Three Wholesale Credit Unions Nationalized As US Securitizes $50 Billion In Legacy Toxic Assets; Failure "Sweep Under The Rug" Friday Just Got Real

Tyler Durden's picture

It is Friday afternoon, and of course the most troubling news come out. Last week it was that the idiots in charge are raising their stake in Ally to 80%; this week also did not disappoint: the WSJ reports what can arguably be the most important story of the week - to wit: the government just seized three wholesale credit unions and has launched an "unusual plan" to manage $50 billion of troubled assets inherited from failed
The unions taken into conservatorship include Members United Corporate Federal Credit Union in Warrenville, Ill.,
Southwest Corporate Federal Credit Union of Plano, Texas, and
Constitution Corporate Federal Credit Union, Wallingford, Conn., which
had a total of $19.67 billion in assets as of July. As for the funding of the new bailout program: "To help fund the rescue, the National Credit Union Administration plans
to issue $30 billion to $35 billion in government-guaranteed bonds,
backed by the shaky mortgage-related assets." Once again, uncle Sam bails out those who have committed federal crime and sticks Joe Sixpack with the bill. How is it a crime? "Under federal rules, wholesale credit unions were supposed to invest
only in safe, liquid assets. But some institutions chased higher returns
by loading up on securities backed by subprime mortgages or other risky
Their portfolios were decimated by the mortgage meltdown."And here is the punchline: "Officials said the plan won't cost taxpayers any money." How can one not simply laugh at the continued lies and crimes that occur each and every day, and are perpetrated by every single person in charge of this collapsing country?

And this kind of shit continues to this day, as the morons at the pension and mutual funds are now loading up on high yield debt and stocks trading at thousands of forward PEs, which will be decimated the second rates start turning up. And guess who will pay for that next rescue, which will come just as "free" as this one, save for the several hundred billion of new bonds that will have to be issued again... and again... and again.

More from the WSJ:

[This intervention] marks the latest aggressive intervention by U.S. government officials
into a corner of the financial system threatened by losses. Bad bets on
mortgage-backed securities have killed five of the nation's 27
wholesale credit unions since March 2009. The federal government, which
now controls about 70% of the total assets at such credit unions, also
said the surviving institutions will be reined in so that they take
fewer risks with their investments.

And some more:

Losses on the mortgage-backed securities held by the five seized credit unions are expected by regulators to total about $15 billion. Wiping out the capital of the failed institutions will cover a chunk of those losses, but the remaining $7 billion to $9.2 billion eventually will be passed along to the nation's 7,445 federally insured credit unions in the form of future assessments.

Bert Ely, a longtime financial-industry consultant in Alexandria, Va., said regulators share some of the blame for the resulting mess because wholesale credit unions were allowed to pursue a strategy that was "viable only because of what clearly has turned out to be excessive risk-taking."

Ms. Matz, the nation's top credit-union regulator, said the investment losses reflect "unprecedented economic times" and "bad decisions" by regulators, credit-union managers and board members "by heavily over-concentrating in mortgage-backed securities."

New regulations issued by the NCUA on Friday will make oversight of wholesale credit unions much tougher and are meant to fix any regulatory shortcomings, she said.

As part of the plan announced Friday, regulators will eventually wind down the operations of the five failed credit unions, which together had about $50 billion in shaky mortgage-backed securities on their books, according to Larry Fazio, NCUA's deputy executive director. Based on current market values, those securities are worth roughly half of their face value, representing a potential loss of $25 billion.

And oddly enough, this whole "viable only because of what clearly has turned out to be excessive risk-taking" strategy continues, and now has focused on pension funds like the Illinois TRS which is counting down the days to its own "conservatorship." Only now it is occurring in broad daylight, with blogs like Zero Hedge discussing it all day, yet nobody taking any action.... Much like nothing would have ever been done on HFT if the criminal practices of the cabal had not been exposed for all to see.

As for the tally, as another reader so well recaps it, here is the tally so far:

The federal government now runs the student loan business, has
controlling interest in the American auto industry, and controls the
wholesale credit industry, which essentially gives them control of
retail credit unions via control of their investment assets. They want
control of the health insurance industry and will take control by
running the private insurance companies out of business. They want
control of individual medical decisions, with veto authority.

We would add that the government also controls the stock market, the bond market, and the FX market.

Can the farce of the US "democratic" experiment just accelerate?

On second thought, the only way things will unravel is not for stock and bonds to gradually go to their fair values around 95% lower, but for everything to burst in a meltup of unprecedented historic proportions, as the very few remaining players terminally cannibalize each other. Perhaps it is time that those hoping for a fresh start start cheering every single uptick in the Dow Jones (the government still doesn't realize the S&P index exists), as all that does is bring us one step closer to the final disequilibrium.

