Bruen's Blog
California is Doomed
California is doomed for two simple but profound reasons: the state's cost structure is too high for most businesses to survive, and it is a boom-dependent economy.
The dysfunctions crippling California would easily fill a volume: a dysfunctional Legislature that has been gerrymadered to protect virtually every seat; a dysfunctional proposition system which enables special interests to craft Protected Fiefdoms via the ballot box; recalcitrant public unions who don't see anything wrong with public servants getting 90% of top-pay in pensions while still earning big bucks as "contract employees," an enormous population of undocumented workers who pay only sales taxes, and whose employers pay no payroll taxes, either-- and that just scratches the surface.
I want to highlight two systemic, structural causes for California's impending bankruptcy as a state and as an "economy": a crushingly high costs structure and an economy entirely dependent on the next boom.
I know this sounds too simplistic to be meaningful, but I think there is much truth in this statement: Costs are too high because the guy before you paid too much.
In other words, you can't afford the $500,000 mortgage on the $625,000 house you bought in 2008 because the guy before you paid $550,000 for a house which sold for $140,000 in 1997.
These numbers are drawn from reality: our friends bought a small home in a desirable suburb in the San Francisco Bay Area for $140,000 in 1997. Yes, it was a fixer-upper and yes, our friends completely remodeled it. The fair value of the house after renovation was probably in the $175,000 to $190,000 range, tops. [Read story at SeekingAlpha.com/by Charles Hughes Smith].
Should you stay with a bank or switch to a credit union?
In light of increasing credit card fees and loopholes in the CARD Act, fed-up consumers are ditching banks for credit unions to take advantage of lower interest rates, better banking practices, and consumer-friendly policies. Credit unions continue to have some of the best deals on credit cards as well as a consumer-friendly approach that is a welcome reprieve from exorbitant credit card fees and predatory practices. But just how do credit unions measure up against big banks?
The Up-And-Coming Contender
Credit unions, an alternative to brick-and-mortar banks, offer the same financial services as banks but are operate differently as member-owner, not-for profit institutions, which some argue makes for better service and bigger savings.
Credit unions are member-owned in that when you join you are considered a part-owner, whereas banks are owned by investors and operate for investors’ interests. Credit unions are considered not-for-profit because profits are distributed back to members in the form of lower interest rates and higher dividends; banks are for-profit because they make money for their investors. In essence, credit unions prioritize service and savings for its members, and are not in the business to pay off high-priced execs or hungry stockholders. Also, rest assured that it is still a safe place to keep your money, as credit unions under the National Credit Union Administration- similar to the FDIC– are insured up to $250,000 per account. [Read story at Credit Karma blog].
Climbing the Capitol Dome
At the GAC Conference earlier this month I had a chance to climb to the top of the Capitol Dome thanks to Congressman Brad Sherman. It is about 300' to the top ... just below the statute of the Lady of Freedom. The view in all directions is spectacular. //Chuck
San Diego’s credit unions ba$king in big banks’ financial failures
There’s no fat cats putting their grubby little paws all over your money,’ USA Fed tells potential members.
Member-owned credit unions have long positioned themselves as an alternative to large, corporate banks, stressing friendlier service, lower fees and competitive rates on both loans and deposits.
Following a wave of major bank meltdowns and takeovers in the past two years, credit unions are highlighting those differences more than ever, and credit union executives say they have seen an influx of new customers who switched from banks.
San Diego-based USA Fed pulls no punches when it comes to banks. USA Fed’s Website bears the logo “180˚ from banking,” and tells visitors, “USA Fed’s got all the stuff those big bad banks do, except there’s no fat cats putting their grubby little paws all over your money. We’re just regular folks working together to help each other save more!”
“It’s kind of an in-your-face, very overt messaging,” designed to appeal to the credit union’s core constituency of younger adults and military members, says Mary Cunningham, USA Fed’s president and CEO.
But the approach also seems to tap into public resentment of large banks and their acceptance of billions of dollars in bailout funds from taxpayers. [Read story at SanDiegoMetro.com/by Joe Tash].
