financing possibilities for medallion user-owners.

An economic valuation cycle is thus turned into multiple personal crises for credit union borrowers because the institutions set up to serve them, denied help when the members were most in need.

Disasters happen. Some are caused by internal failures, some by external events over which an institution may have no control. This is why there is a regulatory system. And why as part of this “system” credit unions have an “insurance pool” funded by 1% of every shareholders savings. This is the critical source of financing when necessary to transition from problem to solution. But resolutions get aborted when the fund is used to expense away current difficulties. That is not why cooperatives were created. That is not why the NCUSIF was funded with members’ savings.

The inability of NCUA leaders to acknowledge their responsibility for resolving problems, not liquidate them, only leads to the next set of problems. In this case it is the destitution of over 700 medallion owners who have declared bankruptcy and for many others burdened with debt they cannot see a way out of. The expensing of member funds to make problems go away ultimately leads to greater and greater problems down the road. The self-help and self-financing capability of the cooperative model is compromised any time a problem just becomes a liquidation event. Mergers just transfer the responsibility to somewhere else in the system. The crucial resilience and patience that cooperative design allows is fatally neglected for instant resolutions.

The problem of relations with Cuba that JFK thought he was resolving is still unfinished business today. When NCUA plays the blame game versus acknowledging the responsibility to transform problems into turnaround stories, there will never be any victories for which to claim success. Only an ever mounting, open ended expenditure of member funds to sweep mistakes under the rug. This corruption of the system’s cooperative model could in the end destroy it.

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Why I Blog

Every so often, institutions become rigid and need to be revived, reformed, and reborn. When coops become institutional machines more than movements, it’s a sign that they must shake off their historical and bureaucratic calcification to continue evolving as a living movement.

Just as in our own lives, growth is never in a straight line; it is often three steps forward and two steps backward.

This feels like a good time to again inspire motivation “from the bottom up.” Rather than coming from those in power, the most effective and lasting change happens at the grass-roots level.

Being on the “edge of the inside” means not being dependent on the status quo.

What are the essential elements of the cooperative tradition? By asking right questions, one can attempt to clear away the rubble of unhelpful strategy, low-level thinking, abuses of power, and convenient truisms.

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The Origins of Mother’s Day

The beginning of Mother’s Day goes back to 1870.  Julia Ward Howe – an abolitionist remembered as the poet who wrote “Battle Hymn of the Republic” worked to establish a Mother’s Peace Day.

In 1914, President Woodrow Wilson declared it a national holiday and a “public expression of our love and reverence for all mothers.”

The goals of Ward’s original proclamation in 1870 were about peace.  More importantly that women must take the lead-in an era when they had no vote and no offices or formal roles in public life.  A true grass roots movement.

The Proclamation

Arise, all women who have hearts, whether your baptism be that of water or of tears! Say firmly: “We will not have great questions decided by irrelevant agencies, our husbands shall not come to us, reeking with carnage, for caresses and applause.

“Our sons shall not be taken from us to unlearn all that we have been able to teach them of charity, mercy and patience. We women of one country will be too tender of those of another country to allow our sons to be trained to injure theirs.”

From the bosom of the devastated earth a voice goes up with our own. It says, “Disarm, disarm! The sword is not the balance of justice.” Blood does not wipe out dishonor nor violence indicate possession.

As men have often forsaken the plow and the anvil at the summons of war, let women now leave all that may be left of home for a great and earnest day of counsel. Let them meet first, as women, to bewail and commemorate the dead. Let them then solemnly take counsel with each other as to the means whereby the great human family can live in peace, each learning after his own time, the sacred impress, not of Caesar, but of God.

In the name of womanhood and of humanity, I earnestly ask that a general congress of women without limit of nationality may be appointed and held at some place deemed most convenient and at the earliest period consistent with its objects, to promote the alliance of the different nationalities, the amicable settlement of international questions, the great and general interests of peace.

Change, even when well-founded, can take time. But ultimately the grass roots prevail.  The key:  keep the vision alive.

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The Entrepreneurs: Attracting the Next Cohort of Credit Union Leaders

Every business from Coca-Cola to Ford Motors faces the same marketplace reality. How does successfully serving one generation of customers transition to the next? Will consumers have the same tastes? Have the same transportation needs? Respond to similar messages?