Frankly, we have had enough of this farce.

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Boilermaker's picture

Too Small To Survive (TSTS).

God forbid this actually happen to stinkiest a-holes, BAC, C, JPM, etc.

Good thing this is announced, as usual, on Friday after 4pm or the market would have jacked another 200 points for good measure.

unununium's picture

Guess who the Fed did NOT buy any of the $1.5T in mortgage-backed securities from.

Cognitive Dissonance's picture

Bank Failure Friday. So far just one.

Haven Trust Bank Florida, Ponte Vedra Beach, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First Southern Bank, Boca Raton, Florida, to assume all of the deposits of Haven Trust Bank Florida.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $31.9 million.

Rainman's picture unions go to great lengths to explain they are not banks. So 1 little bank is great news. No wonder equities soaaaaared !!

Fish Gone Bad's picture

You know, as bad as this is, things will still get worse.  Things just are not fucked up enough.  Yes, things look bad, and things look fucked up, but states have not declared bankruptcy yet and unions have not been kicked to the curb.  Only after that happens will things be really fucked up enough.


Widowmaker's picture

FGB, I don't know why you get junked - you are right.!

Failure = Success and a branch out of W-Buttfuck's family tree, "no bank left behind."

Anyone a suspect yet?  NOPE!  Laws for the rich?   NOPE!

RockyRacoon's picture

As for the junking, I think someone's sensibilities were offended because they dislike the word FUCK.  Which we all are to some extent or another.  Junk that you wuss.

Conrad Murray's picture

I think the junks came from suggesting chaos will ensue from kicking unions to the curb.  But, there are some word pussies out there.

Here's a short, must watch video on the word FUCK:

Cognitive Dissonance's picture

Saw it this morning. Thanks.

North County Bank, Arlington, Washington, was closed today by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Whidbey Island Bank, Coupeville, Washington, to assume all of the deposits of North County Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $72.8 million.

Sudden Debt's picture

at least it won't cost the taxpayers money. Only paper with a green print on it.


carbonmutant's picture

Wait, Wait, this was all part of the plan....

I 'm actually lying on the floor staring at the ceiling...

 I have a theory banks fail when you fdrink margaritas...

midtowng's picture

The markets will forget this by Monday.

RichyRoo's picture

No citizen, the markets always perfectly price in all information. This will simply be priced in by Monday, and discovered by those qualified by the proper institutions to have no material impact. You are free to choose between a 6 month government sponsored re-education treatment or 6 months prison. Patriotism is freedom, freedom is service and service is citizenship.

New_Meat's picture

Borders is having these amazing sales on books, some of them that I'd read many years ago.  So last weekend, with a 40% off coupon, well, I bought a copy of 1984 (OK, it has the bigger print, OK?) to start reading this weekend.

I'm really excited to see how Our Dear President is doing vs. a 10% playbook.

- Ned

Fish Gone Bad's picture

In the book, there is a guy who turns off the Big Brother television.  There is a really nice quote that goes something like, "To break the really big rules you first have to obey all the small ones..."  Whenever an institution fails I am reminded of 1984.

Widowmaker's picture

Unfortunately your quote has little merit when there are no rules to begin with.

Tell me what president got rid of the regulators.  Who thinks this was an accident -- really.

If Im a citizen and the sheriff says all his staff can go home who really thinks this was a fucking accident when the mafia "accidently" takes over...

George W Bush is the biggest enabler of fraud and corruption of the modern era.  WAKE UP PEOPLE, WAKE THE FUCK UP!

Haywood Jablowme's picture

George W Bush is the biggest enabler of fraud and corruption of the modern era.  WAKE UP PEOPLE, WAKE THE FUCK UP!


Please.  We haven't had a real president looking for the country's best interest since JFK.  Reagan could of been up there, but after taking that first bullet and surviving, he sold out just like the rest of em'...



GoinFawr's picture

Interesting about Reagan... did his policies really change much after that incident? I confess, I've never looked at his Presidency in a before/after light...


ajax's picture

Makeyoumiss, Holy

Goldberg Variations
!!!!!!!!!!!!! You're a

Glenn Gould fan! Oh

that's marvelous! He would have been

78 years old on

September 25th.

The 6 Partitas are

to die for...

docj's picture

I'm seeing some more range time in my immediate future.

Mad Max's picture

Enjoy your golf game!

And I don't think he means Range Rover time either...

Cognitive Dissonance's picture

Free range chicken time? Hey, they're free. :>)

DoChenRollingBearing's picture

@ docj

My time on the range is spent with 7.62 x 39 and 9 mm Luger.

grunion's picture

Keep the luger for nostalgia and pick up an accurate, reliable handgun in a calibre not less than .40 and at least 10 rnd. cap magazine

FEDbuster's picture

"Owning a handgun doesn't make you armed any more than owning a guitar makes you a musician."  Col. Jeff Cooper, Gunsite

"A handgun is for fighting your way to your rifle which you shouldn't have put down in the first place" Clint Smith, Thunder Ranch

"Those who hammer their guns into plows will plow for those who do not." Thomas Jefferson

"Practice and proficiency, not caliber, will win a gun fight."  Me

Keep your 9mm, and practice as much as you can. 

