To Have or To Have Not

There were some interesting articles in the papers today, getting at the picture of life from different directions. In the piece "Downturn Drags More Consumers Into Bankruptcy" authors Tara Siegel Bernard and Jenny Anderson write that "The economy’s deep troubles are pushing a growing number of already struggling consumers into bankruptcy, often with far more debt than those who filed in previous downturns. Plummeting home values, dwindling incomes and the near disappearance of credit have proved a potent mixture. While all the usual reasons that distressed borrowers seek bankruptcy — job loss, medical bills, divorce — play significant roles, new economic forces are changing the calculus of who can ride out the tough times and who cannot. " There is also an interesting graphic..


The Washington Post had a "credit worthy" article titled "Less Power to Purchase- Consumers' Credit Card Limits Slashed as Companies Try to Reduce Risk." Author Nancy Trejos writes that "Lenders are taking a wide range of steps to mitigate their risk as unemployment rates tick up and the number of delinquent borrowers grows. Besides cutting credit limits, card companies are raising rates and fees, and suspending offers such as zero percent balance transfers. They are also making rewards programs less rewarding and shutting down inactive accounts, industry analysts and watchdogs said. The retrenchment, which follows years of lavishing Americans with offers and ever-increasing limits, is squeezing consumers at a time when they have already lost other avenues for borrowing, such as home equity lines of credit. " She goes on to add that "...Lenders are now increasingly considering factors beyond late or missed payments. Some are looking at geography and shopping behavior as well. If you live in an area with a high foreclosure rate or shop at stores that risky borrowers frequent, don't be surprised if your line is reduced or your rate goes up."Among other factors, we do look at mortgage information and geography where there has been a greater deterioration in home prices. Those are some other factors, but again, we're looking at the entire credit profile," Lisa Gonzales, manager of public affairs for American Express, said of credit line reductions." We have taken actions such as lowering credit limits, adjusting rates, tightening credit standards and closing inactive accounts, particularly in certain geographies and where we can use mortgage data to enhance our decision-making capabilities," said Jeanette Volpi, vice president of public affairs for Citi. Reducing credit lines, in particular, has wreaked havoc on many consumers by affecting their debt utilization ratio, which is the percentage of available credit they are using. A high debt utilization can lower a credit score, which then makes it tougher to get credit or at least get credit under favorable terms."