At the George Washington University’s New Venture Competition, the guest speaker portrayed a different challenge in attracting today’s students.

Tim Hwang graduated from Princeton in 2013 and is today the CEO of Fiscal Notes a technology application for select areas of legal case research.

He described his age as the entrepreneurial generation. Students across the country are demonstrating widespread interest in building startups to change the status quo.

Today major universities see this student interest. From Ivy league schools to smaller liberal arts, university administrations are sponsoring new ventures and rewarding winning startups with cash prizes and offers of future help.

A sample of winners from GW’s recent contest are illuminating, even inspiring. From the winners list students are creating technology, engineering, social, and network business startups serving almost every area of society.

I was aware of this growing university commitment because one year earlier a group of freshmen who wanted to start a credit union for GW students, became one of the nine finalists out of hundreds of startup proposals in the new competition final.

These students have significant faculty and formal university endorsement. They have researched and met with numerous credit union vendors willing to help, often at little or no initial expense.

The most difficult part is the regulatory approval. They plan to spend the next three years of their college careers to this startup, and then leave it as a legacy for future students.

In addition to specific capital requirements, NCUA’s drawn out, detailed approval schedule would discourage even the most gung-ho organizers.

In the last decade there have been fewer than ten new charters. If this is the pace of new entries, will the cooperative model miss recruiting this generation of members?

As a member does your credit union actively serve startups? How does it encourage entrepreneurs of all ages seeking to create new solutions for their communities?

The questions are important. For the mindset to seek out and encourage member innovators, may be an important indicator of management’s ability to renew the credit union’s organizational design.

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Fate and Destiny: Do Credit Unions Share a Sense of Destiny?

Critical outlooks for the future of the credit union system are pervasive. From forecasts of dramatically smaller numbers, an “outdated” charter, or numerous existential threats such as cybersecurity risks or disruptive fintech innovations, negative outlooks are easy to find.

In contrast, a speaker at a recent conference asserted: “America today needs credit unions more than ever.” This comment referred to the person’s belief in credit unions’ destiny, that is what cooperatives can do for members and communities at this point in history.

The observation was based on the growing data about significant unmet member financial needs. More importantly, the judgment was grounded in a belief in the destiny of cooperative financial ownership.

I saw this same belief in a changed future in George Washington University’s eleventh New Venture Competition finals last week.

Nine startups were chosen from over 216 student teams competing for cash prizes of over $200,000 plus in kind legal, office space and mentoring resources of another $600,000. More than 500 students from all eleven faculty had competed for this final.

One winner was chosen from each of three business categories: technology, social and new venture tracks. The winners were:

  1. Last Call–an online marketplace to enable businesses to discount surplus food and provide more affordable meals—thus reducing food waste.
  2. Dulceology–an online bakery that uses social media to create its markets as well as pop-up shops to serve special events such as conventions.
  3. Plast-ways–an engineering consortium of plastic eating microbes designed to extend the life of landfill waste disposal technology.

These three startups each received $35,000-$45000, plus the opportunity to receive experienced start up support or even venture capital. Their common hope was a passion to solve a problem or to change the way a traditional market was being served.

These entrepreneurs were driven by destiny-the desire to change the status quo to something better.

As a member, I ask do credit unions still share this idea of destiny?

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Fate and Destiny: The Member-Credit Union Relationship

Fate is the circumstances in which we often find ourselves. Sometimes externally imposed and other times self-imposed. Fate thinking is often packaged in negative forecasts when commenting on present trends.

Destiny is the capacity to go beyond legacy circumstances or present constraints. It is a form of faith, a way of seeing and seeking a different future.

Is there a difference between fate and destiny for characterizing an individual’s or an institution’s role in society?

Religion offers a singular example of the difference. Jesus’s fate was to die on Good Friday. His destiny was Easter morning. Something happened that first morning that transformed fate into one of the most powerful forces driving society since that event.

If we confuse these two ways of thinking about situations, we run the risk of missing life’s most satisfying opportunities.

It’s easy to look at present or past circumstances and see the coming recession, disruptive competition, or lack of adequate resources as fated. It’s another to see what comes as a matter of destiny.

For members the question is whether their credit union offers a relationship based on a person’s fate. Or will it support the member’s desires for a different, better financial future?