Friday, January 30, 2015

Big Macro Economics...

Talk about a frightening thought!  It may come as a shock to many of you that this writer, in a prior life, once served for a couple of years on a financial institution advisory panel at the Federal Reserve.  Sounds pretty impressive, doesn't it!  Just e-mail me, if you need an autograph - no charge...

Huddling with Alan Greenspan, Rog, Ned, Mike and the boys on the micros and macros of supply and demand is a tizzying experience which invites intoxication. Gathered in a board room decorated to make Versailles appear quaint; properly awed, it's easy for one's sense of self-importance to run fully and freely amok. Are they really listening; or just killing a couple of hours before lunch? Are those narrowing eyes a sign of intent interest or growing drowsiness? Are they earnestly taking note of our local economic views or simply listing "get milk", "drop off dog", "pick up laundry" reminders for the end of the day commute?

As you might imagine, "advising the Fed" on economic policy is a role I find wildly and severely humorous. After all, how does one advise the gods? What should one tell the all-knowing? What do I know which they and 10,000 expert government economists have missed? And, on a more intricate level; what does Mr. Greenspan really mean when he says "Good morning!"? Does he actually mean it or does he believe our hopes for the morning are irrationally exuberant? How good is "good"? How long will it last? What will it do to interest rates? If I believe I understand what he says, does it mean I've missed the point entirely? Is he being opaque or am I being dense? Who's on first, what's on second... Disconcerting isn't it!

How does one make a contribution of value at this level? 

Thursday, January 29, 2015

The "I" Of The Storm...??

Excerpts from Chair Matz' Statement on the Risk-based Capital Rule:

"Confirming NCUA's Legal Authority:"

"Another issue that was raised during the comment period for the previous proposed rule on risk-based capital was NCUA's legal authority to promulgate this rule."

"This past summer ["while I was on vacation"] I solicited 11 law firms around the country that specialize in financial services statutes and regulations. I solicited the independent legal opinion in order to perform my own due diligence. I ultimately chose ... Paul Hastings, based in Washington, D.C."

Q: Does an NCUA Chair "while on vacation" normally solicit law firms independently for the Agency? Exactly what does "solicit" actually mean; how does one solicit a law firm while on vacation?  Why did the Chair choose to solicit "11 law firms", as opposed to say 5 or 15? Does an NCUA Chair generally need to perform separate,  individual "(my own) due diligence"?

"In preparing the scope of work, I made it clear that I wanted their unbiased legal opinion on the issue, and that NCUA would not influence or pre-determine the legal opinion in any way."

Q: Does the NCUA normally alert prestigious law firms that the Agency will accept an "unbiased legal opinion"?  Does the NCUA frequently attempt "to influence or pre-determine" outside legal opinions?

"The oral legal opinion [from Paul Hastings] maintained that while certain parts of the Federal Credit Union Act are arguably ambiguous, it did support our proceeding..."

"While some lawyers may present conflicting opinions about NCUA's legal authority, the fact that there are different statutory interpretations clearly demonstrates that reasonable minds may differ on this issue.  Even if the law is determined to be ambiguous, deference is given to the Agency ..."

Q: The Paul Hastings law firm solicited by NCUA determined and stated in the oral opinion that the FCUA is "arguably ambiguous"; so what does "Even if the law is determined to be ambiguous,..." mean?

"[The oral and written opinions cost $150,000.] I should note this is not a new budget request; it was paid in 2014 from our Office of General Counsel's line item for Contracted Legal Services."1

Q:  Did paying the $150,000 in 2014 make it somehow more appropriate or less costly? Since it was already a "line item" in the "budget" was concern reduced, because effectively it "had already been spent"?   

"1... "Subsequent to the oral opinion, the firm provided a privileged, substantive written opinion.  My statement during the open meeting on January 15, 2015 clearly and deliberately referred to the oral opinion.  Regretfully, Board Member McWatters quoted directly from the firm's written opinion during the open meeting and in so doing, violated the firm's policy regarding the confidentiality of that opinion."

Q: How should the Agency punish the evil Mr. McWatters? Wasn't the opinion published on the NCUA website - less than 5 days later - on January 20, 2015?

Don't know about you, but after reading this...

Wednesday, January 28, 2015

Is The Agency Acting ODD...???

