Credit unions like many other leveraged institutions have experienced huge investment losses primarily with investment institutions (corporate credit unions) overly weighted in concentrated positions in privately issued mortgage-backed securities. Losses will be booked not as write-downs of investments but as capital charge-offs held at these institutions and as NCUA assessments to replenish the share insurance fund depleted to absorb investment losses.

Corporate credit unions have served as an important investment arm for the credit union industry. Perhaps, transparency and risk management could have been executed better if the deposits had been characterized as collateral debt obligation deposits to better reflect the function and nature of business of corporate credit unions. Certainly, calling a product by the right name is the first step in raising awareness about both its risks and benefits. Naming a product to raise awareness, however, can be problematic as my wife, a dietician, refers to the Big Mac as the Heart Stopper. While her name selection does create pause for me, a pause could have been a useful tool in 2005, 2006 and 2007.

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Peter Westerman


Credit Union Times

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