The Rise of the Credit Union

There is a good article in today's Wall Street Journal by Jason Zweig. It is in the "Intelligent Investor" section. This was my favorite quote: 
Even though Wall Street is dead, innovation is not: In the months to come, clever new financial go-betweens will spring up and find a way to get that cash flowing again. It's hard to see how a depression could get under way when so much capital is waiting in the wings.
In his article, Mr. Zweig argues that non-financial entities have approximately $1 trillion in cash on their books. It is this cash, he states, unlocked as investments in innovative ideas, that will fuel growth. He is probably right, and since I am no economist who am I to argue, but I do think that credit unions should be counted among the entities to which he refers. True, credit unions are not new, and the industry certainly does not meet the definition of non-financial institution. But the industry does meet two of the qualifications identified on Mr. Zweig's article. 

First, the industry is full of clever institutions. Credit unions have long prided themselves on "knowing" their members. By combining this knowledge with clever creativity there is no reason why the borrowing needs of small businesses and consumers alike cannot be met by the industry today.

Second, the industry has the capital. True, there are credit unions that made unfortunate decisions over the last two or three years, and as these stories make the rounds other credit unions reflexively tighten up, but by-and-large the industry is well capitalized. The argument can certainly be made, even in the midst of bank failures (I mean, preemptive purchases!) and general financial uncertainty, that this capital needs to be unlocked for the benefit of members today.   

Remember this?
The crop failure and famine of 1846 caused Schulze-Delitzsch to organize a cooperatively-owned mill and bakery which sold bread to its members at substantial savings. Schulze-Delitzsch took this cooperative notion to address the needs of credit. In 1850, he organized the first cooperative credit society, known as the "people's bank."
While we are not now suffering from literal crop failures and a resulting famine, we are in the midst of a financial failure and famine. Members and businesses need credit, like food, but credit is scarce, as in a famine. These people may not be "A" paper, but they are members. Their character is likely similar to the character of those joining that cooperatively-owned mill. Good people, but suffering from unfortunate circumstances not of their own making. 

If, as Mr. Zweig's article asserts, the path out of today's dark forest will be cleared by innovative businesses making clever use of their cash, I say that credit unions should position themselves as a key part of this group. History shows that credit unions have consistently risen to the occasion, meeting the needs of members during tough economic times. This year, and into 2009, is a time for credit unions to do what they do best. 

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