Is it just me?  Or have you noticed that the NCUA's behavior over the last 12 to 18 months has seemed a bit - shall we say - strange?  All this anger, angst and resentment; the peevishness, pout, and pique; the temper tantrums and tirades - a peculiar, regulatory rendition of the "terrible twos"?
Really bad; childish, too!

And then in addition, there was that inexplicable risk-based capital (RBC #1) rule?  I mean even for the inside-the-beltway-knows-best mentality, that was an unparalleled, major show of farce!

No comment - period!
Well, may have stumbled on the answer in a recent issue of the American Diagnostic and Statistical Manual of Mental Disorders (known as the DSM).  The DSM is a main reference source for psychologists and psychiatrists, providing definitions of all sorts of abnormal behaviors.  The category which best seemed to fit (or misfit?) the recent distemper over on Duke Street is called "oppositional defiant disorder" (ODD) - an ongoing pattern of hostile and defiant behavior.

Here are the eight symptoms, see what you think...

Tuesday, January 27, 2015

The Credit Union View Of The NCUA RBC Debacle...

...  SAY NO MORE !!!

(Yes please, no more !!)

The Better Half...?

Samuel Clemens

"Whenever you find yourself on the side of the majority, it's time to reform."

- Mark Twain

Monday, January 26, 2015

Draghi Comments on NCUA... And Its "Up 300 Shlock"

As you may know, Mr. Mario Draghi is the
Economic ABC's
president of the European Central Bank (ECB), which is the Eurozone's equivalent of the U.S. Federal Reserve.  Last week the ECB launched a program of quantitative easing (QE), similar to the program recently ended in the U.S. 

Hold on...!!!

The purpose of quantitative easing programs is to lower interest rates and spur economic growth.  Much as with the U.S. program, Mr. Draghi and the ECB are seriously concerned that European economies are tipping into deflation - a downward  spiral of prices which wreaks havoc on economic markets, investments, wages, and employment.

Mr. Draghi, of course, is taking a great deal of heat from those economic robusterians, with heads of point, who have been wrong - now, for almost a decade! - about their interest rate predictions.  Y'know those who keep raising the "sky-is-falling squawk" that hyper-inflation (obsessively called an "up 300 shock" and  "interest rate risk" on Duke St.) is just around the corner and a threat to credit unions, world peace, and their credibility.

Q: What's the basis of your analysis?
A: Well, ...because we said so!
Draghi in response to these robusterian hysterics, and probably with an eye on NCUA's continued public embarrassment and foolishness surrounding RBC #1/2 and IRR, issued the following astute quote:

Sunday, January 25, 2015

"And What Am I - A Potted Plant !?!"

Chief Legal Eagle
Mr. Michael McKenna is the General Counsel of the NCUA; has been with the Agency for over 25 years; and has held the top legal position for the last few.  He is one of the highest paid lawyers in all of Federal government.

Don't know Mr. McKenna on a personal basis; but would assume from his resume, background, experience, and current position, that he is probably the # 1 U.S. expert on the Federal Credit Union Act (FCUA) and the rules and regulations controlling federal credit union supervision - or should be! 

After all, he has spent a lifetime focused specifically on credit union statutes and rules; has helped draft and craft many of those laws; and is intimately familiar with the logical subtleties and historical compromises underlying their promulgation.  

"RBC"(Ringling Bros. Circus)

As you may have noted, there is "a slight disagreement" on the legality of NCUA's rule-making in the area of risk-based capital (RBC). Who is right concerning the legality of RBC is open to debate, but few will dispute that NCUA, over the last two years, has played the clown on the RBC rule repeatedly - and convincingly!  

Three questions come to mind when listening to the legal arguments:

1.)  What is Mr. McKenna's , the #1 U.S. FCUA expert, opinion on the legality of RBC?

2.)  Why would Chair Matz feel compelled to pay an outside law firm $150,000 "to do my own due diligence", when she had Mr. McKenna sitting down the hall?

3.) Given that extraordinary $150,000 outside legal expense, can you determine which of the following is...

Saturday, January 24, 2015

A Softer, Gentler RBC Rule...


... fondly called "RBC #2" !!! 

But if you'll study it a little more 
closely you will quickly notice that...

Friday, January 23, 2015

Pants On Fire...

The Chief Architect

"You spoke NCUA listened." 

