Savings and Loan Fiasco On Deck

"In the 1980s, the financial sector suffered through a period of distress that was focused on the nation's savings and loan (S&L) industry. Inflation rates and interest rates both rose dramatically in the late 1970s and early 1980s. This produced two problems for S&Ls."

When you make long term loans at very cheap rates (30 year mortgages at very low rates) and hold them on your own books as an asset, you set yourself up for what is known as interest rate risk.

You can't make a long term fixed rate loan (an asset on the institution's balance sheet) at 3.50% when depositors in your institution are expecting a 4% return on their money.  When you "mark to market" your asset and are underwater, the NEV will go down.  That's why so many originators sell their mortgage paper - it's like a hot potato.

"Interest rate risk is the probability of a decline in the value of an asset resulting from unexpected fluctuations in interest rates."

"Credit unions are less likely to sell home loans to other lenders, Gleason says, partly because they want to keep a long-term relationship with the 

borrower" - *my comment, if I want another long-term relationship, I'll get myself another dog*

We have not as yet reached any tipping point but I have to wonder if credit unions have not set themselves up to be the next Savings and Loan industry.  Deposit rates have slowly come off the floor for anyone willing to do some shopping.  Internet banking is no longer considered "exotic".  You are not limited to where you park your money and competition will heat up in the next year or two.

From Jesse's Cafe Americain:  As I have previously noted this feels more like a long, grinding bear market than a 'crash.'

I've read his blog for quite a while going back to the housing market run up and crash - yes, there are a lot of bloggers out there putting up posts about their observations and opinions.

Charles Hugh Smith - Of Two Minds

Daily Reckoning

Zerohedge

They're not going to fill your head with a lot of Happy Talk and cheerleading.

Anyway, what I remember of working in credit unions and the present day interest rate/inflation scenario reminds me a great deal of the Savings and Loan fiasco where an entire industry that lent out long on cheap rates and held the loan on its books got caught with its pants down when rates quickly hiked upward to stem inflation.