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Wisdom: On Regulation

 

Share Insurance & Regulatory Choice

“The fact that there is an insurance option-private insurance for state-chartered credit unions-assures that the NCUSIF will be different from the premium based FDIC fund, that it will be funded with deposits from credit unions, and can be counted as an asset on the books of credit unions.  The fact that there is an insurance option guarantees there will be a charter option, and thus a regulatory option.

This is to the good for everyone.  A single regulator is sooner or later bound to become a lazy or an arrogant regulator.  The best ideas will not bubble up; the regulated will not flourish to their maximum potential.  But with two regulatory options, competition is going to allow the best ideas to come to the fore and allow the dynamic credit unions to expand.”  (pgs 46-47)

 

Note: From the Coach’s Playbook,  a collection of  Ed Callahan’s observations.  These are a summary of operating values for the credit union system. Ed began his professional career as a high school math teacher and football coach.  His thirty years in credit unions included Chairman of NCUA (1981-1985), co-founder of Callahan & Associates, and CEO of Patelco from 1987 through 2002.

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The Cooperative Advantage

Cooperatives Are Unique

“The first word in credit unions always has to be MEMBER.  The second word has to be COOPERATION.

“We are a cooperative movement.  Credit unions are co-ops.  People join, agreeing to cooperative to better one another’s lives.   They pledge themselves to cooperation.

“We have seen what this spirit has done for us in the past.  From fragile, tiny groups of people a hundred years ago pledging to themselves they would save and borrow from from one another in a spirit of helpfulness to a movement of 90 million Americans and $700 billion in assets. That is the power of helpfulness and cooperation.”  (pgs. 58-59)

Note: The Coach’s Playbook is a collection of the thoughts of Ed Callahan from his thirty years working a multiple levels including CEO of Patelco Credit Union and Chairman of NCUA (1981-1985).

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Capital Wisdom

On Capital

“The ultimate safety and soundness is not the level of capital but how well the institution is attuned to the market. If it is not tuned well, it is going to fail no matter its level of capital.  If it is tuned well, it will retain and attract members and will be healthy.” (pg 54)

Note: From the Coach’s Playbook, a collection of the thoughts of Ed Callahan’s observations  on key credit union issues.

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Wisdom: The People’s Movement

The People’s Creation

“We don’t have to concern ourselves when people ask, “but what did Congress intend us to be?”  Our movement does not exist because it was created from the top (i.e. Congress) down.  Rather it was created from the bottom (i.e. the people) up.

We told Congress what we intended to be: cooperatives that would try to serve the needs of their members, whatever those needs might be.” (pg52)

Note: The Coach’s Playbook is a collection of the thoughts of Ed Callahan as a federal and state regulator, innovator and credit union CEO.  The book was published by Member Value Network.

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Halloween from Poets E. E. Cummings and Robert Frost

Chansons Innocentes II 

by E. E. Cummings

hist     whist
little ghostthings
tip-toe
twinkle-toe

little twitchy
witches and tingling
goblins
hob-a-nob     hob-a-nob

little hoppy happy
toad in tweeds
tweeds
little itchy mousies

with scuttling
eyes     rustle and run     and
hidehidehide
whisk

whisk     look out for the old woman
with the wart on her nose
what she’ll do to yer
nobody knows

for she knows the devil     ooch
the devil     ouch
the devil
ach     the great

green
dancing
devil
devil

devil
devil
     wheeEEE

Note: The poem “celebrates country folk superstitions of All Hallow’s Eve or All Soul’s Day, when ‘witches and tingling / goblins,’ ‘little ghostthings,’ and other spirits of the dead make their appearance. The poem is written as a child feels in the midst of these ideas, stories, and legends of old age, death, and the supernatural; much of the diction is in child language. [. . .] [L]little creatures from another world are ‘scuttling,’ running, and hiding, creatures that are strange and fearful to a child, yet also described as childlike in character. [. . .]

Cummings never lets us feel too sad about death. The suggestion is that we should do as children do: feel old age and death in our midst for only a brief moment, and then go back to playing. Cummings reaffirms the joy of life that is always in process, and even imagines the spirits of the dead continuing this fun, the way a child might imagine it, for, after all, it is a green, innocent devil that is depicted dancing.”