So spake Mr. Larry Fazio, NCUA's Director of Examination and Insurance, in a January 21, 2015 opinion piece ("Agency's Revised RBC Rule Responds To Stakeholders...") in the Credit Union Journal.  Mr. Fazio is a most senior executive in the NCUA, a federal government agency "of the people, by the people, and for the people" - a position of high importance and responsibility, requiring the utmost in honesty and integrity.

Mr. Fazio was the principal author and architect of the 2014 RBC #1 proposal which so painfully demonstrated "a gap" in NCUA's capital/risk assessment capabilities and blew holes in NCUA's credibility all the way from Main Street Mid-America to the front benches of Capitol Hill. But in fairness, Mr. Fazio also provided the leadership on NCUA's recent "scrap-salvage-save face-damage control" reissue of RBC #2.  "You spoke NCUA listened."

Mr. Fazio, in addition to his opinion piece editorials, has already become a webinar rock-star and trade association pontificator on the "great improvements" NCUA has made in the new RBC proposal, such as higher asset thresholds to qualify ($100 million), lower overall capital and risk weight levels, longer implementation period, and "removing interest rate risk components from the risk weights".     "You spoke NCUA listened."
I smell something...

But, while Mr. Fazio was so diligently and earnestly promising that NCUA had listened, seen the light, and changed its ways on interest rate risk in connection with risk-based capital, did you happen to notice the other little item approved at the January 15, 2015 NCUA Board Meeting?

Thursday, January 22, 2015


Q:  How many of the good folks at NCUA does it take to screw in a lightbulb?

Duke Street, Alexandria

Or to screw up the Federal Credit Union Act?

Wednesday, January 21, 2015

On Today's RBC #2 Webinar...

"Just be thankful we're not getting
all the government we're paying for."

"If stupidity got us into this mess, then why can't it get us out?"

- Will Rogers

How ya' doing on reading the 450 page draft of RBC #2??
(See above)

Tuesday, January 20, 2015

Flights of Fantasy...

Fully Qualified...!!

To believe that working at the 
NCUA qualifies you to run a credit union, is like thinking you are an NFL star because you play Fantasy** Football.

** fantasy - adj., definition: "the faculty or activity of imagining things that are impossible or improbable."
Synonyms:  make-believe, charade, farce, mockery, fabrication. See also:  "RBC#1". 

Friday, January 16, 2015

RBC #2: Swan Song At NCUA…?

Well, RBC #2 has arrived - a detailed, 450-page admission of regulatory malfeasance, wrapped in a stark, self-confession of first degree professional ineptitude.  No regrets expressed, no apologies offered.  

What elephant?
I take it that the credit union community should feel grateful to the NCUA for finally acting responsibly. And grateful that we must now squander countless additional, unproductive hours and waste millions more of our members hard-earned dollars to force the Agency to abide by the law.  There is an underlying problem here, there is an elephant-in-the-room which needs to be addressed - and addressed now.

Swan Song?
Nassim Taleb, the world famous economist and author, reached fame for his early, dead-on prediction of the 2008 financial collapse.  In his classic bestseller, The Black Swan, Taleb presents his recommendations on changes we must make to avoid a repeat of the financial market collapse in America. He entitled his advice:  

"The Ten Principles for a Black-Swan-Robust Society"
(I swear I didn't make this up!!!)

Among these points are standards like eliminate "Too Big To Fail"; the problems surrounding incentive pay, federal government bailouts, and moral hazard; and the GSE-type idiocy where profits are privatized and losses are dumped on the society at-large.

But one point in particular among the "Ten Principles" addressed the problem of accountability for those people responsible for the collapse. 

Mr. Taleb obviously crafted "Principle # 3" with the NCUA RBC debacle in mind... 

Thursday, January 15, 2015

Big Mc Attack ....

"I'm lovin' it"!!

News Flash...!!!!


DATELINE ALEXANDRIA, VA.: The Board of the National Credit Union Administration (NCUA) today voted 2-1 to release a new risk-based capital (RBC) rule for public comment.  An initial review of the voluminous 450 page rule confirms that the new RBC rule is...

Wednesday, January 14, 2015

In Memorium: Risk-Based Capital

(RBC #1)

January 23, 2014


H.M.S. RBC#1
(Launched: 1/23/2014 - Scrapped: 1/15/2015)

(... and God Save the Queen !!)

