The Real Problem...

TOO BIG TO FAIL?

Nah, that's not the real problem.

The real problem is the S.O.B.'s

(Severely Obese Banks)

are....

Sales Culture...

After reading the following blurbs on the "Fired Up Pizzeria" in Durango, Colorado had to give it a try:

Fired Up !!

"Fired  Up's menu is faithful to the principles of Neapolitan cuisine, using fresh, whole foods and traditional cooking methods including a wood-fired oven. " 

"We hand-roll our dough, we puree our sauce; and I can give anyone my ingredients on one hand - we stick to that heritage," said owner Tad Brown."

"But if the hearth is the heart of the home, then the wood-fired oven surely is the soul of the restaurant.  The owner hired the Ferrara family in Naples, Italy to spend three months crafting a special oven for him out of lava from Mount Vesuvius - an oven which reaches 900 degrees Fahrenheit and cooks a pizza in roughly 90 seconds."

Pretty good copy hype, huh! - Mt. Vesuvius lava, 0 to 900 degrees in "roughly" 90 seconds!!  How can you miss that opportunity - right?

But, that's not the sales pitch you need to hear about....

Converting Every Institution Into A Criminal...

Thought the following quote from a bank CEO also hit "pretty close to home" for credit unions:

"Bank shot..."

"When the rules are easy to understand and follow, there's a greater likelihood they'll be followed. We are, unfortunately, seeing the emergence of unprecedented - and unhelpful - regulatory complexity."

- Robert Wilmers, Chairman and CEO

M&T Bank Corp.

Do You Smell Something ....??

CREDIT UNION DERIVATIVES ....

NCUA Derivatives Proposal...

In the country, people know:

"You should never

 build an outhouse,

over your well."

(... if ya know what I mean?)

Rants And Raves

Things are hot, hot, hot in Mitchell County**:

*  "All the world is a stage and oh what acts we put on in church on Sunday morning."

*  "When are you people going to stop living in the past? Those times aren't coming back.  So get up off your griping, unemployed, welfare-receiving fannies and find work.  Mitchell County can't support so many freeloaders, so think about moving to South Dakota." (... look out South Dakota !)

*  "People would worry less about what others think of them if they only realized how seldom they do."

*"When you watch a show like "Dance Moms" you wonder how smart the rest of the electorate is."(... "the rest" of the electorate??)

And, speaking of the rest of the electorate...

Defining "Naive": Small Fool in a Large Pond..

Highlight from the high profile Ira Sohn Investment Conference (as reported in the Financial Times 5/9/2013) recently held in NYC:

"Paul Singer of Elliott Management opened the conference with a bleak outlook for the global financial system.  The billionaire hedge fund manager said "there are no safe havens" in today's markets.  He said long term bonds across the developed world, in the U.S., Japan, the U.K. and Europe were all trading "at the wrong price."

"Mr. Singer also said that it was impossible to gain a true understanding of the nature of risks taken by the surviving 10 to 15 global financial institutions.  He said the typical balance sheet held $150bn to $200bn equity, against $2tn to $2.5 tn of assets."

"Plain Vanilla...!!!"

"Yet each institution also had $50tn to $80tn of notional derivatives - "that's trillions with a T", said Mr. Singer.  He said believing it was possible to understand these risks with concepts such as "value at risk", a popular analytical framework used by banks to assess trading risk, was "naive"...

Can Do ...

"Once you learn to quit, it becomes a habit."

(... so don't !)

Economic Understanding...

"If you are not confused about the economy,

 you don't understand it very well."

- Charlie Munger *

* Mr. Munger is Warren Buffett's long-time business partner in Berkshire Hathaway.

Standing on Principle.....

"Avoid moderation."

"Moderation in temper is always a virtue; but moderation in principle is always a vice."

- Thomas Paine

 

Unite for Moderation !

      .... another principled response.

The View From The Capital...

Give 'ya 3 guesses.... !

  WHO SAID THIS ??

"Capital Is King

Well-capitalized CUs can weather difficulties and protect the insurance fund."

"The lesson from the financial crisis for all financial institutions is that capital is king. It is the first line
 of defense in protecting federal deposit insurance 
funds..."

