Dedicated to scrutinizing the governance of our Credit Union, and protecting our
collective wealth from uncooperative self-
This page contains notes that are referenced from various other places on the website.
It's sometimes helpful to view an economic endeavour (e.g., a business venture, or a mere negotiation) as having two steps: First, grow the pie as big as possible. Then, divide the pie among the people who made it. The first step is a collaborative effort-
Coast Capital, a credit union that is the result of efforts started in 1940, is a tasty and profitable pie. The division of those profits among the members, directors, senior management, employees, and community, is something that should be under the control of all the members, not just the directors and senior management.
In his TED talk "We the People, and the Republic We Must Reclaim," lawyer and legal activist Lawrence Lessig describes the dysfunction in the American political system. He explains that even if the restoration of democracy doesn't seem like the most important issue to be solved, it is the first issue that must be solved.
The democracy of Coast Capital is as broken as the democracy of the United States, though for very different reasons. Fixing the democracy should be our first priority.
Lessig describes the problem in American politics as being that politicians get their funding from a tiny slice of America, and the solution is to employ public funding. Change the source of funds from narrow to broad.
The problem with the democracy of Coast Capital is that the information made conveniently available to voting members comes exclusively from the Board of Directors. The solution is to make information from other credible sources just as convenient. Change the source of information from narrow to broad.
The most obvious reason why financial products are complex is that a precise understanding requires mathematics, and some people don’t have a mathematics background. But let’s not be patronizing. There are plenty of people within our membership who are capable of understanding the exponential behaviour of compound interest, and who could calculate a mortgage amortization schedule with a little practice.
But sometimes understanding individual mathematical equations isn’t enough, and the calculation process needs to be automated to be useful. Some financial products are complex because they are impossible without computer models.
Adding to the complication is that many computer models are based on statistics, and they don’t work until you’ve entered meaningful values for the various statistical parameters. To calculate these parameters, you need to gather and analyze historical data, and that’s a lot of work, and the data might be imperfect.
Furthermore, it’s always true that past performance is not an indication of future results. The statistics of historical data do not reveal the future with certainty. In this sense, financial products are so complex that not even the professionals can fully understand them; the future is unknowable by anybody.
The situation is even more complicated from the perspective of a credit union, as opposed to the perspective of an individual consumer/investor. The future performance of the credit union’s entire product line and its members’ accounts (mortgages, savings accounts, etc.) can be analyzed only in a statistical manner.
The practical impossibility of fully understanding financial products will always put members of a credit union in a position of weakness with respect to the directors and managers of the credit union, and with respect to government regulators. We must work to neutralize these power imbalances.