NCUA's Kodak Moment ...

What To Look For Tomorrow On Duke Street:

Now stay focused..!!

NCUA's proverbial "Kodak Moment" may occur sometime around 10:30 am on Thursday morning in Alexandria - January 15, 2015. 

That K-Moment may well mark "the beginning of the end..." for the independent federal credit union agency.  One can always hope for a last minute reprieve or for more reasonable minds to prevail; but with the current "Duke Street Bungling Blues Ensemble" on deck, everything appears to be a crap shoot, with their fate determined, perhaps, by a simple mis-roll of the thrice... "pride goeth before the fall".

But before we discuss the upcoming Kodakalypse , guess we should take a second or two to review what a "Kodak Moment" means.  As most of you know, not too long ago Kodak completely dominated the world market for photographic film for cameras. Kodak was a globally recognized brand name on a top-tier par with the likes of Coca-Cola, Ford, or McDonald's. Highly profitable, world class company, reputation par excellence !

But in the 1970's Kodak literally made a fatal strategic mistake, which destroyed the company. Errors in judgement of such magnificent proportion are now known as a "Kodak Moment" a fall from the top to the bottom at a frightening velocity; a plunge into a "black hole"vortex; a one-way death spiral, no return address needed. 

Get the picture ?

President Nixon, Democratic presidential candidate John Edwards, the country music group "The Dixie Chicks", golfer Tiger Woods have all experienced a professional "Kodak Moment" !!

Do you know how Kodak blundered....?

Tuesday, January 13, 2015

NCUA Risk-Based Capital: The Truth, The Whole Truth, And Nothing But The Truth

As We Await RBC #2: Was All This Mess Necessary?

The whole truth is
"not explicitly required"...

Well, take a look at the following statement that appeared in The NCUA Report (May, 2013):  

"While not explicitly required to adopt the Basel Capital Accords, NCUA is required by statute to maintain capital and other standards for credit unions that are modern and comparable to those of other federal regulators."

Hopefully you noted in reviewing the many CU penalty provisions half-baked into NCUA's proposed risk-based capital (RBC #1) rule, that the Agency had a recurring tendency to take substantial liberties with the axiom: "the truth, the whole truth, and nothing but the truth"

Let's take a minute "to parse" that simple paragraph a bit

Monday, January 12, 2015

Risk-Based Capital #2 - Second Chance To Pass An Open Book Exam?


One has to wonder how the NCUA, who got it
A New Direction?
so wrong with RBC #1, will be able to issue a new, proposed risk-based capital (RBC#2) rule with a straight face.  How will they "explain away the past" - when "the past" was last year? 

Yes, "they" missed it that badly in 2014 and then compounded the problem by belligerently defending the indefensible - until they were literally "stoned to death in the forum" by public opinion, Congress, and common sense.   

One thing you can say about  NCUA's "robust" capital market specialists is they were "magnificent" in 2014!  In the sense that when they got it wrong, the capital markets folks got it magnificently wrong!  RBC #1 was an unforced error of remarkable scale, all of their own making .

Why was the RBC #1 fiasco such an embarrassment?

Sunday, January 11, 2015

Risk-Based Capital - #2




Saturday, January 10, 2015

There Isn't An Answer To EveryThing...

So Hang In There!

"Worrying about the unknowable will do nothing to delay the inevitable."

(Amen !)

Friday, January 09, 2015

To Whom Accountable?….

Big Benn !

Great Britain lost a famous labor leader last year - Tony Benn (1925-2014). Don't know for sure, but suspect that Mr. Benn might have been a big fan of a member-owned, not-for-profit, democratically-controlled cooperative - a credit union.

Mr. Benn had this to say about power, governance, democracies:

"If you meet a powerful person, ask them these five questions:"

Thursday, January 08, 2015


 While we all await the "new" RBC rule coming January 15, 2015, let's recall how we got here ...

The NCUA Board, as you are well aware, is composed of three members appointed by the President of the United States and confirmed by the Senate.  The Board members serve a six year term of office.  The NCUA Board has the fiduciary responsibility to administer the Federal Credit Union Act (FCUA) and to oversee the operations of the Agency.  An important role of high responsibility, directly affecting the lives of over 100 million American credit union members.

