Back from the dead

I really should be doing work right now, but I've decided to return to my old haunts and put up some interesting and often frustrating articles. Check them out, they'll blow your mind. BLOW IT!!!

According to Slate, Americans may be actually be wising up. No, no, they haven't called for Bush's impeachment, that would be too wise. No, they have begun to pay off their credit card debts at a growing rate. What? Americans actually curbing their spending and taking their futures into account? That's simply not the American way! We should be spending and wasting, giving nary a thought to where we'll be five, ten, fifteen years from now!

. . . All is not tulips and nectar over at MBNA, the largest independent issuer of credit cards. Yesterday it reported a poor quarter and ratcheted down earnings expectations for the year. Its stock sank to a two-year low. Credit card giant Capital One Financial had a better quarter, but its stock has been slumping lately, too. Bad news for the credit card companies may be better news for us. There are signs at both companies that consumers may be responding to higher rates by doing something almost completely unexpected and practically un-American: paying down credit card debt.

The credit card industry presumes, based on happy experience, that Americans will borrow more money each quarter to support their spending habits, regardless of the direction of interest rates, and that enough consumers will be happy simply to pay off just enough debt to allow them to borrow more. But last quarter MBNA, to its apparent shock, found that "results were further impacted by unexpectedly high payment volumes from U.S. credit card customers," and that "the payment volumes were particularly higher on accounts with higher interest rates."

In other words, customers didn't respond to rising rates by continuing to pay the minimum and going deeper into debt; they paid down the principal more rapidly than expected. A detailed breakdown of MBNA's business shows that between the fourth quarter of 2004 and the first quarter of 2005 (i.e., between Dec. 31, 2004, and March 31, 2005) domestic credit card loan receivables—balances outstanding—fell from $13.9 billion to $10.9 billion in the U.S. alone. Meanwhile, U.S.-managed loans—balances outstanding plus receivables that MBNA has securitized and sold—fell sharply from $80.2 billion to $74.8 billion, down 6.7 percent.