Rebuttal to Keith Leggett’s blog post about member business loans and participations
Keith Leggett, ABA blogger, continues to criticize credit unions for investing in business loan participations. His recent “Goose Egg” blog post is the latest post on this topic. The usual complaints are that participations represent mission creep away from consumer loans to those of modest means, are not direct loans to a credit union’s members, and that credit unions and their regulators lack the expertise to ensure that participations are prudently executed. Although not all credit unions have handled their participation loans well, these banker complaints fall far short of being compelling reasons to block credit unions from investing in business loan participations.
The banker trade associations have a long record of labeling as “mission creep” anything that a credit union does to serve its members that differs from what a credit union did in 1934 when the Federal Credit Union Act became law. In reality, credit union business lending was not artificially restricted until the law was changed in 1998. And participations are counted toward the 12.25% of assets or 1.75% of capital cap on business loans.
Technically and semantically participations might not be made directly to members, but that doesn’t mean that members don’t benefit from their credit union’s involvement with participations. Participations are an alternative form of investing the credit union’s surplus funds that are not needed to meet the membership’s direct borrowing needs. Most credit unions would prefer to make direct loans to members, whether for business or other purposes. However, the current down economy has contributed to a significant drop in borrowing by members. The credit union has an obligation to generate income with those surplus funds to support everything it does for its members.
Most credit union business lenders recognize and respect the special requirements of direct lending and participations. To prudently engage in business lending participations requires specialized staff, compliance, legal and regulatory considerations – and often these are beyond the reach of smaller credit unions. However, with proper due diligence these smaller credit unions can cooperate in business loan participation programs operated by third party vendors and credit union service organizations. Regulators are also in tune with these special requirements – even learning from past mistakes -- and are continually investing resources targeted toward best practices safety and soundness supervision of these activities.
A credit union’s members are not negatively affected by prudently made participation loans or member business loans. Instead these assets fill in gaps in the credit union’s balance sheet. The restrictive and unreasonable cap on credit union member business lending, and its concurrent impact on participations, serves no legitimate public policy purpose. Increasing the cap means more loans to small businesses and the economy benefits accordingly. This is true whether of not the loan is a direct loan by the credit union or a participation that provides liquidity for another credit union to meet members’ business loan needs. The positive effect to the small business borrower, the local community, and the economy is the same.
Nevada FCU: never thought we would see the day when a rate sheet looked like this!
Bank teller works with baby on her hip
A Eugene credit union lets new mothers and fathers bring their babies to work for up to 8 months.
Jasmine Mathisen holds her 8 month old baby while she works at a credit union in Eugene.
EUGENE, Ore - Jasmine Mathisen has been bringing her son Remmy Mathisen to work for 5 months. Mathisen participates in her job's “Babies in the Workplace Program”.
Pacific Cascade Federal Credit Union in Eugene lets its employees bring their babies to work up until they are 8 months old or start crawling.
“Starting at 8:30am he'll come with me to work and then he's usually hear with me all day and so we're just a big family and everybody kind of pitches in and helps out,” said Mathisen.
But this program is not a child care facility at work. Employees monitor and even hold their babies while they are working.
“He's right behind me on the teller line and he's out here with me,” said Mathisen. [Read story at KVAL.com/by Arrianee LeBeau].
SHOULD I GO
VIDEO: Should I Go Credit Union Or Bank?
Sick of interest rate hikes, new hidden fees, and their credit lines cut, more consumers are trying their local credit union a shot. This CBS video takes a look at a credit union in Michigan who bought back their credit card program that they had sold to large bank after members started complaining.
What's a credit union? It's a local financial cooperative owned and run by the members where all the profit gets returned to them in the form of better savings rates and lower loan costs. In contrast, a large bank has to pay for their high marketing costs and executive salaries. [Read story at CBSnews.com/by Ben Popken].
URBAN DICTIONARY
Do you know what these popular words and phrases mean? If not, check out the Urban Dictionary. //Chuck
cracked screen app
it's a trap
no stalk
f9
dead cat bounce
best-behavior friend
mutually assured distraction
The bank vs. credit union battle
Last week, I asked the age-old question: Where do you bank? And in the process, I stumbled onto an age-old debate: Banks vs. credit unions?
