Sunday, August 10, 2008

Bank Failures get the Headlines, but Credit Unions are Failing too

Occasional commentor on The Investment Linebacker's message boards, Wendell Brock, has begun blogging on his Denovo Strategy site about the difficulties that credit unions are facing. We may think banks and S&Ls are struggling, given the collapse of eight so far this year, but Brock is reporting that TWENTY ONE credit unions have already collapsed.

There's a bull market in hiring FDIC regulators, I am sure.

So, I wrote all of the above yesterday with the intent of posting it this a.m. Obviously Wendell has been all over this issue for a while now. However, I wake up this a.m. and what do I see on the front page of the WSJ? Immediately above the fold on A1 the headline, "Mortgage-Market Trouble Reaches Big Credit Unions".

While The Journal's article amazingly does not address Wendell's specific fact about the collapse of 21 small credit unions, it does highlight the reality that a number of very large credit unions have suffered enormous unrealized losses. It also gets further into the ridiculousness of GAAP accounting and the subjectivity of both Fair Value accounting and the Available for Sale vs Hold to Maturity concept. These credit unions are clearly intentionally obfuscating the facts in order to improve their GAAP accounting performance despite the fact that it may or may not reflect economic reality.

As an aside, having a front page article in The Wall Street Journal on the potential insolvency of your depository institution is probably not great for business. I'd hate to be on the front lines of client confidence assurance at U.S. Central Federal Credit this morning (or any of the other four highlighted institutions).

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