Source:  R. A. Buck, professor of English at Eastern Illinois University published  in Spring: The Journal of the E. E. Cummings Society, no. 18 (October, 2011)

In a Disused Graveyard

by Robert Frost

The living come with grassy tread
To read the gravestones on the hill;
The graveyard draws the living still,
But never any more the dead.

The verses in it say and say:
“The ones who living come today
To read the stones and go away
Tomorrow dead will come to stay.”

So sure of death the marbles rhyme,
Yet can’t help marking all the time
How no one dead will seem to come.
What is it men are shrinking from?

It would be easy to be clever
And tell the stones: Men hate to die
And have stopped dying now forever.
I think they would believe the lie.

Note: Sandra L. Katz, professor emerita of English at the University of Hartford, writes, “The speaker decides to tell the stones that the reasons why the graveyard is ‘disused’ is that ‘Men hate to die / And have stopped dying now forever.’ The persona is playing a joke on the stone, but one that we—perhaps foolishly—wish were true.”

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Wisdom: Running Lean

           On Running Lean

“I started my career as a football coach. Something you learn from coaching is that people can do more than they think they can.   They can be faster, work harder and do more than they thought possible when they got up in the morning.

“When I arrived at Patelco, I reviewed the numbers.  The credit union was sending 10% of income to reserves and returning 4-5% to members as dividends.  Patelco was bloated and did not know it.

“I set a new goal: 10% to reserves 28% to expenses and 62% back to the members,  To get that 10-28-62, everyone had to work leaner and better.  Nothing was considered sacred.” (pgs 22-23)

Note: The Coach’s Playbook is a brief collection of the thoughts of Ed Callahan over his 30 plus years in credit unions. The book was published in 2006 by the Member Value Network.

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More Wisdom . . .

                     On Lending 

“The backbone of a credit union is lending.  You blow the whole thing if you make too many mistakes here.  Think back over the past 80 years of credit union history in America.  Consider the outstanding credit unions.   What sets them apart?  I believe it is their lending programs. In the long run, the rise or fall of a credit union depends on the loans it makes.” (pg15)

 

Note: The Coach’s Playbook is a collection of observations by Ed Callahan.  They are from his three decade career as a regulator (including Chairman of NCUA 1981-1985), co-founder of Callahan & Associates, and as CEO of Patelco.   The book was published in 2006 by the Member Value Network.

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Wisdom from The Coach’s Playbook

                  On Members

” Most economic institutions exist for the capitalists, who are a tiny minority compared with the body of customers.   In such an economic system as now exists around the world, people do not come first.  Money does.

Credit unions are different and always have been. We never came together with notion of making money, but with the notion of helping people and improving their lives.” (pg. 7)

 

Note: The Coach’s Playbook is a short collection  of Ed Callahan’s observations.  These were collected from his writings and talks working in credit unions:  eight years as a regulator  (including Chairman of NCUA from 1981-1985), co-founder of Callahan & Associates, and as CEO of Patelco.   The book was published in 2006 by Member Value Network, a spontaneous “collection” of credit union leaders and consultants.

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Government and Investment Portfolio Management

In a Marketplace analysis yesterday, the daily financial update reported how the Federal Reserve’s management of its multi-trillion dollar portfolio can reduce or increase the government’s overall operating deficit.

As reported, for the last 15 years the Fed’s been making about $100 billion a year a profit sent right to the Treasury which, as revenue, reduces the federal deficit.

The “profit” comes from the net spread between what the Fed earns on the trillions of  bonds and mortgage-backed securities that it began purchasing during the financial crisis of 2008 under the policy of “quantitative easing.”

This macro economic policy continued and expanded during the Covid shutdown.   The cost to carry these interest earning assets in the Covid era was near zero.  The majority of funding was from the excess reserves banks kept with the Fed which was paying less than 1%.