The difference between the two types of institutions seems even more pronounced during the Great Recession, largely because of the way banks and credit unions are portrayed in the media. They also have dueling marketing campaigns. Banks have taken a huge public relations hit during the financial crisis while credit unions — despite their own problems — have worked diligently to position themselves as the safe alternative.
Now, it appears the debate among consumers has expanded even further to bank vs. credit union vs. community bank.
Readers, in emails to me, had a lot to say about this, and about where they prefer to bank in general. Here are some of their comments (banks, credit unions, take note):
"I've been a customer of large banks for 20 years, most recently with Wells Fargo for over 10 years. The primary attraction to me was always convenience. Local branches and ATMs were plentiful and their online banking was often well ahead of what was available from credit unions or community banks. Still, throughout my history with large banks, I never received a level of service that made me feel appreciated as a customer or particularly loyal. I was always resentful of the fees, hidden costs and terrible business practices of banking with these behemoths." [Read story at BizJournals.com/by Kristen Grind].
Credit union: Pul-lease take your money
Members with only savings accounts viewed as costly
LAS VEGAS REVIEW-JOURNAL Nevada Federal Credit Union has a deal for big savers: Withdraw your money and you'll get a bonus.
The credit union, one of the largest in Nevada, figures that deposits from members who don't have a checking account, mortgage loan or any other products are expensive.
Brad Beal, chief executive officer of Nevada Federal Credit Union, estimates that about 1,600 of Nevada Federal's 85,000 members only use the credit union for savings.
The financial institution typically uses member deposits, including certificates of deposit and money market accounts, to make loans, which typically bear higher rates than deposits.
Beal figures those interest-bearing accounts are a money-losing proposition in Nevada's current depressed economy.
"We don't have any loan demand right now," Beal said. [Read story at Las Vegas Review-Journal/by John G. Edwards]. P.S. The reader comments to this article are BRUTAL. Go down to the bottom of the article and check them out. //Chuck
BE THANKFUL FOR YOUR JOB
This interactive map will play forward from 2007. Watching the map move towards the darker shades is very depressing. A must see! //Chuck
http://cohort11.americanobserver.net/latoyaegwuekwe/multimediafinal.html
Telco credit union ordered to stop work on Rushmore Crossing branch
The national agency that regulates credit unions has issued a cease and desist letter to the Rapid City Telco Federal Credit Union, demanding it stop construction of a new branch at the Rushmore Crossing shopping center.
In order to avoid litigation, Telco officials have agreed to the terms of the order, issued by the National Credit Union Administration. The administration posted a news release about the order Wednesday on its Web site.
Telco agreed to stop work on its Rushmore Crossing branch and stop any payments on the project without approval from the administration.
The administration's order also requires Telco to provide a written plan to come back into compliance with a section of credit union rules dealing with ownership of fixed assets. The rules say no credit union with $1 million or more in assets may invest in any fixed assets if the investment would cause the total amount of fixed asset investment to exceed 5 percent of the credit union's shares and retained earnings.
Telco is still being managed by its local chief executive officer and board and is not under conservatorship of the National Credit Union Administration, an agency spokesman said. [Read story at RapidCityJournal.com/by Barbara Soderlin].
Overdraft Fees and Price Elasticity
I’ve been convinced for some time that a majority of bank marketers either have little or no familiarity with the economic concept of price elasticity or simply choose to ignore it.
And the same is most likely true about anyone working for a bank or credit union who’s involved in making or approving pricing decisions.
The proof of my long-held belief can be found in the ridiculously high overdraft fees charged by most financial institutions.
For as long as I can remember, as a former bank marketer I was tilting at windmills as I periodically pleaded with those in charge of pricing to lower the price the bank charged per overdraft to the $12 - $15 range.
I couldn’t even convince them to at least test this seemingly palatable fee.
After all, it had been in this range for a very long time before the fee greed mentality set in sometime in the 1980s.
For those readers unfamiliar with price elasticity, the economic concept is that every product, service, and fee has its own elasticity of demand curve based on price. Or stated another way, price elasticity measures the sensitivity of demand changes to price changes. [Read story at Financial Marketing Insights/by Steve Topper].