The current NCUA Board members are Ms. Matz, Chair; Mr. Metsger, Vice Chair: and Mr.
2014 RBC Train Wreck!
McWatters.  On January 23, 2014, two of these Board members voted to issue a proposed  RBC rule for credit unions and quite literally "all hell broke loose". But let's not replay that story; most of you know it all too well and there is a very strong consensus that last year's RBC was a regulatory, political, and public relations disaster for all involved.

On January 15, 2015, America's 100 million credit union members will again be "put at risk" with a "new" RBC  rule on the agenda for the NCUA Board. Will a better decision be made this time, especially when two out of three of the sitting Board members were such vocal, ardent supporters of last year's disastrous version? Have they acknowledged their error?

Wednesday, January 07, 2015

RBC-Lite Weights...?

While we all await the "new" RBC rule coming January 15, 2015, let's recall how we got here ...

North of Bern, left of Zurich !!

As many of you are well aware, the international regulatory community has discussed and debated for over a quarter century the best method for determining capital requirements for banks.

Much of the discussion has been under the auspices of the Bank for International Settlements (BIS) which represents the central banks (such as the Federal Reserve in the U.S.) of the world's major industrialized economies.  BIS is headquartered in Basel, Switzerland and therefore its capital pronouncements are often referred to as the Basel Accords, or simply as Basel I, Basel II, or the most recent Basel III.

The U.S. rep on the BIS Board.
The discussions were intense, complex, difficult; with the brightest minds in international finance seeking the best and most appropriate approaches toward balancing risk-taking with safety and soundness, while supporting growth and economic development. Only the surest hands, the soundest thinkers and practitioners are given a seat at the table. Little is left to chance; too much is at stake.  

Capital is a much discussed and often contentious topic among credit unions also.  CUs are infamous among federally insured institutions for being the only U. S. depositories without a realistic, functioning risked-based capital regime - a weakness which adds substantial risk to both credit unions and the American taxpayer.  CUs also lack access to supplemental and alternative forms of capital - again a dangerous absence unique among U.S. insured institutions.

They don't know jack?
Most folks say the word on the street is that the  backwardness in capital requirements and structures for CUs is the direct result of mistrust by both Treasury and Congressional leaders over the depth of financial capabilities and leadership at the NCUA. Why else, folks ask, has NCUA continually failed to receive support for implementing modern capital standards which would better protect 94 million CU depositors and reduce the potential likelihood of a taxpayer underwritten bailout of credit unions?

No brainer ?
Picture yourself as a Congressional committee member. You have been asked by a respected federal regulator to approve a more rigorous capital structure which will be fairer, reduce the probabilities of loss, require more capital for riskier ventures, is in use by all other federal agencies, is used globally by other countries and is in tune with the best and most current financial thinking.  How would you vote?  It only requires a respected, trusted regulator to get it done.

But, NCUA - in all its glorious independence - has its own, home-grown solution....

Tuesday, January 06, 2015

The Great Robustini ...!!!

"When things are unpredictable,
it helps to be unaccountable...."

Thought you might like a quick update on the continuing melodrama of "missed-by-a-bit more-than-a-mile" interest rate forecasting by those infamous robusterians....

                          1/2/14     12/31/14     1/6/15

  5-yr T-bill           1.72%     1.65%      1.44%    

10-yr T-bill           3.00%     2.17%      1.92%

30-yr T-bill           3.92%     2.75%      2.53%

  ...  would be humiliating, humbling - or at least embarrassing - for most folks !

"That's Life... That's What All The People Say..."

"Ridin' high in April..."
("NCUA'd in May...")

"Life is never what it appears to be; 
it is always more!"

(... so give it a chance!)

Sunday, January 04, 2015

NCUA's "IRR-oneous" Interest Rate Forecasts...


 NCUA's "Futile Forecasts" in 
 2009       (Sorry!)   
2010       ( Oops!!)
2011       (A miss!)
2012       (Ouchy!)
 2013       (Darn it!)
 2014       (Oh, my!)

Might want to stop "howling" and try...

Friday, January 02, 2015

Or You Can Just Blog And Do Neither...

Why don't you
 go fly a kite...

"Either write something worth reading or do something worth writing about."

- Ben Franklin


Thursday, January 01, 2015

Happy New Year....

The Year's First Headache!!

Speaking of