Pay With Two Credit Cards

Today I ordered an accessory from the Apple Computer website and noticed something I had not seen before. During the checkout process a “pay with two credit cards” button appeared. Curious, I clicked the button and discovered an option that allows customers to split the cost of their purchases across two credit cards with the flexibility to decide how much of the total to put on each one.

The splitting of online purchases may be more common than I am aware, but this is the first I had seen this option. Of course, Apple sells items that can cost several thousand dollars and, as a result, will often be out of reach for someone with a modest credit limit. Young college students purchasing a computer might not have enough juice in their accounts to handle the bill. But I suspect this payment option is also an indication of the kind of debt-juggling many consumers undertake on a daily basis. By offering the card-splitting option, Apple makes it possible for the buyer who is near the limit on several credit cards to cobble together enough credit to float the purchase of a new iPod or laptop. People who are living this close to their credit limits may represent a relatively small segment of the potential sales market, but from Apple’s point of view, allowing card-splitting is a very simple way to increase sales. Unfortunately, for the consumer who struggling to managing temptation and debt, this system removes one more natural barrier to indulgence.

PS Curiosity has its costs. After clicking the “pay with two cards“ button it took me several minutes to escape from that detour and pay for my item with a single card. Caveat emptor.

Free Markets, Banks, Personal Responsibility, & Self-control

In his column today, Paul Krugman makes the point that the housing bill passed last week and due for Presidential signature this week does not fix an important underlying problem. The bill provides a way for some homeowners to avoid foreclosure by refinancing their adjustable rate mortgages with smaller fixed rate loans, and it will provide additional support for the mortgage backers Fannie and Freddie Mac. But, in a piece called “Another Temporary Fix,” Krugman argues that future problems will not be avoided until and unless new banking regulations are introduced:

The back story to the current crisis is the way traditional banks — banks with federally insured deposits, which are limited in the risks they’re allowed to take and the amount of leverage they can take on — have been pushed aside by unregulated financial players. We were assured by the likes of Alan Greenspan that this was no problem: the market would enforce disciplined risk-taking, and anyway, taxpayer funds weren’t on the line.

And then reality struck.

From a psychological point of view, it is interesting to think about banking regulation and self-control. The pro-business free-market view places great stock in personal responsibility. We are all on our own, and those who fail fail because it is their own fault. In one sense, they are supposed to fail because they are responsible and no one else should have to take the blame. Certainly this is the conservative view of personal debt.

But sometimes personal failures have public effects. Call me a cynic, but I believe there would not be a housing bill but for the fact that the housing crisis affects us all. Everyone’s equity goes down when the real estate market collapses, and foreclosures at the rates we’ve seen are having a profound effect on the economy as a whole. In contrast, personal consumer debt and bankruptcy is a much more private phenomenon. We had over a million personal bankruptcies per year for many years, and yet all those individual tragedies were almost invisible. Now because, innocent people are being affected, politicians have the moral traction to get a bill passed. Of course, many the debtors who face bankruptcy are also innocent victims of a volatile economic environment, but that is another story.

Krugman’s column suggests that businesses, specifically banks, have failures of self-control, too. In a free market environment, failures of corporate responsibility are likely to occur, and regulations are justified to protect us all from the troubles these failures bring. Recently, new financial institutions have sprouted up outside the bounds of existing regulations, and it is, in fact, these institutions that have been source of many of our current woes. Rather than being quietly fixed by the wisdom of the marketplace, these failures have had powerful reverberations throughout the economy.

Problems of self-control abound, for individual consumers and for banks. The current crisis suggests that external controls can be very helpful for banks, just as they are for the rest of us. It is much easier to do the right thing if the environment pushes you in that direction. Where there are inadequate natural constraints in the marketplace, regulations can play a very valuable role, and recent events have reaffirmed the importance of banking regulation.

