Problems Over? No, Says One Analyst

Credit Union Journal  |  Monday, October 4, 2010 | By Ray Birch, Reporter

Special Report: Corporate Rule

LAKE BLUFF, Ill.-The economist who accurately predicted the cost of the corporate rescue continues to believe NCUA's corporate assessment plan will not work, and that the corporate credit union system will not be around in the next three to five years.

In fact, that same analyst is predicting the Federal Reserve will eventually have to step in to help credit unions.

In an interview with Credit Union Journal that appeared in the July 19 issue, Mike Moebs, CEO/economist of Moebs $ervices, projected the price of the corporate bailout would be $17 billion-more than twice NCUA estimates at the time and less than $1 billion off the total recently announced by the regulator. Moebs made the prediction after his firm combed for months through data, including examining the PIMCO assessments, call report data from hundreds of CUs and banks that have gone under, and by working with private equity firms to gain a firm handle on the true state of the housing market.

Moebs based his latest observation that the NCUA's assessment plan will fail and the Fed will step in, eliminating the role of the corporates in the process, based on the price tag for the corporate relief. Despite natural-person CU payments being stretched out, the cost will be too great for credit unions to bear.

"These assessments will kill the credit union system," Moebs told Credit Union Journal. "The Fed will step in when they see too many credit unions, especially smaller ones, go under."

Moebs believes the Fed will take over the service role of corporates, and should turn to private equity, not taxpayers, to cover the cost of the legacy assets, likely an additional $10 to $15 billion.

"I don't think the corporates are viable anymore, just as I do not believe Fannie Mae and Freddie Mac are viable anymore," asserted Moebs. "The Fed has to step in and stabilize the corporate problems and eventually bring in the private sector, in the form of private equity, to assist in effectively getting past this problem. Then Fed needs to take over the role of securitization."

Moebs said securitization needs to be redefined, in the context that there will be guaranteed securitization (the Fed) and non-guaranteed securitization (private sector). Private sector securitization will come with a higher charge. "That's where all this is going," said Moebs. "Do this, and this mess gets cleaned up in five years, maybe as little as three years."