December 21, 2011 is the winter solstice — the longest, darkest night of the year. Going forward, we know the seasons will change and more light will shine with each day. But when will the regulatory darkness disappear? At the end of this month, it will be two years since the last audited financial statements for the Temporary Corporate Credit Union Stabilization Fund, managed by NCUA, were made available.
This single audit, released in July 2010, showed the contingent liability for the TCCUSF as of December 2009 for all corporate exposure was $6.6 billion.
Twenty-four months have passed from the date of these statements. Since that time three more corporates have been nationalized and, along with WesCorp Credit Union and US Central, stripped of their most valuable assets. NCUA has issued more than $28 billion in guaranteed notes to fund new collateralized securities which were sold to Wall Street. At that time, and still today, credit unions have record amounts of liquidity and demonstrated the ability to fund these assets.
Even after the seizures of these corporates, credit unions remain liable for all losses from these events even though they no longer receive the benefit of the yields now going to the new owners of the securities.
The seizure of three more corporates, the issuance of the guaranteed notes, the direct sale of more than $10 billion in assets held by WesCorp and US Central — activities totaling more than $50 billion — have been done completely in the dark. No income statements, balance sheets, cash flows, or any accounting for the tens of millions in operating expenses have been issued.
For example, NCUA paid $10 million just to broker assets transferred from corporates. NCUA has converted the corporate workout into a regulatory financial black hole — with no facts, data, or independent accounting available to anyone.
If this unreported activity had been engaged in by any firm, governmental agency, not-for-profit, or credit union, the board would have been removed and outside audits started immediately.
Not only has this financial darkness spread over credit union land, but one year ago the shadow was extended over Congress. NCUA, in a last-minute, pre-adjournment quick strike, got Congress to pass S4036, which was explained as merely housekeeping for the TCCUSF, so it did not meet any consultation, public discussion, or explanation.
And so it passed, all in the dark. Barely eight months later this legislation was cited as the authority for NCUA’s $2.0 billion dollar premium assessment as TCCUSF future expenses with no accounting for present or past expenses.
Congress, credit unions, and the public continue to be subject to arbitrary NCUA actions supported by neither fact nor logic.
Is this because the financial information, previously routinely provided monthly by corporates, is not available? Does NCUA not have the systems or capability of managing the assets taken? Or is it that the data doesn’t support the conservatorship estimates? Were losses presented as future facts three years ago found to be inaccurate, imprecise, or overreaction?
If the losses were overestimated, are these misjudgments being covered up? What is the current value of the five investment portfolios that were seized?
Who Is Responsible For Acting?
Some of the players in this darkening drama include:
PWC: Where is this firm two years after its audit was used to assess the contingent liability for the TCUGLP? Has it left the playing field? Is it accountable for this estimate today?
Congress: Where are the committees (Senate Banking and House Financial Services) that passed legislation without discussion in December 2010 now that $50 billion of credit union assets have been seized and disposed with no accounting?
GAO: Where is the government’s watchdog when the problem is occurring now?
OIG: Who does the inspector general represent — the NCUA board? The Congress? Credit unions? The administration? The taxpaying member? How can NCUA’s supervisory committee be missing in action when the greatest transaction of all is happening on its watch — but unwatched, unreported, and un-reviewed?
NCUA Board: How can board members who preach financial literacy, director accountability, and strict compliance be so blind to the consequences of not tracking, reporting, or even overseeing this massive transfer of assets? Is there no backtesting required of decisions? Where does the buck stop? Or does it?
NCUA Staff: How can professionals schooled, trained, and responsible for the financial integrity, reporting, and oversight of credit unions lose their own standards of conduct when managing credit union resources?
Credit unions and their voices: Members’ funds have been taken without any accounting — more funds are predicted to be assessed in the future. Is this acceptable oversight of the collective funds each credit union provides?
A New System Or New Leadership?
The choices going forward are clear. If the system allows public conduct to go unchecked and unaccounted for, then system redesign with new checks and balances are needed. If the system’s architecture is sound, then new leadership to correct the operational deficiencies are required. This is what NCUA board appointments should be about, but is the administration even tracking these issues?
If no one is watching after $50 billion is seized, what will be the next catastrophe that goes unexplained and unaccounted for?
The only way to overcome NCUA’s financial darkness is to shed light. As Senator Everett Dirkson once remarked on civil rights legislation, “When I feel the heat, I see the light.” Who will be a source of light in 2012?