20 November 2008

TARP: Sometimes the Means Justify the Ends

As a young boy, I loved watching the Indiana Hoosiers play basketball. Under Bob Knight's tutelage, you could always expect the cream and crimson to play tough man-to-man defense, run a nearly flawless motion office, take only high percentage shots, and minimize turnovers. You also knew that their student-athletes were going to class. They were going to graduate. They were going to toe the dramatically conspicuous line that the General drew for their academic, public, and private lives. Otherwise, they had no place at Indiana.

You can't beat the results, either. From 1971-2000, Knight's Hoosiers went 661-240 and won three National Championships.

Here's the thing, though. Even when they didn't win...they played the game the way it was meant to be played. Philosophically, they were as pure as a Steve Alford jump shot. Basketball fans, whether they loved Bob Knight or thought he was the devil incarnate, had no choice but to be drawn to the purest form of basketball since Dr. Naismith's peach baskets became iron rims.

How is the credit union game supposed to be played? If Raiffeisen, Desjardins, Filene, Bergengren, and Maxwell are our Naismith, Wooden, Newell, Smith, and Knight, how would they define a successful season? Is winning the focus? If so, what does "winning" mean? If not, what is the objective? Is the goal to fill the bleachers, the classroom, or the coffers? Is there ever justification to set aside credit union core principles for a specific end result?

I'd argue no.

I'm a cheerleader for the credit union movement because I think, with extremely few exceptions, we're playing the game the right way. I know that the purists among us -- the credit unions that are doing things the right way -- didn't get involved in the risky lending and investment practices that led many banks down the path to ruin. Subsequently, the vast majority of these credit unions are healthy, well capitalized, and continuing to provide the same, top-notch member service and dedication to constant improvement that they always have. Failure by any of these credit unions will only come as a result of uncontrollable environmental factors: loss of a primary SEG, natural disaster, massive staff reductions in partner SEGs, etc. They are playing the game the right way, but are simply losing.

That scenario, while sad, is much easier for me to digest than hearing about a select few credit unions, whose particular environmental factors suggest that the fundamental credit union model should thrive, reaching out their hands for TARP money. It's one thing to display blatant contempt for our founding philosophies. It's quite another to tarnish the good name of all credit unions because of your actions. The 99.9% of us who are doing things the right way deserve better. Your members deserve better. Our credit union founding fathers deserve better. Taxpayers deserve better.

Knight is the winningest coach in NCAA history because he preached discipline, respected the game's history, and held his program to the highest of standards. Thank God most credit unions do the same. I wish our trade associations would take note - and stop lobbying for legislation that would permanently scar the movement's image just to save a few Kelvin Sampsons. Or at a minimum, set up a public forum within which your member credit unions can openly discuss the pros and cons of such moves.


Tim McApine said...

Excellent post Matt. From my seat looking down from Canada, I cannot profess to know the ins and outs of the situation in the US, but your logic and argument are crystal clear and undeniable. It is a shame that political pressure and manoeuvrings seem to rule the day and the squeaky wheels can turn the whole bus.

I just wish the "important" and "influential" association leaders were tuned into posts like this one and Jeffry's on the Financial Brand from the other day.

sorrimc said...

Awesome post and I'm right there with you man.

jodit said...

Personally, I think this time is a great opportunity for credit unions to authentically tout their difference from banks. Taking some of this money would sure make a CU look the same as a bank.

Thanks for opening up the discussion.

Winter said...

Where is the line drawn?

Do we allow CUs to have only $100k in deposit insurance? Or is that a competitive disadvantage?

Is that part of the bailout. I think we'd all agree it isn't. But the same competitive argument is being made about "capital infusion."

I stand firmly in the no-bail-out corner, but have been hearing about the challenges well above my pay grade.

The trades are maintain they need to retain parity. The question we ask here is when does parity turn into a single regulator?

Scary times indeed.

Denise Wymore said...

Again Warrior - you're my hero.

Here's the deal. This next year promises to SUCK! We've had it pretty easy for the past 20 years - and now we're gonna have to work a little harder, maybe put in a few more hours, make some hard decisions, calm some fears, work together....it's not going to be easy.

BUT - it's gonna be a helluva lot harder if a few credit unions continue to lobby for bail-out. Because not only will we have to help our members through this recession, we'll most likely lose our tax exempt status and flush 100 years of history down the toilet.

But that's just my opinion - I could be wrong.

It could be just peachy.

Those few credit unions get some money and the sun comes out again........all is right with the economy and credit unions come out of it unscathed.

Dan Veasey said...

Well said Matt.

Why do I always wait to read these great post when a slow Friday comes around?