Sorry, Mr. Speaker, Credit Unions are Not GSEs
For the second time in a recent presidential debate where he seeks to answer his opponents' charges about his firm's years of quite profitable (and, according to most sources, completely legal although an issue he has found tough to defend in today's "bubble burst" real estate market) consulting engagements with Freddie Mac, former Speaker Newt Gingrich has now twice misstated facts about credit unions so severely in his attempt to deal with these GSE-oriented questions that it has to be either an intentional effort to mislead or he does not understand what credit unions are.
Either is troublesome for credit unions. And, now that he has done it two times in two separate debates, it cannot be a mere oversight on his part. One of those problems, lack of candor or lack of comprehension, must be the case. And the record must be set straight.
Sorry, Mr. Speaker, credit unions are not GSEs. Period.
GSEs are government-sponsored enterprises. Freddie Mac is a quasi-governmental entity with a direct government sponsorship. Fannie Mae is the same.
Credit unions are not, nor have they ever been, a quasi-governmental entity.
Credit unions are private entities, organized by their own individual members under charters authorized by federal and state agencies, that are structured as not-for-profit financial cooperatives owned and operated by those member-owners themselves through a democratic process.
They receive no direct government support or guaranties. Their assets are not owned by the government, nor guaranteed by them. They have no guaranteed rate of return. There is no direct appropriation that goes from Congress to either individual credit unions or, frankly, even to their federal regulatory agency which is funded by the regulated and insured credit unions themselves.
Yes, credit union account holders have federal insurance on their accounts. As do bank account customers. Does federal deposit insurance constitute a quasi-governmental entity? Is the full faith and credit of the U.S. government backing deposits up to $250,000 a qualifier as a GSE? If so, banks would be GSEs as well. So would be thrifts.
Did the Speaker cite either banks or thrifts as GSEs in the debates? Certainly not. He knows better. Could it be that credit unions have the kind of good reputation that a presidential candidate wants to attach himself to? Probably. Does that make credit unions into GSEs? Sorry, but no, Mr. Speaker.
How about the tax exemption? Some might make the totally erroneous claim that this somehow makes credit unions into GSEs because Congress has granted a federal income tax exemption? Well, if having a congressionally granted tax exemption defines a GSE, then the American Red Cross would also be a GSE. So would be the Salvation Army and the Sierra Club?
How about the YMCA, a government-sponsored enterprise? By that definition, all of those non-taxed entities would be GSEs. Yet it is unthinkable that anyone would seriously consider these organizations to be quasi-governmental entities along the lines of Fannie or Freddie.
Let's look at the facts. Tax policy is determined by Congress based upon on the structure of the organization to be either taxed or exempted. Credit unions are well respected in Congress as member-owned, not-for-profit cooperatives that, through their performance over the decades, have earned their tax exemption and maintained it consistently since the 1930s – years of acronyms all right, the WPA, the TVA and the CCC, but certainly not the GSE.
In fact, the concept of a GSE was not even a gleam in an ambitious congressman's eye in those days, and we would not see the advent of the government-sponsored enterprise as we know it today until the 1980s. Tax treatment does not make credit unions a GSE any more than it makes the American Cancer Society one.
No, Mr. Speaker, credit unions are not GSEs. While we in credit union land don't claim that all GSEs are automatically evil and many credit unions have mitigated a great deal of risk by underwriting to their standards and selling mortgages to Fannie and Freddie over the past several decades, we understand that true GSEs have both positives and negatives associated.
Their impact is felt, both good and bad, in both the competitive marketplace and the debt-ridden federal budget. Some credit unions would like to see them regulated and their role in the mortgage market curtailed severely. Others feel it is important for credit unions competing in the mortgage market to be able to turn to GSEs as a viable secondary market for their paper.
But, regardless of the diversity of opinion on GSEs in our industry, credit unions understand what they are and what we are – their role and ours.
Credit unions would like major American political leaders to know the same. Presidents, congressmen, senators, governors and state legislators would be well advised to better learn what credit unions are and the role we can play in bringing America out of its current economic problems.
In fact, if President Obama, Speaker Gingrich, Senator Santorum, Congressman Paul or Governor Romney truly seeks to make moving the economy forward the centerpiece of their presidential campaigns, then I would recommend that they study up and make credit unions into one of their ever growing list of policy points for economic growth.
With the right regulatory empowerment and enhanced authority to demonstrate effective risk management while still expanding the availability of consumer and small business credit, credit unions could help any president to move the economy forward if they would understand what we are, what we do and how restrictions on FOM, business lending, capital, mergers and investments are stymieing our extension of the "credit union difference" to more Americans.
But let's get the facts straight. Credit unions are not GSEs.
In actuality, it is possible that Speaker Gingrich may be doing us a favor by bringing credit unions into the presidential debate environment. How long has it been since credit unions were even mentioned in a presidential debate? It would be great to hear credit unions mentioned more often. But every candidate needs to be accurate about what we are and what we aren't.
So, although credit unions are certainly not GSEs, any presidential candidate would frankly be quite well served to learn what we do and how empowerment of credit unions could actually do more to create jobs and economic growth in local communities than many of the other irrelevant personal issues they are debating these days.
Dennis Dollar is an Alabama-based consultant who became a Republican appointee to the NCUA Board in 1997 and designated chairman by President George W. Bush, serving from 2001-2004.