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BUSINESS
sunday, may 30, 2010
CAR PAGES
A welcome warning
The 2011 Infiniti M37, with its blind-side alert, is a car that makes you happy to be alive.
Plus, ads for thousands of vehicles. Starting on the back page.
TECHNOLOGY
Fast Forward
With Ubuntu 10.04, Linux moves toward the mainstream, and at the right price. G4
The Big Money
Why is digital advertising so lousy? Another smug, fat-cat industry has failed to innovate. G4
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MARKETS
May ends with a setback
The pain of downgrade in Spain spins U.S. markets sideways at end of the week. G5
YTD: Dow
NASDAQ S&P 500
+2.8% +0.5% +2.3%
ILLUSTRATION BY VAL BOCHKOV FOR THE WASHINGTON POST
A handshake years ago created a credit card nation. The reckoning is upon us.
by Lisa Kassenaar
Bloomberg Markets Magazine
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illiam J. “Wild Bill” Jan- klow’s law office in Sioux Falls, S.D., is crowded with mementos from his 16 years as a Republican governor. On a low,
wooden bookcase, near bottles of hot sauce custom labeled for his annual Buf- falo Roundup, he keeps a four-foot length of red ribbon festooned with Citibank credit cards. Janklow is the politician who, in 1981, brought Citibank to South Dakota. When he cut that ribbon to welcome
the New York-based bank, he blew the lid off the U.S. credit card business.
Charging ahead
O
The law inviting Citibank to South Da-
kota threw out limits on how much inter- est the state’s banks could charge borrow- ers. In a secret meeting at the governor’s residence with Walter Wriston, chief ex- ecutive of Citicorp, Janklow agreed to drive through the legislation in a swap for 400 jobs. “That was the deal,” Janklow says. “You
have no idea, in a state of 750,000, how many 400 jobs is, all in one place.” The business Janklow and Wriston set in motion with a handshake that evening transformed U.S. consumer lending. A year after South Dakota lifted its rate caps, usury rules were relaxed in Dela- ware, where the credit card businesses of J.P. Morgan Chase and Bank of America
credit cards continued on G8 by Ylan Q. Mui
ne of the big questions of the Great Recession is whether American consumers have truly learned their lesson. For years, consumers spending beyond their
means pushed the nation’s economy into hyperdrive. Americans racked up record levels of debt, sending the savings rate into negative territory. And when the fi- nancial crisis hit, many found their per- sonal balance sheets in shambles. Recently, glimmers of a new, more fis- cally responsible consumer have emerged. The number of late payments on credit cards dropped to a six-month low in March, according to Fitch Ratings.
New or handed down, IRS wants a cut
Think of eBay or Craigslist as a virtual garage sale? The tax man might just stop by.
by Tom Herman
Fiscal Times
Many people think of online auction sites, such as eBay and Craigslist, as vir- tual garage sales — a convenient way to clean out cluttered closets and attics stuffed with old clothes, books and knick- knacks inherited from Aunt Gladys. But if you’re a frequent or big-time sell-
er, the government might consider your proceeds to be income and could come after you for taxes. Andrea Fabiana Orellana learned that lesson the hard way. The Internal Rev- enue Service claimed Orellana hadn’t re- ported more than $41,000 of income from about 1,800 eBay sales of designer clothes, shoes and other items during
BIGSTOCKPHOTO.COM
2004 and 2005 and said she owed nearly $15,000 in taxes and penalties. Orellana ap- pealed to the U.S. Tax Court and lost. The court said she didn’t provide adequate documentation of her costs and expenses to offset the in- come.
Orellana said she didn’t consider her- self to be in “business” and thus didn’t think she had to keep records, according to the court decision last month. She said
Herman works for the Fiscal Times, an independent news organization that specializes in fiscal and economic matters. It is funded by Peter G. Peterson, who separately sup- ports groups that advocate for long-term debt reduction.
she originally bought the auctioned items herself or received them as gifts. “Unless there was some really bizarre reason why I kept a receipt, there were no receipts,” Orellana testified. Special trial Judge John F. Dean noted she was working for the IRS at the time.
IRS continued on G4
over their walkers, making their way slowly along the hallways. “Let’s give our kids everything they want anytime they ask so they won’t put us in a place like this,” I whispered to my husband. I was joking, of course. I had to lighten the mood. We are scouting places for my father-in-law. It was our first tour of an assisted-living facility, and this one was nice and homey, as were all the ones we visited. A month ago, my 81-year-old
T
father-in-law came to live with us while he recuperated from surgery. We now face a question that millions of adults are facing: What do you do with elderly parents or relatives who can no longer fully take care of themselves? Thus began a journey that has caused me so much stress that I woke up one morning with a painful neck strain that lasted two days. We are exploring various options, including having my father-in-law continue living in our home, returning
The personal savings rate has recovered to 3.6 percent, after falling for two months. American Express says more customers are making more than the minimum payment and paying off debt faster. The nation’s outstanding credit card debt has fallen by about $100 bil- lion over the past year. “We are seeing loan balances shrink
. . . and this is consistent with the indus- try trend,” American Express Chief Fi- nancial Officer Daniel Henry told in- vestors. Yet some analysts say the picture is not
so rosy. Card issuers have booted mil- lions of the worst offenders off their books, which also reduces the amount of outstanding credit. During the first quar- ter, the rate of charge-offs hit another record high. Instead of consumers clean-
he residents at the assisted-living facility looked so frail, many sitting in wheelchairs or hunched
Even as glimmers of a more responsible consumer emerge, banks dumping their worst customers could skew the picture
ing up, they argue, card issuers are sim- ply clearing out the trouble spots. In ad- dition, the stubbornly high unemploy- ment rate and small gains in incomes will probably make it difficult for con- sumers to keep digging themselves out of debt.
“If we’ve learned anything from the credit nightmare,” said John Ulzheimer, president of consumer education for
Credit.com, “it’s that we were partially responsible for it ourselves.” It’s clear that at least some consumers
have taken the lessons of the crisis to heart. The plunge in home prices and the stock markets over the past two years — an estimated $15 trillion in lost wealth —
plastic continued on G8
When aging parents need a new home with extra help
MICHELLE SINGLETARY
The Color of Money
him to his own home and hiring a home health-care aide to provide daily care, or having him moved into an assisted-living facility. Since I first wrote about this new turn
in my life, I’ve received dozens of e-mails from people with great advice and comforting words. There is so much to say about the issue of elder long-term care, more than I can address in any one column. For example, many people — including a number of insurance agents —wanted me to talk about long-term-care insurance. I’ll do that in a future column, but it’s too expensive to buy now for someone my
color continued on G2
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