A Repeat Of The 1837 Kirtland Safety Society Debacle? LDS-Owned Cumorah Credit Union In Nevada Fails, Taken Over By Credit Union One

When I first read this story out of Nevada, I immediately thought about the failure of the Kirtland Safety Society in 1837. However, this 2009 story has a happier ending.

On October 23rd, 2009, both the Las Vegas Sun and the Las Vegas Review-Journal report that the LDS-owned Cumorah Credit Union, first organized on October 10th, 1965 to serve the financial needs of members of the Church of Jesus Christ of Latter Day Saints residing in the Paradise and East Stakes in southern Nevada, was seized by state regulators on Friday October 23rd, and American Share Insurance has been appointed as its receiver. The credit union, with 15,000 members (nearly all LDS), had two offices in Las Vegas and two in Henderson. It had $147 million in assets and $129 million in deposits. All deposits and assets are being acquired by Credit Union 1, a $574 million institution based in Rantoul, IL.

-- Read the closing order and appointment HERE
-- Read the liquidation and consent order HERE

It appears to be a seamless transition. Cumorah members will still be able to bank at their branches, and normal business hours will be kept at all offices. Members can access their accounts by writing checks or using ATM or debit cards. Checks drawn on the credit union will continue to be processed as a normal course of business. Members with loans should continue to make their payments as usual. Deposits are insured up to $250,000 per account by American Share Insurance. Cumorah offers more specific information HERE.

The Nevada Financial Institutions Division found that the credit union had poor asset quality, poor liquidity, inadequate earnings, was critically undercapitalized and had excessive loan risk. Cumorah had a troubled asset ratio of 69.6 percent, according to BankTracker, a project by the Investigative Reporting Workshop at American University. Cumorah's problems allegedly began when its commercial real estate loans started to become delinquent, and the first signs of real trouble surfaced in September when they laid off 42 of 101 employees. Conventional banking wisdom holds that credit unions should stick to consumer loans, car loans and home loans, because most lack the expertise needed for commercial lending. Nevertheless, credit unions may still be a safer place than banks; as of this post, CNNMoney reports that the number of bank failures in the U.S. in 2009 has now reached 106. The FDIC has a list through October 23rd HERE.

But at least Cumorah customers still have their assets. Back in 1837, when the Kirtland Safety Society tanked, there was no Credit Union One or American Share Insurance. Consequently, those invested in Kirtland lost their assets, including Joseph Smith himself. Anti-Mormons like to suggest that the Kirtland Safety Society was a scam deliberately engineered by Joseph Smith, but the truth is that it was intended to correct a deficiency in the money supply at the time.

Because "hard money" (gold, silver and copper coins) was scarce, it was difficult to pay debts -- not because there was nothing of value, but because the value was locked up in long-term assets like land, crops and goods. Hard money couldn't be produced fast enough to keep pace with a growing economy. Relying exclusively on promissory notes and bartering stifled economic growth. A bank could issue paper money, making the value of long-term assets accessible. This would end the money supply shortage. And that was the primary reason why the Safety Society was established.

If Joseph Smith had been in it only for the money, he would have pulled out at the first signs that the Safety Society was struggling. Instead, he took out loans on its behalf and even sold personal property for $5,000 to help it out. But his bailout attempts didn't work.