In Part I of this post, we discussed the challenges faced by the Washington Credit Union Share Guarantee Association, WCUSGA (Washoogah). It was a private association with private member credit unions, but the state used its regulatory authority to shut them down.
Hat tip for illustration: http://blog.doodooecon.com/
Member credit unions, WCUSGA, and the state CU association fought the move, but they were powerless, since they had no idea at that time how to stand up for themselves. After all, they were the good guys.
Credit unions grew out of the progressive/liberal/socialist politics of 1900s Germany and used much of the rhetoric of that movement, including the word “movement.” Credit unions were established to furnish credit to workers who had no banking privileges.
Remember bankers’ hours were 10 am to 3 pm. Workers couldn’t open a bank account if they wanted to, or could afford to. Most were too poor to save, except for the little box up on the ice box and a nickel a week for burial insurance.
Many early credit unions started in a worker’s living room or the factory lunch room or broom closet. Members contributed quarters to start their accounts. When enough money accumulated, the credit union was ready to make small loans.
By the time the century was half over, workers were making enough money to have large share accounts. As the number and size of credit unions grew, the banking industry noticed. Banking lobbyists started to introduce legislation that would curb the growth of credit unions. That’s when the movement began to wake up.
On the West Coast, an early attack came with closing of WCUSGA. Premiums credit unions were paying to ensure the safety of their share deposits now went to the state regulator. This wasn’t a bank industry initiative, but they must have been delighted.
Credit union CEOs and boards suddenly realized they were staring down the barrel of a figurative shotgun. They woke up, hired ace lobbyists, and trained their board members and other volunteers to personally lobby state and federal legislators. They have, so far, beaten back the onslaught, but the movement has seen massive consolidation, as has the community bank sector.
Banks weren’t the only enemy. Regulators were tired of trying to monitor thousands of financial institutions. How great it would be to have fewer institutions! Bureaucrats and socialists like having less of everything except their own power and income.
Savings and loan institutions have also been squeezed, thanks to regulatory hammering. Most of them in had no idea it was happening. Too wrapped up in their day-to-day struggle to survive, they just didn’t notice until it was too late.
We believe other industries with many members, like agriculture, grocery stores, auto repair shops and jewelry stores are in the same situation.
Investment lesson: try to avoid heavily-regulated industries, the government hates the little guys and resents the big ones.