Tomorrow is Move Your Money day, the day when the 99% are exhorted to transfer their cash from banks to savings and loans. I’m sort of clueless about these sorts of things, having only found out about Move Your Money on Tuesday at the Occupy Boulder. The main rationales as I understand them:
Doing business with many small credit unions helps dilute the oligopolistic power of the big banks.
Credit unions are owned by the depositors, not by outside investors, so profits are distributed in the form of lower fees and higher interest rates rather than as capital gains or big bonuses to executives.
Credit unions invest in small businesses more than in global corporations. Small businesses generate proportionately more jobs than giant companies.
These seem like pretty good reasons to participate, although as I discussed yesterday at the Occupy with Jim — a former banker, current “radical democrat,” and fellow blogger — the Move Your Money intervention is rather a “weak tea,” intended to appeal to unregulated capitalist libertarians as much as to left-wingers. My issues are these:
Are there limits on what credit unions can do with the investments they make with depositors’ money? Somewhat repulsively to me, the Move Your Money website invokes George Bailey’s Building and Loan from It’s A Wonderful Life as the exemplar for the modern credit union. Good Old George wouldn’t foreclose on your mortgage and throw you out in the street like that mean old banker Mr. Potter would. But can’t credit unions and savings & loan associations sell balloon, subprime, low-down-payment mortgages to customers just like any other home financing company? Can’t credit unions and S&Ls bundle up their mortgages and sell them to giant consolidators? Are S&L-initiated mortgages any less likely to be foreclosed? I don’t know the answer to these questions, and brief internet research didn’t throw any light on the subject.
Just twenty years ago there was a Savings and Loan Crisis, in which overleveraged S&Ls got themselves into deep shit via risky lending practices and had to be bailed out by the US government. Like credit unions, most savings & loans are mutual companies owned by the depositors. To tell the truth, I don’t know what distinguishes a credit union from a mutual S&L association. The S&L industry was underregulated, and so a lot of hotshot executives got rich quick — GW Bush’s brother Neil was one of the big players in this scandal. It’s my understanding that few additional regulations have been put in place that would prevent a recurrence. I.e., S&Ls aren’t much different from banks in corruption opportunities unless I’m missing something.
Do credit union executives in the aggregate actually earn smaller salaries and bonuses than do their counterparts at the big banks? The big banks are, well, big, with a lot of high-paid people working at any given bank. Credit unions are smaller but larger in number. Do they really pay their executives a smaller percentage of total revenues than do their jumbo counterparts? I used to work for a small mutual insurance company, analogous to a saving and loan in that the company was owned by the policyholders. The CEO and COO both earned big bonuses tied to quarterly sales and profits. State Farm and Allstate are giant mutual insurers: do their execs make less money than, say, the heads of private firms like Hartford and Aetna? I don’t know.
The small businesses to which credit unions extend loans: do they actually charge less for their products and pay their employees better than do big businesses? Based on personal experience I doubt it, but I don’t have any numbers.
When I started writing this post I figured that I’d probably Move My Money anyway, even if I didn’t do it with dramatic flair on Saturday. Diluting oligopolistic power and supporting customer-owned business both seem like better alternatives to collusive investor-owned banks. But recalling the S&L Crisis has given me pause. I’d like to know more before making a decision. Besides, It’s A Wonderful Life kind of disgusts me.