U.S. doesn’t bailout credit unions; CUs do

Here we go again: just as with two years ago, the Wall Street Journal leads a corporate credit union story with a misleading headline.

In this case, you might get the impression that credit unions are getting bailed out by the federal government, TARP-style. That just isn’t true. What’s really happening is three credit unions who don’t service regular people like you and me (they’re called corporate credit unions) are being helped out by other credit unions.

“Officials said the plan won’t cost taxpayers any money,” the report says. But the headline makes you think otherwise.

Even worse, it’s the number one story in the WSJ’s Most Popular Stories:

This happened a few years back, when U.S. Central Credit Union – a credit union for credit unions – received a loan from the National Credit Union Administration. Essentially, other credit unions stepped in to help the troubled corporate credit union, with no involvement from Congress or TARP or any other bailout institution.

This time, it’s a similar situation: three smaller corporate credit unions are in trouble because of their mortgage investments, which is something we’ve known about and prepared for. So while the WSJ makes it sound like the government is coming in and taking over these corporate credit unions, it’s actually other credit unions and the NCUA that is stepping in to help:

Losses on the mortgage-backed securities held by the five seized credit unions are expected by regulators to total about $15 billion. Wiping out the capital of the failed institutions will cover a chunk of those losses. But the remaining $7 billion to $9.2 billion eventually will be passed along to the nation’s 7,445 federally insured credit unions in the form of future assessments.

In the end, these corporate credit unions are not “retail” credit unions, meaning they don’t help people with auto loans and checking accounts. The corporates serve credit unions like American 1.

Rest assured, this situation isn’t a good thing. But it’s not a government takeover – it’s credit unions helping out their own.

And while these corporate credit unions are facing losses in mortgage investments, the future is still uncertain when it comes to those investments. Who knows – people could pay those mortgages back.

Credit unions, like other financial institutions, are facing a tough time with the mortgage crisis and the economic troubles. But we’re not as bad off as banks are, and we’re not receiving a bailout from the federal government.

We’re taking care of this corporate credit union issue in our own responsible way, despite what the WSJ may lead you to believe.

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