Law Firms Freeze Salaries

The NY Times talks about salary freezes at law firms:

http://www.nytimes.com/2009/01/25/jobs/25lawyers.html?_r=1

I found the section on legal salaries illuminating:

According to the National Association for Law Placement, 16 percent of the class of 2007 law school graduates employed full time make $160,000 or more, while 38 percent make $55,000 or less.

If you do the math, 46% of new lawyers make between 55K and 160K. Assuming most mid-sized and small law firms pay around 70K starting, 84% of new lawyers probably make between 25K and 70K. If you're a law school student, remember those salary numbers when you're taking out loans and dining out. Cut back on expenses while in law school, and you'll have an easier time paying off debt if you don't land the big firm position or the big money position right away.

I managed to pay off my loans fairly soon after law school because I practiced self-denial religiously. For example, I ate PB&J almost every day in law school and for a year after law school. I also didn't go to Starbucks or Peet's more than once a month while in law school. Anyway, I haven't had a PB&J sandwich in a long time. Like the 99 cent Jack in the Box chicken sandwich I ate all the time while at UC Davis, it tastes like poverty--disgusting and dry. But these days, I go to Peet's and drop three bucks on coffee almost every day. It doesn't sound like much, but if I hadn't denied myself the good things in life while in law school, I'd still be eating PB&J and drinking fountain water for lunch and dinner.

Banking Consolidation

The Winter 2009 Edition of City Journal has an interesting banking statistic. From Nicole Gelinas' "Can the Feds Uncrunch Credit?" (pps. 22-23)

Because of last year's [2008] flurry of bank mergers, the nation's top four banks now hold 36.2 percent of deposits in the country, up from 24.8 percent in 2007, according to SNL Financial. We thus may be setting up the next bubble-fueled crisis as we speak--and this time, it may be too big to recover from.

I am not sure what the author means. Is she saying that if the top four banks go under, the nation's savings will be toast? Perhaps she is warning that if the top four banks continue to lend recklessly, they will create another bubble. Neither of those scenarios makes much sense to me. The top four banks won't go under--they will be federalized before that happens. Moreover, banks are so scared, if anything, they're not lending enough.

Bonus: in the same issue, on page 58, Roger Scruton does his best impression of Samuel Huntington and writes about how Islamic and Western ideas differ. The problem with such generalizations, of course, is that they're generalizations--and it's nonsensical to apply them to billions of people. Still, Mr. Scruton had one particularly interesting paragraph that made much sense:

By living in a spirit of forgiveness, we not only uphold the core value of citizenship but also find the path of social membership that we need. Happiness does not come from the pursuit of pleasure, nor is it guaranteed by freedom. It comes from sacrifice: that is the great message that all the memorable works of our culture convey.

Unfortunately, Mr. Scruton makes an almost unforgivable mistake when he assumes that only Christianity favors such sacrifice and forgiveness. The idea that any religion has a monopoly on forgiveness is propaganda, pure and simple. If the three dominant religions believe in one G-d, then forgiveness must flow from the same fountain. A clash of civilizations may indeed occur in some form, but it won't be because one particular religion favors forgiveness more than any other religion. By creating false dichotomies, Mr. Scruton helps catalyze a clash of civilizations that need not necessarily occur.

Thomas Frank's What's the Matter with Kansas?

I just finished Thomas Frank's book, What's the Matter with Kansas? Mr. Frank's enthusiasm for his state comes through loud and clear. I also enjoyed reading about how the Republican Party created a false, too-simple divide between "salt of the earth" red-state residents and "latte-drinking liberals." Still, I can't recommend the book, because I did not pick up any major insights. Also, some of the book comes across as elitist pablum. (More here.)

The entire gist of Mr. Frank's book can be summarized in one sentence: using moral polemics, especially abortion, the Republicans have extracted common sense from the people and caused them to vote against their own interests. Of course, Mr. Frank expands on his thesis, but I've just given you 99% of his literary enchilada.

Another point Mr. Frank makes is that political parties have succeeded in pulling the wool over voters' eyes by getting them to view preferences as most relevant to a person's true intentions:

They call them the liberal elite and they talk about their tastes and their preferences all the time. They run these TV commercials that say liberals are supposed to sip Chardonnay and eat fancy cheese and drink lattés—lattés are especially identified with liberals. And Volvos.

See this interview for more of Mr. Frank's ideas. After you read the interview, if you want to read more about the same ideas, check out Mr. Frank's book.

Bonus round: I didn't read all of it yet, but I already feel comfortable recommending Lowenstein's While America Aged. Below are two links relating to Mr. Lowenstein's book:

http://www.nytimes.com/2008/05/04/books/review/Madrick-t.html

http://fora.tv/2008/05/06/Roger_Lowenstein-While_America_Aged#chapter_01

National Geographic on Genetics

I always like learning about how our bodies work. I am particularly surprised at how similar our genetic makeup is compared to other species. From February 2009's National Geographic (page. 70):

The notion of genetic switches explains the humiliating surprise that human beings appear to have no special human genes. Over the past decade, as scientists compared the human genome with that of other creatures, it has emerged that we inherit not just the same number of genes as a mouse--fewer than 21,000--but in most cases the very same genes. Just as you don't need different words to write different books, so you don't need different genes to make new species: You can just change the order and pattern of their use.

Perhaps more scientists should have realized this sooner than they did. After all, bodies are not assembled, like machines in factories. They grow and develop, so evolution was always going to be about changing the process of growth rather than specifying the end product of that growth. In other words, a giraffe doesn't have special genes for a long neck. Its neck-growing genes are the same as a mouse's; they may just be switched on for a longer time, so the giraffe ends up with a longer neck.

Isn't that incredible? The analogy comparing "words and books" to "genes and species" made the concept much easier to understand.

Economic Protectionism

Another blogger has an interesting post on protectionism:

http://theendisalwaysnear.blogspot.com/2009/02/p-is-for.html

An excerpt:

P is also for patriotism, a bullet proof cloak that protectionists love to drape around themselves, especially in times of crisis. [Yet,] the free flow of goods and services around the globe can benefit the world.

CA Bonds Downgraded Again

S&P downgraded California's debt again:

http://online.wsj.com/article/SB123306751662819585.html

http://www.latimes.com/news/local/la-me-budget4-2009feb04,0,2705277.story

California's debt is now the lowest rated in the entire United States. What does this mean for investors? If you don't think California is going to default, you may be able to get good prices on California bonds. As a California resident, however, I am disgusted--and I even predicted this bond downgrade here (on December 19, 2007):

California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk.

I apparently live in a state where legislators can't agree that cutting spending is essential to achieving a balanced budget. My representatives must believe they don't have to exercise fiscal discipline. This stance is troubling when the recession guarantees that state tax receipts will be lower than previous years. Where's Mr. Smith when you need him?

Law Firms Not Immune to Recession

The WSJ had a great article on recessions and law firms:

http://online.wsj.com/article/SB123292954232713979.html

What really interests me is the assumptions these now-defunct law firms made. For example, why were they so confident that complex cases, like the Microsoft anti-trust matter, would continue indefinitely? Didn't they realize at some point, all those associates had to work on other cases to bill a sufficient number of hours?

It looks like the recession bankrupted law firms that were inefficient and that failed to diversify. What's the lesson? Whoever ignores the rule of "not putting all your eggs in one basket" does so at his own peril. In law and in stocks, it pays to diversify.