Chair Matz? (nope)  Mr. Fryzel?(nope)  The Faz?(nope) ...

From The Field...

" In looking back on my career, I have always been grateful that you made me a manger..."

(... assume that must have happened around Chistmas.)

Forecast That.... !

"VaR" - (Vacuous and Robust !)

"The best economists are well aware of their ignorance."

- Noah Smith

NCUA's Derivative Proposal: Adding Risk To The NCUSIF Out of Ignorance Or Negligence ?

From June 5th Bloomberg Newswire:

"The biggest U.S. bank, JPMorgan Chase, agreed to forgive $842 million of debt owed to it by Jefferson County (Birmingham), Alabama where it took the lead in arranging risky securities deals that pushed the county into the largest municipal bankruptcy in November 2011."

"A-h-h, a free lunch...."

"... JPMorgan initially reaped substantial fees arranging interest rate swaps that subsequently proved tainted by municipal corruption and devastating to taxpayers.... Everybody thought there was a free lunch and they could all take advantage of it at the same time. It burned them all."

"JPMorgan and other banks also sold the

" Born Fee ! "

county related derivatives to protect against the risk posed by the securities, earning undisclosed fees of about $120 million..."

"When credit dried up on Wall Street during the crisis in 2008, investors dumped Jefferson County's bonds and their yield soared, pushing the county's costs sharply higher. Derivatives that were supposed to protect against such an event added to the costs as central banks slashed interest rates."

From The Field...

The Employee Evaluation:

"Some folks in the branches seem to think I'm rude.  

I can not help how some people react to me,

 that's their problem."


(... thought we all needed a derivatives break!)

NCUA Derivatives Proposal: Loose Logic

Waiting for what?

As a credit union leader, you are evidently not yet concerned about the substantial degree of additional risk the recent NCUA derivatives proposal imposes on your credit union and your members.  

Maybe you haven't said anything because derivatives are not an easy topic; perhaps you don't think it affects you; could be you're waiting on your trusted, effective trade association to represent your interests; after all we're all really busy...

Derivatives? Who nose ??

And besides, who are you to believe in all this anyway?  Some folks keep yapping that derivatives increase risk, others claim that derivatives are a safe way to reduce risk... who's right, who can you trust???

Well, here are a couple of direct quotes from the new derivatives proposal by that most trusted and authoritative of sources, the good ole NCUA itself:

NCUA's Derivative Proposal: About That Counterparty Risk

Tonto, I think NCUA really believes..
there is a silver bullet !

As we have discussed, a derivative is a financial transaction which transfers risk from the credit union to a derivatives dealer ( one of that fine genre labeled as "dealers" -  card, use car, drug, "wheeler-d's" !).  But, remember derivatives transfer risk - "The Deal" - for limited time frames and under specific contractual terms; but derivatives do not eliminate risk - it always continues to exist.

So, the reliability of the dealer buying the risk from the credit union is key.  If your dealer goes bust, so do you. But, NCUA has acknowledged this risk and placed the following requirements on a credit union using derivatives:

1. Limit to Commodity Futures Trading Commission (CFTC) approved dealers;
2. Require CUs to conduct credit analysis of dealers;
3. Require CUs to be aware of the capital strength of dealers;
4. and the capital buffers of dealers;
5. as well as the dealers' liquidity position.

.... and then the real clincher in NCUA's proposed derivatives counterparty rule...

"... the credit union must be able to carefully assess the likelihood of default..."

"It can't happen..."

Default? Default? Thought you said this was a safe, simple, "plain vanilla" transaction?  Well, take a look...

Rants and Raves

Hiss-s-s-s-s....!

The latest from the Mitchell News-Journal:


* "I wish people would quit talking about other people behind their back, especially when the other person is listening."

* "How silly for Mr. Andrews to be afraid of his own government!  They can always be trusted, and if you don't believe me, just ask any Native American."

* "Love thy neighbor, unless they voted different from you.  I am sure Jesus is quite proud of all you Pharisees."

* "I know why they are in no hurry to finish up the bridge repairs; they are using it to store orange barrels."

And the maddest citizen of all...

From The Field...

The Evaluation:

"I do not interfere in the problems of other employees, usually."