I'll take Todd Jarrett with a .22lr over someone with a .44 magnum who never practices.  Todd would have three bullets through your left eyeball bouncing around in your skull before you even pull the trigger.

RobotTrader's picture

With a virtual panic to own Treasuries of any stripe, race, or color...

I don't know why the Fed just doesn't outright nationalize the entire credit union sector.

Heh, the worst thing that could happen is that Treasury yields plunge again when this news hits the tape on Monday.

Then Uncle Gorilla can float off billions in freshly-flung 5-years, 10-years, and 30-years at practically zero cost.

After all, the Fed balance sheet can explode to infinity and it won't matter.

Who is going to "audit" the Fed?

No one.

Hephasteus's picture

Simple way to audit the fed. Don't give them anything. Then you'll know exactly what they have.

rocker's picture

Even under the Freedom of Information act, which many have tried, Nobody.   We are not Free while we have a FED.

RichyRoo's picture

No citizen, the FED protects your freedom by removing the responsibility for your destiny to their decree, this freedom from responsibility is true freedom. You may choose between a 6 month government sponsored re-education treatment or 6 months prison. Freedom is patriotism, truth is loyalty, loyalty is patriotism.

kengland's picture


Heh, the worst thing that could happen is that Treasury yields plunge again when this news hits the tape on Monday."


You are joking right? Plunge? Over news like this? The fed just added almost 100 bill in leveraged money to the system. Billions can be found in the lobby cushions of any PD.


When you start talking trillions or quads, I'll start listening. Let keep focused on snp 1160-1180 n-kay?

mynhair's picture

Almost naked ladies, or begone!

Not pics of my Wif.

New_Meat's picture

Robo, not as attractive as some of your earlier efforts--and they say the girls always look purtier at closing time.  Who knew?

- Ned

StychoKiller's picture

That's no girl!  It's a trap!

Dagny Taggart's picture

Do you work at one of the Fed's prop desks?

Widowmaker's picture

Give me a break Robo, the Fed needs destroyed, that is it.  The rest is shit under the rug.

So, I have to ask, to what hairy beast is the Fed riding on?   That ought to give you clue as to the real perspective of the problem.  Kill that thing and the monkey falls off.'s picture

did you go see WS2 money never sleeps, robo? well, on  bloomberg this AM oliver stone was brilliant. called out everyone, including firing timmy the dweeb. he just keep saying the system is wrecked. very critical. don't think i saw the whole interview. wondering if you can get a tape somewhere?              Nouriel Roubini was on as well.

Nolsgrad's picture

This is getting beyond ridiculous.

Nathan Muir's picture

+trillion FRN's.  I'm going to get drunk on scotch and try to forget all I know.  Good weekend all.

clotario's picture

Head bangs against wall.


This mortgage backed security nonsense broke YEARS ago. Did these credit unions miss this?

It's like suddenly having to pay for someone's lung cancer treatment because they missed this news that cigarettes are just poison.


Yes We Can. But Lets Not.'s picture

Cancer treatment is free, now that Obama has that covered.  What a good guy he is.

mynhair's picture

So, why haven't you been excised?

(Not my junk)

pan-the-ist's picture

Actually beginning of 2k9 for the general public.  Look - the scam was the shysters ability to AAA rate the MBS's to make pensions and the rest of the dumb money buy it (they have to buy AAA rated stuff.)  This is what happens when you have the roosters watch the hen house.  The CUs probably bought it but weren't fortunate enough to unload it like the TBTFs.

The Rock's picture

Only roosters?

How about roosters AND foxes? >>> fucked AND eaten!

spdrdr's picture

Farmer Joe brought another young rooster back to the hen-house - the old rooster looks the newcomer up and down, and says "You think you're going to take over MY job here??"

New young rooster: "That's right, Grandad!"

Old rooster: "Look, I'm a bit old to get into a cock fight, and I'll willingly give up - IF you can beat me racing around the hen-house 3 times.  All I ask is that I get a half-circle head-start."

Young rooster: "Sounds fine to me, Grandad!"

So they both square off at opposite sides of the hen-house, and it's ON!  The old rooster is tearing up the dust, shrieking wildly,  but the young Turk is gaining, round once, round twice, when Farmer Joe comes out of the ranch with his Ruger .22, and shoots dead the young rooster.

Farmer Joe:  "That's the third fucking gay rooster that I've been sold this month!"