The U.S. Economy: What Happened?

In workplace break rooms, at kitchen tables and in local cafés across the country, people agree that the U.S. economy is in a sorry state. You may be among the many who wonder: How did we get here?

The Roots of Trouble
At the beginning of this decade, housing prices around the country increased swiftly. To keep homeownership accessible, some lenders relaxed their lending guidelines. Homebuyers with weak (subprime) credit got "exotic" loans with adjustable rates, interest-only periods, no down payments and balloon payments.

Then interest rates started climbing, and many borrowers were unable to make the higher payments. At the same time, housing prices started to flatten, making the situation worse. When some homeowners tried to escape their increasing mortgage payments by selling or refinancing their homes, they discovered that in the depressed market, their homes were not worth as much as they owed. Foreclosures began to increase.

Wall Street Gets Involved
Lenders that were making these "exotic" loans were eager to share the risk with Wall Street, so they bundled together thousands of mortgages into bonds. Investors around the world wanted to cash in on the U.S. housing market boom, so they snapped up the bonds. But when many homeowners defaulted on their mortgages, the bond issuers couldn't cover the interest payments and the bonds lost value.

Some (though not all!) companies in the financial services sector suffered huge losses as a result of falling home prices, mounting foreclosures and steep declines in the value of risky securities tied to home loans. That made these institutions increasingly reluctant to lend money to each other – or anyone else. The consequence was a dramatic reduction in the amount of credit available to individuals and businesses.

Many companies rely on credit to pay their employees, purchase inventory and operate their businesses. When credit is unavailable or unaffordable, it slows business activity. And that causes layoffs and increases unemployment. Consumer confidence suffers.

We're Part of the Solution
The federal government has taken numerous steps to get the economy humming again. Some of these actions have already begun to improve the situation, or at least keep it from worsening.

Chaco has remained rock-steady throughout the crisis because of our conservative approach to lending. We were not involved in the risky lending practices that led to all the trouble. Chaco remains a safe place to save and borrow money in good times and bad.

In addition, your savings are backed by the federal government. The Emergency Economic Stabilization Act of 2008 increased the NCUA insurance coverage limit. Until the end of 2009, deposits are insured for at least $250,000.* Retirement accounts and other categories of account ownership are insured separately.

Also, your board of directors has chosen to provide an additional $250,000 of savings coverage to qualifying accounts through Excess Share Insurance (ESI), a licensed property and casualty insurance company. This supplemental share insurance coverage from ESI has been available to credit unions since 1993. Members exceeding the maximum level of coverage provided by the NCUA are insured up to an additional $250,000 by ESI. For example, if a member has a savings account, checking account and certificate of deposit at the credit union that when added together totals $140,000 – $100,000 is insured by the NCUA with the remaining insured by ESI. Deposit insurance is provided on a dollar-for-dollar basis and is payable only upon the failure and liquidation of the credit union.

Chaco is here for you whenever you need us. Find out more when you visit your local branch, call 518-785-3500 or visit www.chacocu.org.