Credit Card Spending

I read with interest an article in the latest Wall Street Journal about the increase in credit lending by Target. At the end of the 4th quarter, the company had $8.62B in outstanding loans, which was 29% higher than a year earlier. Other credit lenders such as Discover, Chase, Citigroup, Capital One, etc were either down in lending or only up modestly. The fear is that Target is lending too much, which either may be risky for itself or its consumers. Target execs say that the specifically chose to increase their lending because they identified more borrowers that they felt comfortable lending to. The industry analysis of Target is mixed. Some analysts say that Target has a track record of well managed credit loans. Others point to financial ratios that seem to point towards worrisome trends for Target.

All of this got me to thinking about a point made in the essay, “A Boat for Thoreau” by William McDonough. In relation to the environment he made a point about Intergenerational Responsibility. Decisions made today should be made in the interests of the 7th generation beyond today. While he made this argument in regards to the environment, we could easily extend it to debt and borrowing.

With this in mind, what responsibility does Target have to its consumers, the overall economy, and its shareholders? Extending credit to people who may already be living on the edge, especially in this current mortgage crises / recessionary economy seems questionable. What about the overall economy? Target isn’t as large as Walmart, but extending too much credit, and posing as an example for other retailers could lead them down this path too. Next thing you know, everyone is extending credit to questionable consumers. Last, playing with your shareholders assets, by extending questionable loans seems foolish. You already know what happens when credit crunches occur: look at the current mortgage crises.

In summary, I do not fault Target for extending credit to its consumers. It may be foolish, but I do not think they are unethical for extending this credit. As a shareholder (and I am one) I do have some ethical problems with them playing recklessly with my money especially in light of the current economy and track record of mortgage defaults. What could they be thinking?!

Make no mistake; I have big ethical problems with our current political and economic culture of deficit spending (gov’t, mortgages, credit cards, etc). It saddles future generations with a debt burden that may be immense. That is definitely unethical. That said it’s our responsibilities as individuals to effect the necessary changes to address this problem. This includes electing individuals to represent these intergenerational responsibilities.

http://online.wsj.com/article/SB120519491886425757.html?mod=djem_jiewr_BE