NY Times Debt Series

Tomorrow’s NY Times features a very good series on personal debt and, in particular, the changes in lending practices that have earned millions for the banking industry and socked consumers with enormous levels of debt. Some of the interesting bits include:

1. Average credit card interest rates have risen from 17.7 percent in 2005 to 19.1 percent last year.


2. Average late fees rose from $13 in 1994 to $35 today.


3. In the same period, the fee charged for exceeding your credit limit rose from $11 to $26.


4. In 1957, 42 percent of families had no debts; today 24 percent of families have no debts.


5. In 1957, 53 percent of homeowners had no mortgage debt; today 31 percent of homeowners have no mortgage debt.

The story includes the case history of a woman who lost her home and an interactive calculator for determining how your level of debt compares to the national average.

Gas & Housing Prices

In Going Broke and in this blog (see the July 7 post below) I have described the post-World War II expansion of suburban lifestyles and the popularization of single-use zoning and single-family homes that were many miles down the interstate from work. Sprawl made us dependent upon our cars to satisfy any need that was outside the house, but the wide use of automobiles also reduced the physical effort of traveling to the marketplace by providing us with moving chairs to sit on in climate-controlled environments. In addition, the popularization of drive-through windows meant that many purchases could be made without getting out of the car. The effects of these trends can be seen in our waistlines and bank balances.

Then came the gas crisis. Suddenly our car culture has become very expensive, and as this video from the urban development group CEOs for Cities shows, gas prices have affected housing costs in suburbia. For many years, houses far out from the city center were cheaper than houses close in. In most areas, that may still be true, but the high cost of gas is turning that equation on its head. The gas crisis did not cause the mortgage crisis, but growing transportation prices have undoubtedly worsened the mortgage crisis in some suburban areas.

How We Made Gas a Necessity

Gas prices continue to be the hot topic. Oil has hit $140 a barrel, and many people are projecting $200 a barrel prices by the end of 2008. As long as gasoline is considered a necessity—something we have no choice but to buy—demand will be relatively “inelastic” with respect to price. The drop off in demand will not be proportional to the increase in price because most people see no alternative to automobile transportation. As a result, we are going to be beaten down by any price increases that come along.

If gas is a necessity, we have ourselves to blame. The Interstate Highway act of 1956 made it possible to live far from work, and single use zoning created towns where housing was segregated from business and retail districts. Finally, FHA mortgage programs favored single-family dwellings over multiple-unit housing. The result was the great suburban expansion of the post-World War II era. Finally, for many years the automobile business was the leading industry in the US, and public transportation systems were discouraged. Today, few of us can walk from our homes to work or even the grocery store, and we are almost completely dependent upon internal combustion engines. Unfortunate, half a century later, both the cars and the fuel are likely to come from abroad, and we have no choice but to buy them.

In the long run, we will be much better off if we go back to a more European style of village- or town-focused life that makes better use of public transportation, as well as foot and bicycle travel. As higher gas prices hit in 2008, demand for gasoline dropped off the more in the UK than in other areas of Europe and the US. Why? Because the British have more alternative forms of transportation. An oil industry analyst quoted in a recent Daily Telegraph article put it this way:

They are switching to public transport, which is much easier to do in Britain than in America, where people living in the suburbs often have to drive whether or not they want to.

Consider also the use of bicycles in the UK. The photograph below is of the train station in Cambridge, England, where commuters deposit their bikes on their way to work in London or elsewhere.

Cambridge is a town of approximately 130,000 people 50 miles northeast of London, and it is thought to have the highest level of bicycle use in the country. According to the 2001 census, 25% of citizens said they used bicycles to get to work each day. With gas prices on the rise, one can only assume that figure has gone up. For Cambridge residence, gas-powered transportation is not a daily necessity.

When Americans have greater choice about whether or not to get into their cars, they will far less vulnerable to fluctuations in the price of a commodity we must by from foreign suppliers. But if we are to create more transportation choices, we will need to make substantial investments in infrastructure, reversing some of the transportation and housing trends of the last 50 years. The good news is that, with a sagging economy, this an excellent time to make those investments.