Within a month of becoming president of the Santa Fe-based Permaculture Credit Union—a unique financial institution based, as the name suggests, on eco-friendly principles—Don Sarich had his first encounter with a skeptical government regulator.
"One of the regulators said to me, 'Don't worry, you can get a job somewhere else because we're going to shut you down.' That's a true quote," Sarich says. "I thought, 'Now I have to prove you wrong.'"
That was in 2003. Times were different then. That February, President George W Bush had introduced his ideal of an "ownership society." His Federal Reserve chairman, Alan Greenspan, would soon cut interest rates to 1 percent, making it absurdly cheap for financial institutions to borrow money—and lend it out at much higher rates.
The Fed's easy credit policy helped create the appearance of rapid growth and unprecedented prosperity in a nation that no longer produced many tangible goods, preferring to leave that task to poorly paid laborers in faraway countries. The easy credit enabled record bank profits and, for executives, a number of private jet purchases. For average Americans, it encouraged runaway spending on needless luxuries and a quickly mounting pile of debt it now seems the nation may never repay.
Then it all went bust.
Since the early stages of the global financial crisis in 2007, 243 US banks and credit unions have failed, according to the online Bank Implode-O-Meter, which offers "Your play-by-play for the end game of modern banking." Their assets—or what's left of them—have been consumed by bigger fish. The federal government essentially invented a few trillion dollars, by printing more money and borrowing against hoped-for future growth, and used it to try to stimulate the credit markets, in what increasingly looks like a hopeless attempt to revive the illusory "ownership society."
Across the country, mailboxes once stuffed with pre-approved credit card offers began filling with foreclosure and past-due notices.
Meanwhile, back in Santa Fe, PCU has more than doubled in size. And of the approximately $15 million in loans the young credit union has made, only $23,000 worth has been written off as uncollectable, Sarich says.
"One was a foreclosure," he says. "The member passed away, and the relatives couldn't get rid of the house in time."
This year will mark PCU's 10th anniversary. In the past couple of years, Sarich says, the regulators that once predicted the credit union would shut down have been more understanding of the institution and its goals.
| • Members: 1,009 |
• Estimated percentage of members with A credit scores: 80
• Assets (including loans and investments):
• Liabilities (including member deposits):
• Number of loans outstanding: 257
• Number of loans that are more than two months delinquent: 6
• Average monthly income from fees, per member: $2.17
• Number of employees: 3
• Total employee compensation, including benefits (2009): $122,100
• Federal bailouts received: 0
• Average CEO compensation at financial institutions that took federal TARP bailout money: $3.4 million
|Sources: PCU statements of financial condition, National Credit Union Administration, AFL-CIO Executive PayWatch, PCU President and CEO Don Sarich|
Next to the mad, money-hungry risk-taking on Wall Street, PCU is a fundamentally conservative operation that pays modest dividends to a like-minded membership. It shuns the latest short-term profit-oriented financial products.
"Why would I be chasing derivatives, when the core business is to do loans for your members who are doing things that are sustainable? There's a difference between what the financial markets have done and what the credit union is doing," Sarich says.
In another sense, PCU is anything but conservative: It seeks to prove that a financial institution can grow while embracing real environmental sustainability.
"I wouldn't really call it an experiment. It's more challenging the financial system," Sarich says.
PCU specializes in making loans that traditional banks and credit unions avoid: a loan to construct a new Earthship or off-the-grid home, or a second mortgage to pay for solar panels, for instance.
"I refinanced [an Earthship mortgage] that was paying 21 percent [interest] in New Mexico," Sarich says. "The person had good credit. He had a good equity position. I couldn't find a reason the 21 percent was being charged, besides greed."
Another example of the permaculture approach to finance: PCU charges lower interest rates on car loans for fuel-efficient vehicles. So they'll cut you a break if you're buying a Prius—but if a Hummer is what you covet, look elsewhere.
PCU Board of Directors Chairman Brendan Miller says there's a reason most Santa Feans haven't heard of the credit union.
"We have been under the radar sort of intentionally," Miller says. "We have a limited ability to take new members."
That's because of a regulatory requirement that PCU maintain a 6 percent capital ratio—money it keeps in reserve to back customers' deposits. Such a rule keeps consumers' money safe, but for a small money co-op that refuses investments it deems unethical, it also makes growth difficult. Sarich says a new customer recently wanted to move $90,000 to PCU from Bank of America. To maintain the proper ratios, he could only accept $5,000.
Miller says PCU relied on grants to fuel its past growth. But for its anniversary, the credit union will be soliciting donations in order to permit the expansion of its member base. (Alternatively, PCU could raise rates on existing members to create a profit—but the board has chosen not to.)
To be sure, PCU's credit offerings are somewhat limited.
"If you want to do a first mortgage, you may have to get in line until we can absorb that," Miller says.
And while PCU does make student loans, it has made only one business loan, an arrangement with Santa Fe Farmers Market.
Nor is PCU fully buffered from the outside world. Last month, PCU reported an $8,800 operating loss—but not because somebody was late on their Earthship payment. Rather, the loss came from PCU's investment with a larger nationwide credit union consortium, which was more exposed to nationwide problems.
Overall, Miller says, PCU stands to benefit from public anger at Wall Street.
"Our values are to reinvest in our communities, where our members are, in the bioregions where we live. We are looking to a more sustainable model—and we do see ourselves as an antidote to a lot of that excess," Miller says. "We do see [the financial crisis] as an opportunity for us. And we have weathered it quite well."