Additional regulation will only hurt small CUs and the American public.

Isaac Newton once said, "I can calculate the motions of the heavenly bodies but not the madness of people!" Newton was caught up in the South Seas Co. bubble, a shell company opened to buy the debt of England after the War of Spanish Succession, and reportedly lost $4 million in today's dollars. While Newton is best known for all of his scientific and mathematical achievements, history overlooks the fact that Newton was the master of the Royal Mint during the time of this bubble.

Newton was an insider and should have understood that the South Seas Co. was not mathematically sound. But, the instinctive human drive to achieve wealth without effort kicked in, and Newton, in the weeks preceding the bursting of the bubble, invested and lost along with everyone else.

It is with some certainty that the people called for new regulators to stop bubbles from ever occurring again. Funny, it seems that bubbles of varying degrees keep coming in pretty regular intervals, thwarting the best efforts of regulators.

Increased regulatory activity will only hasten the failure of small credit unions and increase Americans relegated to predatory lenders. Increased regulatory burdens will create megabank-like credit unions through consolidation, which will provide all the necessary disclosures but fail to reach those most in need.

In biblical times, Joseph told the Pharaoh that you have seven years of good and seven years of bad. He advised that you save during the times of plenty and spend the savings during the lean times. For centuries nobody listened. (It seems that human nature has an adversion to saving during good times.) Joseph did not recommend expanded bureaucracy and increased regulatory burdens as a solution to tough economic times.

The elite among us have repeatedly attempted to control the business cycle and human nature's reactions to it. The cures have often only served to protract the down cycle. Politicians will call for new regulators and regulations to prevent losses caused by bubbles that are a natural part of the business cycle. What we should be doing is evaluating the destructive power of an unnecessary regulation prior to implementation. It is interesting that the regulator requires reams on asset-liability management projections that truly serve to protect nothing, yet they seldom comment on the failure of some well-meaning but defective regulatory scheme.

Many disclosures are lost on the average American consumer. Complex, convoluted disclosures are meaningless except to the overpaid attorneys, regulators and politicians who have a vested interest in promulgating a fraud on the public by asserting that more disclosures are the elixir to preventing or mitigating the consequences of normal business cycles. Conflicting regulations do not help the people they are intended to protect-the American consumer of financial services.

I pray that NCUA Chairman-designate Matz will come to recognize the consequences of the burdens of unnecessary regulatory disclosures on smaller credit unions. The decreased number of small credit unions and the increase in the number of Americans forced to use payday lenders are directly correlated to the increased regulations. The larger credit unions and banks will accept this additional regulatory burden. The acceptance by the larger financial institutions will raise the bar for smaller credit unions and banks beyond their economic ability to provide services, forcing less local choice for financial services.

Where will the trade associations stand on reducing the burden on the moderate and smaller credit unions? If history is any indication, they will go along with any solution that the mega credit unions accept; they will use smaller credit unions to obtain regulatory concessions for the large. The trades will then toss the small credit unions under the bus and decry any bifurcated system of regulation placed on credit unions as endangering the tax exemption of the large. When you finally force the merger of all the smaller credit unions into large ones, how long will this argument work?

I am not against reasonable regulations. However, attempting to control the outcomes of the business cycle is a fool's errand. Joseph Schumpeter, an economist who wrote about the role of creative destruction in capitalism, would have suggested that attempts to control business cycles were actually destructive. We will get less of what we need and more of what we do not.

Credit unions were a simple solution to the major problems caused by the Great Depression. During this time of economic need, we should be looking to lift the regulatory burden and not magnify it. We should be looking into using technology to simplify operations and expand the consumer financial pie. If Matz truly wants to affect the lives of the weakest among us, she should direct regulatory resources to develop a simple credit union model that small, local credit unions can use and thrive. The closer we safely move the financial decisions and products to the end user the better for everyone.

Newton admitted his humanity and inability to resist the siren's call of a financial bubble, and the desire for faux security by increasing regulatory burdens, no matter how well-intended, will simply not work. Will creating an environment that enhances the opportunity for small- and moderate-sized credit unions to thrive work? It just may.

Bill Brooks is a certified financial planner with CU Prosper and former CEO of Lafayette FCU. He can be reached at 302-258-4668 or [e-mail]