Malcolm Gladwell's latest book, "What the Dog Saw" (a collectionof his writings for The New Yorker) includes a piece from2003 called "Connecting the Dots." Gladwell introduces readers tothe concept of "creeping determinism." He defines this as the sensethat the ultimate outcome of an uncertain situation seems almostinevitable given the benefit of hindsight.

The most famous example of this phenomenon concerned the attacksof Sept. 11. Given what we know now-notably the spike in cell phonetraffic among suspected Al Qaeda members and warnings that Al Qaedamay attempt to send students to civilian aviation schools-it seemseasy to say that the nation's intelligence agencies should havesniffed out the plot, but when the FBI's counterterrorism group had68,000 outstanding leads, connecting the dots would have beennearly impossible.

Anyway, this made me wonder if the credit union industry-myselfincluded-was also guilty of creeping determinism when it came tothe corporates. It seems so easy now to say that this wasinevitable. WesCorp and U.S. Central bought securities backed byexotic mortgages taken to buy overpriced homes. The final chapterhad to include conservatorships and corporate stabilizationexpenses, right?

Honestly, the answer is no. It would have been nearly impossibleto predict that things would end up as poorly as they have. If thehousing bubble had stayed inflated for one more year, many of thebad mortgages backing the troubled securities might have prepaidand the problem would have been a lot smaller. Or what if TARPmoney had been used to buy troubled assets and not used torecapitalize banks? What if ratings agencies had been more rigorousin their analysis? We can play this game all day.

The mistake made by the corporates wasn't failing to account forthe long shot scenario that actually played out. The biggestmistake involved overconcentration in a sector that most agreed wasfundamentally imbalanced. The actions actually taken by thecorporates and NCUA, such as a moratorium on the purchases ofprivate-label mortgage securities, would have proven sufficientmost of the time. However, by putting essentially all their eggs inone basket, WesCorp and U.S. Central invited the risk thatultimately ruined them.

Gladwell goes on to discuss best practices in the area ofintelligence and argues that competition between agencies (i.e. theFBI and CIA both investigating the same leads) is the best approachsince it creates a free market that rewards those who work harderand smarter.

As soon as I read this, I immediately thought of one of the mostoriginal and provocative comment letters that NCUA received on thesubject of the new corporate regulation. It was from USE CreditUnion in San Diego and much of the letter focused on the notion oftransparency. The letter asserts that WesCorp communicated to itsmembers than it didn't own subordinated tranches of private-labelmortgage securities, but then didn't provide members with a list ofsecurities that it actually owned. USE argues that sharing thisinformation would have effectively turned every interested memberinto a regulator and would have revealed WesCorp's perilousholdings of mezzanine tranches much sooner.

USE's push for transparency has much in common with Gladwell'sfree market approach to intelligence. If every active member ispolicing its corporate, NCUA's monopoly on supervision is brokenup. True, the members wouldn't have regulatory authority, but theycan certainly take action, like withdrawing their funds or seekingboard and management changes. USE's idea is revolutionary andbrilliant, and I hope that NCUA requires corporates to provideportfolio-level detail to its members as part of the corporatereforms.