By Ken Thygerson, Ph.D.
The 2008 financial and economic crisis will have lasting effects. Government largely created this mess and it is now trying to patch things up. Unfortunately, most of the damage is permanent and non reversible.
Credit unions are probably the largest financial group that hasn't been severely impacted. Still, it would be folly to say that credit unions will come out of this unscathed. The mortgage and mortgage security meltdown combined with recession-induced defaults on auto, home improvement, and credit card paper will challenge just about every firm. Moreover, with so many investment firms and bank holding companies threatened, even managing a liquid asset portfolio has become fraught with danger.
As management and directors attempt to develop sound policies to cope with the unfolding events, it is well to keep in mind the following:
- Think long-term. The decisions you make today will impact your credit union for years to come. Avoid kneejerk actions based on the latest headline.
- There is no quick fix. Despite efforts by the Bush Administration and Congress to develop a bailout plan, it won't be enough. It is also unlikely to be managed competently in this politically charged environment by short-term appointees of a lame duck administration. The housing and mortgage problem that surfaced last year has now crossed over into virtually all economic sectors and is worldwide. A recession, possibly a severe one, will be unavoidable. This means more turbulent times lie ahead.
- Keep some dry powder. In times like these, it is important to build up some emergency liquid assets. Why? Who knows? That's the point.
- Stay diversified and do your credit analysis. No one expected to see Fannie, Freddie, Bear Stearns, Lehman Brothers, Merrill Lynch, AIG and Washington Mutual fail or be forcibly restructured. Chances are you won't see the next one coming until it's too late. That means managing a liquid asset portfolio is more daunting than ever. Chaotic market conditions call for diversification and constant credit analysis. If there ever were a time to question the recommendations of your investment banker, this is it. Remember, these firms will do whatever they can to save themselves.
- Help your members to save. Our nation's saving rate must turn positive. We can no longer rely on foreign central banks and others to finance our homes, autos and everyday consumption. Credit unions can do our country and their members a favor by promoting safe savings products. Talk about your insurance of accounts and record of sound financial management when appropriate.
- Stay positive. We will get through this mess. It's your responsibility to keep your staff motivated and positive. Just think how hard it is to motivate the tens of thousands working the firms listed above and those that are about to join that list.
Kenneth Thygerson, Ph.D., is president and founder of Digital University, Inc., CUES' partner in CUES Online University.
Read other recent posts on the economic crisis by Tom Randle and Fred Johnson.
Get ideas for helping members save.
Read "'Flee to Safety' Won't Mean Squat Unless we Squawk" and "Selling CUs to the Masses" about communicating CU strengths to the press--and members.
