Banking as if our future depended on it: There's an alternative to Wall Street's robber barons

Forget the Wall Street evildoers — nonprofit credit unions survived the crash and can help model a better future

Published December 6, 2016 12:58PM (EST)

TARP recipient financial institution leaders testify before House Financial Services Committee in Washington, Feb. 11, 2009.     (Reuters/Larry Downing)
TARP recipient financial institution leaders testify before House Financial Services Committee in Washington, Feb. 11, 2009. (Reuters/Larry Downing)

No doubt there are millions of Americans who wanted to stand with the 200 Native American tribes, thousands of veterans and environmentalists who slowed down the Dakota Access pipeline project long enough for the Army Corps of Engineers to reconsider the route.

But based on the response from the companies pushing the pipeline that dismissed the Army Corps as merely "political," the recent good news in North Dakota may be short-lived. President-elect Donald Trump is strongly in favor of the project.

Truth be told, Standing Rock was just one front in a globally pitched  battle over the planet’s survival. Thanks to Food & Water Watch, we know that the biggest Wall Street banks — including Goldman Sachs, Wells Fargo and JPMorgan — were backing the Dakota Access pipeline. Last Sunday The New York Times reported that global banking behemoths like Credit Suisse and Bank of America were part of a $43 billion syndicate of loans and underwriting that's paying for deforestation and forest burning in Southeast Asia: “More than a third of that sum comes from American, European and Japanese banks, many of which have sustainability pledges that specifically mention deforestation.”

Historically, the response of many concerned citizens has been to send money to environmental groups on the front lines of these struggles. But in the age of Trump, with our window of opportunity to address climate change rapidly closing, there is a strong argument for shifting our banking away from the commercial behemoths that fancy themselves master of our universe to local credit unions.

Across the country there are close to 6,000 credit unions, and what makes them so different from the likes of JPMorgan Chase and Bank of America, is that they are nonprofit cooperatives whose depositors are members. Already, close to 105 million Americans are credit union members.

One of the nation's biggest and best-known credit unions is New York City’s Municipal Credit Union but its practices are in no way exceptional. A few months ago I interviewed the leadership of the Municipal Credit Union for The Chief-Leader.

“We are member-centric and a not-for-profit organization unlike the banks that have stocks so they have to satisfy their stockholders,” said Kam Wong, the 60-year-old president and CEO who has been with the credit union since 1981. “Credit union members are our stockholders, so we are not driven by the bottom line. We are driven by service to our members.”

Acting in the broader public interest, as well as with a fiscally conservative financial skepticism not infected with Wall Street greed, helped the Municipal Credit Union survive and prosper during the 2008 global financial meltdown, Wong said.

“We received a lot of cold calls from different brokers asking us to invest in mortgage-backed securities . . . collateralized mortgage obligations,” Wong recalled. “With my background in finance accounting I asked myself, ‘Why would I buy that paper without knowing what kind of mortgage is in it?' You're talking about one piece of paper being worth $20 million. I just didn’t feel comfortable, and I refused to go into that sort of investment.”

The Municipal Credit Union's decision to pass on the time-bomb securities that blew up the world economy was not its only divergence from the rest of the conventional banking sector. From the very beginning of the crisis, the credit union decided to offer members who were falling behind in their mortgages as much as 18 months in loan forbearance.

Millions of jobs were disappearing and the collapse of the real estate market meant that the mortgages held by Municipal Credit Union members represented more debt than the underlying values of their home. Nationwide such a trend prompted many banks to file for foreclosure, which only accelerated the downward trajectory of housing prices, widening the path of destruction as the housing market collapsed.

“During the crisis in mortgage loans the price of houses went down, so you had the upside-down loan situation,” Wong said. “I instituted, with my chief credit officer, a forbearance program for mortgage delinquency in 2008; that was before anybody [else] tried to do that.”

The credit union's forbearance program was an astute business move as much as a compassionate gesture. By holding off on foreclosure, the credit union helped preserve the underlying value of homes and prevent the further erosion of neighborhood property values. It also kept family members in their homes and helped limit the losses the credit union would have to write off if it was forced to sell the house at a discount.

“If we foreclose on a  property I definitely will lose money," Wong said. In some cases, a home mortgaged for $400,000 might fetch only half that amount in a collapsing market. “Compare that to working with the [credit union] member and saying, ‘Your wife lost a job. You have an event that is a financial crisis. It could be temporary. Tell you what, don’t pay me for the next six months until your finances change.'"

Wang claimed, “My chief credit officer knew every one of our distressed mortgage holders by name.” Out of 400 troubled mortgages under his organization's management, he said, the credit union was forced to foreclose on fewer than 10 homes. The credit union currently has a mortgage portfolio worth $600 million, representing about 3,000 home loans.

James Durrah is the chair of the credit union's board and like all his fellow board members serves as a volunteer. “We want to be the bank of the 99 percent,” said Durrah, who came to New York in 1977 on what was supposed to be a one-year technical advising assignment for the Centers for Disease Control. Of the credit union's 12-member board of directors, a majority of people are of color and half are female, representative of the city it serves. Compare that profile with any of the banking giants, whose managers may talk a good game about workplace diversity but where white men still dominate the boardrooms.

Credit unions could be described as one modest but tangible step toward modeling a world built on cooperation and collaboration. Remember, Municipal Credit Union is but one of 6,000 or so such credit unions and not necessarily exceptional. Businesses, faith communities and nonprofits can kick the big-bank habit on their own, as can families and individuals.

In addition, political pressure can be applied to convince local, county and even state governments to move their deposits (including our tax revenue) from the Wall Street banks to community-owned banks and credit unions.

It's a move all liberals and progressives, and even some conservatives, can get behind — that is, banking as if our lives and the survival of our planet, depended on it.

By Robert Hennelly

MORE FROM Robert Hennelly

Related Topics ------------------------------------------

Banking Community Banking Cooperative Banks Finance Personal Finance Standing Rock