Today that spread is upside down as the cost of funds has risen to nearly 5.5% on overnights.  Rates on the portfolio are mostly fixed and at much lower yields as securities were purchased in a much different part of the interest rate cycle. Interest expense is now greater than interest income with the result that “the Fed has lost on the order of $100 billion since last fall,”

Here are the Fed’s total balance sheet holdings as of October 18, 2023 showing almost $8 trillion in total assets.  Tables show that the majority of assets have maturities beyond ten years.

When the Fed has a loss, it files the loss away until it can pay it back once it’s making a profit again. This year’s “loss” will equal about 5% of the total government deficit.  So instead of lowering the shortfall as in prior years, it adds to it.

The NCUSIF Analogy

The largest asset managed by the NCUA is the NCUSIF’s $22 billion investment portfolio.  As of August 30, $4 billion was invested overnight with a yield of 5.4%.  The remaining $18 billion was invested in maturities as long as seven years with a combined yield of 1.4%.

At month end the portfolio’s market value was $1.5 billion less than book.  As short term investments become a greater portion of the total, the duration has declined slightly to 2.64 years.  This is the approximate time that it would take the cash flows from the maturing investments to be at  market–should the current yield environment become the new “normal.”

If the NCUSIF’s portfolio yield were 5% or greater, the fund’s total revenue would exceed $1 billion. This would result in dividends to the fund’s credit union owners. When the portfolio is below market for an extended period this shortfall comes out of credit unions’ pockets.

Time for Credit Unions to Be Alert

It will be critical for credit unions to monitor the monthly updates of the fund. The Agency’s upcoming investment decisions are critical. Its interest rate risk management and duration will  have a critical impact on the Fund’s future.  This includes total revenue, its financial soundness and credit unions’ bottom lines.

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Children on the Front Lines of Change

I was sent the following article, The Civil Rights Showdown Nobody Remembers, prior to a reunion.

It is by Louis Menand, published in the New Yorker, July 31, 2023 and in the print edition on August 7 under the title “The Children’s Crusade”

The Supreme Court and Civil Rights:  Separate is Not Equal

Clinton High School, Clinton TN was the first southern school to be integrated by court order in 1956.  This 15-page New Yorker story describes the event.   This initial case is sometimes  overlooked because of the subsequent much publicized Federal Government’s  intervention in Little Rock’s Central High School. In that situation,  President Eisenhower sent in the 101 st Airborne to support the Court’s integration mandate after Governor Faubus called out the Arkansas National Guard to prevent it.

The excerpt below is the final paragraphs which  provide the significance of this first integration effort. The event was seminal. The author’s portrayal  of how children, not grownups, were  on the front line again and again is his most crucial observation.

Sometimes change in society must be led by the most vulnerable.   Political rhetoric,  governmental orders and passionate ideals can be inspiring.  But who does the heavy lifting?

The Author’s Conclusion

This brings us to the real scandal of (the Court’s school desegregation decision in) Brown. The Supreme Court finally interpreted the equal-protection clause of the Fourteenth Amendment as it had been intended: to protect Black Americans from state-ordered discrimination. The Court was not wrong when it held public-school  segregation laws unconstitutional.

But its decision placed the burden of desegregation—not just some of the burden, the entire burden—on children. Schoolchildren, both white and Black, were required (few volunteered) to do something that no adult was required to do. Socialized since birth to avoid unnecessary contact with the other race, they were suddenly expected to handle a situation that their parents, outside of military service, had never been asked to handle.

Labor unions and police forces and fire companies were not required to integrate in 1954. Restaurants and hotels and theaters were not required to integrate. Places of business were not required to integrate. Water fountains and bus stations and city parks were not required to integrate. Only public schools were required to integrate.

Clinton High School had eight hundred students. It was insane to send twelve Black teen-agers in there while demonstrators screamed abuse outside and there was not a single Black teacher in the building. It was insane to send nine Black teen-agers into Central High School in Little Rock with eighteen hundred white students and no Black teachers. It was insane to ask one Black adolescent, fifteen-year-old Dorothy Counts, to walk a gantlet of taunting whites so that she could single-handedly integrate Harry P. Harding High School, in Charlotte, North Carolina.

Desegregation was a war. We sent children off to fight it. 

This story causes one to ask, what are today’s children fighting for?