Your Kodak Moment.... The Counterparty

Whoa ! Wait a Moment....

Mentioned yesterday that Thursday's NCUA Board meeting could set the stage for a Kodak Moment for the credit union movement. Most folks quickly guessed that the Kodak Moment issue is the proposed NCUA expansion of derivatives investment powers for credit unions.

Now we can save a lot of time at this point, if we'll all just stop a second and answer this one very personal question:

"Do I, (state your name) , understand what "derivatives investment powers" means?"

If your answer was "yes" then read on; if your answer was "no" then log-off right now and call your Congressman.  Ask your Representative the same question; if his/her answer is "no"... then scream bloody murder !!!

Because you and I (and your Congressman!) are not alone in our ignorance of derivatives...

A few quotes:

Derivatives: Lots of blubber?

NYT - 3/21/13   "For all the questions that were answered by the Senate inquiry into JPMorgan Chase's $6.2 billion "London Whale" loss, one big question remains: What happens now?"

Very BIG FISHY, FISHY !!!

"A report and hearing last week in a Senate investigations subcommittee left no doubt that recklessness, tied to speculation in derivatives, still pervades the banking system and still puts the public at risk. JPMorgan's trading losses were a bet, not a hedge, against risks in the bank's other assets. And all this by the nation's biggest bank and world's largest derivatives dealer, presumably the standard-setter for other big banks."

Mr. Warren Buffet on Derivatives ( the billionaire "Sage of Omaha") - Annual Report 2002:

"I view derivatives as time bombs, both for the parties that deal in them and the economic system."

"Many people argue that derivatives reduce systemic problems, in that participants who can't bear certain risks are able to transfer them to stronger hands. These people believe that derivatives act to stabilize the economy, facilitate trade, and eliminate bumps for individual participants."

"On a micro level, what they say is often true.  I believe that the macro picture is dangerous and getting more so."

A New "Nuke" From NCUA !!

"The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some events makes their toxicity clear. Central banks and governments [and "independent federal agencies"] have so far found no effective way to control, or even monitor, the risks posed by these contracts.  In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

YOUR Kodak Moment !!!

Your credit union as a contributor to the NCUSIF is, by default, "the counterparty" - the underwriter, the guarantor, the potential "sucker", the "sap" -  for all future losses from derivative "whale mistakes" by your fellow credit unions trading derivatives....

..... better not wait to scream bloody murder !!!