Saturday, January 16, 2016

De-Bunking The Ratings...

Felix Walker represented Western represented Western North Carolina during the 16th session of the U. S. Congress (1819-21). His Congressional District centered on the North Carolina community of Asheville in Buncombe County. Walker was well-known among the Representatives for his frequent speeches - particularly in respect to their length, dryness, and absence of insight.

 On numerous occasions, over the groaning objections of his colleagues, Walker would rise to demand his prerogative "to make a speech for Buncombe." Walker, by his persistence, unintentionally immortalized his home county. The word "buncombe" - usually spelled "bunkum" or shortened to "bunk" - passed into the English language as a synonym for insincere speechmaking or for any general presentation of exceptional silliness and nonsense. Since North Carolinians invented the style, most are reasonably adept at spotting bunkum and its practitioners.

One of the latest sightings occurred just last week. The newest peddlers of bunkum in the Credit Union Movement are the statistical rating services. It was quite a trip to recently be afflicted with a visit from one of these patronizingly, pompous purveyors of prognostications and punditry.  Spiro Agnew eat your heart out!

Now, I've been around long enough to have met many shaman, several witch doctors, a couple of miracle workers, and a few false prophets; but this was my first experience with a self-anointed - anointed with hogwash, by the way - "Messiah".  He reminded me of a door-to-door aluminum siding salesman, prominently dropping the names of the "the neighbors" (other credit unions) and inferring endorsement by the NCUA.  Evidently the "references" were supposed to establish the credibility of his ratings, which were hung across my desk like a string of cheap Christmas tree lights.

The air of sanctimonious self-importance was not as offensive as what appeared to be a barely concealed disdain for the "lack of sophistication" of the Credit Union Movement, its regulators, and its underlying philosophy. I would suspect that the NCUA might not be amused to find that the rating analyses "are written at an eighth grade level, because they are used to train NCUA examiners."
The arrogance and superficiality of these remarks were simply maddening - and frightening if such pretentiousness is given any credence, by any participant in the Credit Union Movement.

This "quantitative bunkum" is no more than your old tried and tainted "maximization of profits" theory.  A theory that is oxymoronic in a not for profit, cooperative!  Our purpose as credit union managers rebukes the model and its visibly failed underlying assumptions - you have paid attention to what has happened to the economy, unemployment and financial markets over the last few years , haven't you?  

Our "profit" goals for members are the opposite:  1) to lower loan rates, 2) to increase share rates, 3) to reduce fees and 4) to remember who owns the place! That's how the only relevant and competent judges - your member-owners - evaluate the "economic value" of their credit union! For-profit economic models just don't "measure up" in a not-for-profit environment. 

Y'know, more is not always better and less is quite often enough. It's the rating services, not the credit unions, which lack the sophistication to appreciate the difference. Don't forget that many of these self-proclaimed statistical soothsayers are fresh from milking to death the MBS, CMO, and ABS cash cows. They seem to believe we're of the same ilk. If you'll arch your back a little and let them know credit unions are different, it shouldn't take them long to find out they're trying to milk a bull!

Listen, keep your footing firm in common sense and purpose when confronted with the snake oil of shallow analysis; resist the tyranny of statistical bunkum. The Credit Union Movement was not designed to be "run by the numbers"; credit unions were created to be "run by the members" - by people, for people!

And remember, it's not you who is overrated!


Anonymous said...

Is The Donald from Buncombe?

Anonymous said...

I recall a very important NCUA official saying that credit unions are not run for their members. There seems to be some confusion as to who does what.