Credit unions, welcome to the TARP bailout…
“Credit unions have
joined the long line
of bailout recipients.”
– NPR’s Marketplace
For the past few months, the mainstream media had been heaping mounds and mounds of glowing press on credit unions. But last week, the TARP got thrown on credit unions and what happened? Poof! The good news is gone, and now articles with a much more somber, sober tone have taken their place (something The Financial Brand predicted would happen last month).
Take this example from Time magazine. There’s a stark contrast in these two Time articles, one from late October and the other from mid December. The first article is markedly upbeat, where a playful picture accompanies a glowing story about credit unions (click on the images to read the complete, original story):
Their latest article is much more dour:
NPR’s nightly business show Marketplace chimed in with a similar slant: “Credit unions have joined the long line of bailout recipients.”
What makes this particularly newsworthy is that the mainstream media basically never runs a story about credit unions — ever — much less outlets with the prestige of Time and NPR.
The details of the credit union TARP plan itself are actually quite clever and creative, if not a little complex. The way it works is that corporate credit unions get $41 billion. The corporates will lend this sum to their members, “natural person credit unions,” who will turnaround and deposit the borrowed money back with the corporates. It’s fancy accounting footwork that supposedly doesn’t cost taxpayers anything…that is, except for some confidence in the credit union system.
Reality Check: It doesn’t matter that corporate credit unions are the ones directly receiving TARP funds. The news media doesn’t care. The story is too complicated to explain. Paraphrasing, reporters will sum it up this way: “Credit unions are getting bailout money.”
The credit union TARP scheme is somehow supposed to generate interest-income along the way. The interest is to be matched by credit unions, who will use the money to lower mortgage payments for distressed members. This plan to recalculate mortgages raises some big questions:
- Who gets their mortgage reduced? How are they chosen?
- How do people qualify?
- How many people will this money really end up helping?
Key Fact: 36% of mortgages modified in Q1/08 had a 36% redefault rate after 3 months. 53% redefaulted after 6 months. [Source: CNBC]
If credit unions have indeed found a way to trickle TARP money down to regular folks in the form of mortgage reductions, then they will have figured out how to do something that banks, Hank and Bernanke couldn’t.
Just the same, that isn’t the side of the story that the news media is likely to report.
Previous related stories from The Financial Brand:
- Credit unions glow in media spotlight (Part IV)
- Credit unions to pay for their day in the sun
- Not getting any TARP money? You should be thrilled
- Credit unions, welcome to the financial crisis
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Tags: credit unions, TARP
Filed under: Public Relations
December 16th, 2008 at 7:42 am
Jeffry,
I hate that this is happening. But CUs will just have to rise above it. The “autonomy” that CUs enjoy works both for and against them. In this case, it works against them. The lack of a national brand means that CUs can’t clarify their position to the general public. But hopefully, the good news will outweigh the bad.
December 16th, 2008 at 9:32 am
Well, in spite of all the voices raised, I guess we should have known this would happen. The “big boys” always win out and always will I suppose. I think the powers that be in the credit union industry will regret this day for many days to come.
December 16th, 2008 at 9:42 am
@Roger Conant – I agree completely that this is an awful thing, and gives the CU movement a self-inflicted black eye. But I disagree that the “lack of a national brand means CUs can’t clarify their position to the general public.” The CU position on the national stage in no way precludes credit unions from getting their message out to their members. Credit unions employees are talking to their members every single day. This is where the telling of the CU story starts, on the front line. There are opportunities made or missed constantly with thousands upon thousands of people collectively across the movement, one person at a time.
December 16th, 2008 at 9:47 am
Morris, you’re right. This is a great reminder to get out there and tell your own story. Always a priority, but even more so now.
December 16th, 2008 at 9:51 am
@ Morriss – I stand corrected…Morriss. I guess I was trying to be a little too diplomatic. Actually, I totally agree that this is “prime time” for “storytime” for the CUs. Thanks
December 16th, 2008 at 10:20 am
Too true Jeffry, I went from having at least 2 or 3 shining articles on the benefits of credit unions in my Google Alerts to complete silence other than reports of robberies. Its too bad the big guys ruined a lot of good press for the rest of us.
December 17th, 2008 at 10:43 am
I’m trying to figure out who should be most irate about this news: the 95% of credit unions who don’t want or need a bailout, or taxpayers. As a representative of both groups, it should be assumed that I’ve never been more frustrated with our supposed leadership. I agree that we need to do a better job of telling our stories, but I also wish our representatives would get our story straight. Is parity the objective, or is highlighting our differentiated strengths? Can’t have it both ways.
December 17th, 2008 at 11:03 am
They say CUs need TARP money for parity one day, then the next they talk about how there’s a big need among CUs to renegotiate mortgages and extend relief to members. Which is it?
But then they also say that few CUs are exposed to the subprime mess, and the vast majority are healthy, so don’t worry. They also note that CUs are in positions strong enough to renegotiate mortgages without governmental assistance.
Don’t forget the distinction between corporate and natural-person credit unions.
And they are quick to point out that it’s not a “bailout,” it’s a “rescue plan,” whatever difference that might make.
The case in favor of a credit union TARP participation, thus far, totally lacked cohesion.
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