The senior economist for Beryl Consulting Group held the attention of audience with his analysis of how the international credit markets have affected credit unions and the Americans they serve.
Several factors contributed to the current financial crisis, Wolff said, including the transformation of U.S. consumer finance into a correlated investment product, including U.S. mortgages, which became an "object of global speculation." At the same time, financial markets were deregulated, global markets were integrated and securitization boomed.
Foreign investors, faced with a low interest rate environment, flocked to U.S. mortgages because they were historically low risk but offered comparatively good returns.
The securitization of U.S. home mortgages has resulted in some sobering transformations in financial markets and American culture, Wolff said. For one, U.S. homes have ceased being cornerstones of community stability and are now a cornerstone of the world's economy.
Mortgage markets are no longer driven by traditional factors like regional economic health, local employment statistics or an area's popularity. Instead, home values have been correlated across metropolitan statistic areas and are now driven by the international economy.
Wolff did credit lawmakers, the Treasury and the Federal Reserve for averting a financial collapse. However, he criticized the Fed's balance sheet increase, from $800 billion to $2.15 trillion over the past 18 months. Nearly one-third of the balance sheet consists of mortgage-backed securities, he said, joking that the dollar is now backed by MBS.
He also cautioned that in addition to a double-dip recession, inflation and tax hikes are two looming risks. However, he theorized that Congress and the White House will "engage in a tug of war" over tax increases and delay any new taxes until after an economy recovery.
The good news? The backlash to securitization creates opportunities for "agile and adaptive" credit unions. Bigger is no longer seen as more stable or more efficient, and bankers now have a reputation on par with used car salesmen and lawyers, he said.