These pieces reflect the problems faced by many in the middle class who 'credit'ably tried to live the high-class lifestyle by bingeing on debt. Now, their lifestyles will be significantly downsized, with lingering effects for their children. A lowering of the "conspicuous" style of life is to be expected and should be healthy.
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On the other side of the card, NYT had an article titled "In Hard Times, No More Fancy Pants." that provided much food for thought. Here are some extracts- “There’s a shift to get away from glitz,” Ms. Kaufman said. “I’m almost starting to feel that luxury is a dirty word.” It is no secret that consumers are cutting back, anxious about jobs, plummeting home values and shrinking retirement savings. But that belt-tightening seems to have also prompted a reconsideration of what is acceptable consumerism even for those relatively unaffected by the economic cataclysm. When just about everyone is making do with less, sometimes much less, those $2,000 logo-laden handbags and Aspen vacations can seem in poor taste. “Luxe” is starting to look as out of fashion as square-toed shoes. As sales at high-end stores like Neiman Marcus plunged by nearly 30 percent in October, compared with a year earlier, Costco sales slipped just 1 percent and Wal-Mart reported gains. Henri Barguirdjian, the president of Graff, the diamond merchant, said on CNBC last week that the market for pieces from $20,000 to $100,000 had grown softer. Marine Products Corp., an Atlanta-based maker of yachts and pleasure boats, saw net sales decrease by nearly 40 percent in the quarter ending in September compared with a year earlier. “The era of conspicuous consumption, at least for the foreseeable future, has come to a close,” said Paco Underhill, the author of “Why We Buy,” which explores the science of retail. “Consumption will still happen. It’s just not going to be as public.” He cited a story from an Audi dealer: a buyer of an S4 high-performance sedan requested the nameplate be removed, “so only the person who really knew what they were looking at,” he said, “would know what it is.” Today, bejeweled fashionistas are pegged as tone-deaf Marie Antoinettes. “It’s not good taste in our business to walk into a party loaded with the biggest diamonds you can find,” said Bud Konheim, the chief executive of Nicole Miller. “You don’t brag about paying $10,000 for a dress for a party. The feeling now is, so what are you telling us? You’re either a sucker or showing off when people have lost jobs.” Conspicuous consumption has gone out of style before, in the recession that followed the 1980s stock market boom; and briefly after Sept. 11, 2001, until spending was recast as patriotic. But for a precedent for such a complete about-face in people’s attitudes toward luxury, you would have to look to the Great Depression... The economic collapse was also seen as a chance, after the 1920s bacchanalia, for moral cleansing. The industrialist Andrew W. Mellon said it would “purge the rottenness out of the system. People will work harder, live a more moral life.” Mr. Konheim of Nicole Miller, who was born in 1935, said he grew up in a mansion on Long Island with servants, but even for his family, waste was bad form. “We had three cars, and they were all Plymouths,” he said. “When the soap got down to slivers, what you did was squeeze soap together to make a soap bar — you didn’t throw it out.” Today, such thriftiness might make a comeback, said Alexandra Lebenthal, president of the wealth management firm Lebenthal and a contributing editor for the Web site New York Social Diary. It has become fashionable, she said, for socialites to talk enthusiastically about sample sales, eBay bargains and postponements at the hair salon in the interests of thrift. “It’s now chic to cut back,” she said. “If you ask people if they are going away for the holidays, they say, ‘No, we’re just spending a very quiet holiday with family’ — instead of ‘We’re going to Anguilla for Thanksgiving.’ ” Harry Slatkin, the founder of Slatkin & Co., a home fragrances company, said he and his wife, Laura, recently canceled a 50th birthday party for her at the Pool Room at the Four Seasons. Instead, they plan to have a party at home, with defrosted White Castle cheeseburgers served on silver trays. “It’s not time to have splashy birthday parties,” Mr. Slatkin said. “It’s a time to stay home, spend time with friends and connect.” Harrison Group, a market research firm in Waterbury, Conn., recently did a survey of attitudes toward wealth among people with household discretionary incomes above $100,000, in partnership with American Express Publishing. While 83 percent of respondents said they were in “good shape to endure this economic climate,” those who agreed that “a few luxuries are important in tough times” slipped to 50 percent, from 61 percent, from June to September. “The definition of living well is changing,” said Jim Taylor, a Harrison vice chairman. “There is a desire to not stand out. If you’re laying people off, you don’t want to buy a Ferrari.” Julien Tornare, the United States president of the Swiss luxury watchmaker Vacheron Constantin, predicted that his industry would move toward a period of “subtle luxury.” “I think people are going to go with more conservative, not ostentatious — something more discreet that only the connoisseur would know and appreciate, not the bling bling,” he said. The rich were not the only ones consuming conspicuously in recent years, said Marshal Cohen, chief industry analyst for NPD Group. The middle class, bingeing on cheap credit, also treated itself. Sub-Zero refrigerators, $300 jeans and Cadillac Escalades seemed within reach, even in average homes. “Those consumers were beneficiaries of false wealth, and they were living, literally, like millionaires,” Mr. Cohen said. Now as the middle class goes back to living like the middle class, Mr. Cohen said, the culture itself might feel more modest. Consumers may put a premium on comfort over flash....While fashion is always headed in three directions, consumers are turning away from disposable style — the overdesigned “it” handbag, for example — toward high-quality pieces that will endure over multiple seasons, said David Wolfe, creative director of the Doneger Group, which forecasts fashion and retail trends. The British company Mulberry has seen a shift toward its unadorned handbags, said Sarah Geary, its marketing director. Until a few months ago, consumer tastes were “focused on extravagance, irrespective of price,” she said in an e-mail message, but “in the coming months, the mood will be against that ‘blind consumption.’ ” Any new era of no-frills consumption, however, might last only as long as it takes for the Dow to recover, which could take months, years or decades. But Mr. Konheim recalled that after the Depression ended, conspicuous consumption was still vaguely sinful. When he was in high school in 1949, for instance, a girl at his school received a mink coat for her Sweet 16 party. “The whole town was in shock,” he said. “It was just a different atmosphere in the entire country.”

While the shrinking middle class is resizing its expectations, the well-to-do are, directionally, moving towards a less 'visibly conspicuous' lifestyle. While this does not necessarily equate to a lower standard of living, it does contribute towards that state.

What havoc does credit wreak....