This has been hanging like the Sword of Damocles for a while now, and finally came to a head last friday ...
(snip)"It is Friday afternoon, and of course the most troubling news come out. Last week it was that the idiots in charge are raising their stake in Ally to 80%; this week also did not disappoint: the WSJ reports what can arguably be the most important story of the week - to wit: the government just seized three wholesale credit unions and has launched an "unusual plan" to manage $50 billion of troubled assets inherited from failed institutions. The unions taken into conservatorship include Members United Corporate Federal Credit Union in Warrenville, Ill., Southwest Corporate Federal Credit Union of Plano, Texas, and Constitution Corporate Federal Credit Union, Wallingford, Conn., which had a total of $19.67 billion in assets as of July. As for the funding of the new bailout program: "To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets." Once again, uncle Sam bails out those who have committed federal crime and sticks Joe Sixpack with the bill. How is it a crime? "Under federal rules, wholesale credit unions were supposed to invest only in safe, liquid assets. But some institutions chased higher returns by loading up on securities backed by subprime mortgages or other risky loans. Their portfolios were decimated by the mortgage meltdown."And here is the punchline: "Officials said the plan won't cost taxpayers any money." How can one not simply laugh at the continued lies and crimes that occur each and every day, and are perpetrated by every single person in charge of this collapsing country?
And this kind of shit continues to this day, as the morons at the pension and mutual funds are now loading up on high yield debt and stocks trading at thousands of forward PEs, which will be decimated the second rates start turning up. And guess who will pay for that next rescue, which will come just as "free" as this one, save for the several hundred billion of new bonds that will have to be issued again... and again... and again.
More from the WSJ:
[This intervention] marks the latest aggressive intervention by U.S. government officials into a corner of the financial system threatened by losses. Bad bets on mortgage-backed securities have killed five of the nation's 27 wholesale credit unions since March 2009. The federal government, which now controls about 70% of the total assets at such credit unions, also said the surviving institutions will be reined in so that they take fewer risks with their investments.
And some more:
Losses on the mortgage-backed securities held by the five seized credit unions are expected by regulators to total about $15 billion. Wiping out the capital of the failed institutions will cover a chunk of those losses, but the remaining $7 billion to $9.2 billion eventually will be passed along to the nation's 7,445 federally insured credit unions in the form of future assessments.
Bert Ely, a longtime financial-industry consultant in Alexandria, Va., said regulators share some of the blame for the resulting mess because wholesale credit unions were allowed to pursue a strategy that was "viable only because of what clearly has turned out to be excessive risk-taking."
Ms. Matz, the nation's top credit-union regulator, said the investment losses reflect "unprecedented economic times" and "bad decisions" by regulators, credit-union managers and board members "by heavily over-concentrating in mortgage-backed securities."
New regulations issued by the NCUA on Friday will make oversight of wholesale credit unions much tougher and are meant to fix any regulatory shortcomings, she said.
As part of the plan announced Friday, regulators will eventually wind down the operations of the five failed credit unions, which together had about $50 billion in shaky mortgage-backed securities on their books, according to Larry Fazio, NCUA's deputy executive director. Based on current market values, those securities are worth roughly half of their face value, representing a potential loss of $25 billion."(snip)
Knowing that Credit Unions are popular with Dollar Den readers, there are probably two noteworthy 'take-aways' from this development ...
- newly issued NCUA rules will tighten credit union requirements to evaluate the actual income level and financial 'stress level' of future borrowers. This will make life more difficult for exotic dancers.
- the much higher future NCUA 'insurance premium' assessments charged to credit unions in order to 'pay back' the fed bailout money will put pressure on ALL credit unions 'spreads' ( i.e. the difference between loan interest rates and deposit interest payments ). This will mean higher loan interest rates being charged, and lower CD interest rates being paid.



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