This week Nathaniel Popper published a rather one sided and shallow exposition of the woes of Brewster Kahle’s ill fated Internet Archive Federal Credit Union. The thrust of his NYT story is “how difficult it can be to try out anything new in the heavily regulated industry”.
From the article, it isn’t clear exactly what Mr. Kahle was trying to do, or exactly why he needed a federally insured Credit Union to do it. The two innovations highlighted in the article are lending to low income residents and working with Bitcoin businesses.
Both of these things are fine things, but neither is necessarily what a credit union per se should be doing, and the regulators were rightly concerned. We definitely don’t want insured institutions messing about with Bitcoin businesses—aside from the reputational risks, cryptocurrency is not really a “local” enterprise. (We don’t encourage local credit unions to deal in, say, commodity trading or currency exchanges, either.)
I’ll also point out that in the last bubble there were very troubling problems with “community banks”, that aimed to aid poor communities but ended up broke and bailed out by insurers. There are also huge problems with unregulated predatory lenders in poor communities (which I’m sure Kahle hoped to displace with an honest CU). It is small wonder that credit union regulators do not want to see those problems migrate to their bailiwick. “Trust me, this time it’s different” is not much comfort to the people who will have to pay out the rescue.
We don’t have enough information to judge the alleged interactions, reported nonsense, and supposed bad calls by the regulatory agency. We only have one side of the story here, and it is form a very unhappy camper. I have to suspect that the regulators tried to tell him that “this isn’t something that a chartered credit union should be doing”, and he failed to listen.
I also suspect that this public relations effort is fed by right wing deregulatory ideology, typified by the reported remarks of one of the regulators, J. Mark McWatters, “who has said that the agency has been too focused on protecting its insurance fund for credit unions from any losses and has consequently prevented credit unions from growing and serving customers.”.
How dare the insurer try to protect the insurance fund! Which is their job. Whish I pay into. And who said we want credit unions to “grow”? The whole idea is for them to be the small, locally run, alternative to growth-oriented banks.
Doesn’t anyone remember history? In the 1980s, the US deregulated the Savings and Loan industry, which then used their insured deposits to create a massive bubble, requiring a huge bail out. In the 2000’s the by then deregulated conventional banking system did the same thing.
The only sane part of the US banking system are credit unions. Do we really want to deregulate them, and see them “innovate” into a big crash? With federal insurance to bail them out?
No way this is a good idea.
I encourage Mr. Kahle to seek innovative solutions to these problems. But not backed by my deposit insurance fund, please.