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« Cartoon: The Wall Street Bailout | Main | Latest Keiser Report: Max Interviews Edward Harrison Of Credit Writedowns (Topics: Paulson, Geithner, AIG & Lehman, Deflation-Inflation, Gold & Silver) »
Monday
Sep272010

Brand New $35 Billion Bailout For Criminally Irresponsible Wholesale Credit Unions (Wait 'Till You See This One)

Another failed regulator -- Debbie Matz, chairman of the National Credit Union Administration, during a Senate Banking subcommittee hearing in October, 2009.

#

The bailouts never end.  And no one is going to jail.  Federal regulations were broken with criminal intent -- to enrich the bankers making the illegal investments. 

Last week it was at least $30 billion for struggling community banks who financed commercial real estate garbage.  And quite conveniently, the feds chose Friday afternoon to release this new story.  I've never even heard of the regulating agency -- the National Credit Union Administration.

The claim is that there will be no final cost to taxpayers (doubtful given the assets we're assuming), but congratulations, you (taxpayers) now control more than 70% of everything used to belong to this large sector of the credit union industry.  Everything -- hotels, strip malls, sub-prime CDOs.  It's all in there.

---

Friday's moves include the seizure of three wholesale credit unions, plus an unusual plan by government officials to manage $50 billion of troubled assets inherited from failed institutions.  To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.

It marks the latest intervention by the U.S. government into a financial system weakened by the real-estate bust. Bad bets on mortgage-backed securities have now killed five of the nation's 27 wholesale credit unions since March 2009. The federal government, which now controls about 70% of the total assets at such credit unions, said the surviving institutions will be reined in so that they take fewer risks with their investments.

DB interruptionThis should be a criminal offense!  Yet no one is being prosecuted.  William Black must be having a coronary.

  • Under federal rules, wholesale credit unions were supposed to invest only in safe, liquid assets. But some chased higher returns by loading up on securities backed by subprime mortgages or other risky loans.  Their portfolios were decimated by the mortgage meltdown.

Last year, regulators seized the two largest wholesale credit unions, U.S. Central Federal Credit Union, based in Lenexa, Kansas, and Western Corporate Federal Credit Union, San Dimas, Calif., after finding their losses were much larger than previously reported.

Losses on the mortgage-backed securities held by the five seized credit unions are expected by regulators to total about $15 billion.

Bert Ely, a financial-industry consultant in Alexandria, Va., said regulators share some of the blame for the resulting mess, because wholesale credit unions were allowed to pursue a strategy that was "viable only because of what clearly has turned out to be excessive risk-taking."

Ms. Matz, the nation's top credit-union regulator, said the investment losses reflect "unprecedented economic times" and "bad decisions" by regulators, credit-union managers and board members "by heavily over-concentrating in mortgage-backed securities."

 

 

 

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Reader Comments (9)

Sep 27, 2010 at 6:12 PM | Unregistered CommenterZ
Sep 27, 2010 at 6:22 PM | Unregistered CommenterZ
z...good clips...
Sep 28, 2010 at 1:00 AM | Registered CommenterDailyBail
How can someone who has never heard of the NCUA consider themselves qualified to write about bailouts in the financial industry? The NCUA is like the FDIC for credit unions. With about 7,000 banks and 7,000 credit unions in the US, you'd expect an authority on financial bailouts to understand how half the retail banking industry is regulated.
Sep 28, 2010 at 11:22 AM | Unregistered CommenterJeffry Pilcher | TheFinancialBrand.com
Jeff...shoot me for my honesty...there are more than 5,000 regulatory bodies within the Federal government...the NCUA probably hasn't been in the news since the S&L crisis...i don't spend my nights studying agency acronyms...
Sep 28, 2010 at 11:31 AM | Registered CommenterDailyBail
Jeffry,

You're the CU PR guy. Feel free to use our boards here to clear up any mis-conceptions. Contrary to what you might think, this isn't part of a know-nothing smear of credit unions as banksters. Most of us here love credit unions and are members ourselves.

Our problem is mainly with the regulators who ONCE AGAIN appear to have allowed illegal activity to take place during the bubble times and then were not sufficiently prepared to clean up the mess when the contraction came.

Govt-guaranteed bonds? That's a bailout in my book. Maybe not in yours, but I think we all agree on the basic facts of the issue.
Sep 28, 2010 at 12:20 PM | Registered CommenterDr. Pitchfork
And Jeffry...the criminal behavior didn't stop with the regulators...the managers of these wholesale CUs were by law not allowed to invest in these types of securities...but they did anyway and now taxpayers have a $50 billion fund of assets to manage -- it's a bailout by any other name and there was criminal behavior on the part of regulators and bankers...
Sep 28, 2010 at 1:14 PM | Registered CommenterDailyBail
Govt-guaranteed anything don't mean a thing to many anymore. But then, we have been here before...
Sep 28, 2010 at 5:33 PM | Unregistered CommenterS. Gompers

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