Wall Street Collapse: A Silver Lining for Lawyers?
Dominating today's news cycle is the Treasury Department's plan to reform the nation's system of financial regulation. For some thoughts on the proposal, check out what John Carney has to say over at our sibling site, Dealbreaker (in posts here and here).
This regulatory reform proposal comes at a grim time for Wall Street, characterized by some as "the worst financial crisis since the 1930s." It feels like we're at the end of an era. Wall Street profits are sinking fast, venerable investment banks look endangered, and financial-sector layoffs could claim 20,000 more jobs in the next two years, in New York City alone.
This is generally viewed as bad news for Biglaw, considering how much large law firms depend on the financial services industry for work. But could it perhaps be a boon for lawyers, if their standing in the city's financial pecking order falls at a slower rate than that of Wall Street Masters of the Universe?
A reader drew our attention to this interesting Sunday Times article:
The collapse of a major financial institution is usually an occasion for hand-wringing and tut-tutting over potential job losses, lower consumer spending and missed mortgage payments.In New York City, it’s also seen as an opportunity. For many of the city’s middle class, especially those in the creative class, who have felt sidelined as the city seemed to become a high-priced playground for Wall Street bankers, the implosion of the brokerage house Bear Stearns raises a tantalizing possibility: participation in an economy they have been largely shut out of.
Wonders our tipster:
"Some New Yorkers seem to be looking forward to the collapse of Wall Street and their huge salaries in the hopes that prices deflate a bit. Does this return lawyers to the top of the financial food chain? Or do those huge partner salaries take a dive along with Wall Street?"
For some law firms and lawyers -- e.g., those that are heavily dependent on securitization and structured finance work -- the Wall Street retrenchment is definitely unwelcome. But for others, especially those focused on countercyclical practice areas like bankruptcy, the bust could be a boom.
Take a look back at this post, in which one Biglaw partner described the plight of lawyers in New York as follows:
"Face it, [lawyers] have no status. We go to these [elite private] school functions [for our kids], and this well-heeled group looks right through you. They won't give you the time of day. You're just one step ahead of the doorman."
So could there be, for lawyers, a silver lining to this economic cloud? Will lawyers move up a notch or two in the Gotham caste system thanks to the recession? Or are they too closely linked to Wall Street and its sinking fortunes to benefit significantly from any social and economic realignment?
Dumping Our Regulatory Alphabet Soup [Dealbreaker]
Treasury's Brave New World Of Financial Innovation [Dealbreaker]
You Say Recession, I Say ‘Reservations!’ [New York Times]
Earlier: Pity the Poor Partners?
(72) Comments
And with increased financial regulation, shouldn't there be an increased demand for attorneys who can specialize in the new regulatory scheme?
maybe (maybe) prices might go down in the city. but the loss of 20,00 jobs and the collapse of the multi-trillion dollar world of finance is not good for anyone.
who the fuck cares how parents feel at dalton fund raisers? you're an adult, is that really where your self-esteem comes from?
This market collaps is just further proof that we need revert back to laisez faire economics. The overregulation of markets has led to failure time and time again. While we're at it, we also need to de-regulate the airlines, telecommunications, and utilities. Only then we will be able to fully enjoy the fruits of our capitalist labor. I know all you cry-baby liberal america-haters out there will find fault with this, but you want America to fail. I want America to WIN! You might as well be one of those freedom-hating terrorists as far as I'm concerned. I, on the other hand, am a true patriot.
You're nothing to me but a fucking dollar sign.
Any lawyers-turned-bankers who care to weigh in on this question? Anyone going back to the law?
3:08=Unsubtle Obama Troll
The article mentioned, the speculation generally, and the tipster's views are pretty dumb but typical in any market like this one. What we have here is little different functionally from what we had back in the late 90's with LTCM or in the late 1980's with computerized trading platforms. They are all examples of greed getting the better of those on Wall Street, leading to collapses of one kind or another. There is little "new" here. So we had some difficult to value assets that were run up way past their true value. Anyone remember something called the "tech bubble"? There too you had (in hindsight) ridiculously overpriced assets that then crashed, resulting in billions upon billions of "value" evaporating. You also had a near-term drop in Wall Street, including mass layoffs. You also had an impact on law firms in the way of reduced hiring or layoffs (particularly in those firms over-exposed to the inflated asset).
So what we have here is similar, yet different. The difference is that this time there was a bigger systemic risk because of the use of derivatives that traded in relationship to those inflated assets. New regulation put in place to get at these sorts of issues (where overly lax risk analysis on the part of banks is more easily punished or corrected by regulatory bodies) will not change the "game" in any meaningful way. This is why the big players are not yelling and screaming.
Unfortunately most lawyers (and many financial commentators) will once again be stuck in short-sighted "nowness". Nowness being an awareness of a current situation at the expense of putting that situation in its proper historical context. There is no chance that there will be any realignment in the pecking order on Wall Street or financial markets more generally. Much like the financial collapse in Asia in the late 90s did not result in a newfound focus and respect (re higher $$$) for lawyers relative to financiers. This is a function of risk taking, and so long as the financiers are the ones bearing more of the risk (even if not proportional to the gains), they will be the ones that reap more of the rewards.
But, of course, people now will continue to comment on this collapse as though it's something new and terrible, and will eat away at this or that. Have fun!
Nice one, 3:08. "laisez" faire econ created the Great Depression because the feds sat back and watched the runs on the banks. This _almost_ happened earlier this month. The collapse of BS would have royally fucked everything up. Luckily, big G was there to save the day.
Anyway, if there's an exodus of bankers, expect an exodus of lawyers to follow soon. Each banker that loses a job costs the city two other jobs, when you factor in lost tax revenue. With something like 20K fin jobs lost so far and maybe another 20K to go, the situation is a big shit sandwich and we're all going to have to take a bite.
3;14 - very true; it's as though we've never before had a recession.
Lawyers never had much respect to begin with. We'll never be more impressive than they guys who actually create wealth.
Our moola comes from the banks. If they go down, we go down. Not a pretty picture.
It's slightly different this time because so much more of the middle class has money tied up in Wall Street investments than during any other recession in history.
And Laissez Faire didn't trigger the Great Depression, protectionist meddling did. Ever heard of Smoot-Hawley?
Ok - I think I can clear this up:
Penn State is a state school and has a renowned football team that plays in the Ivy League athletic conference. It has a law school which was consistently ranked in the top 20 but has dropped to #77 as of this year.
University of Penn (State Philadelphia campus) is a private school, and its football team plays in the Big 10 athletic conference. It has a law school which was in the tier2 but has recently risen to the top 7.
What were the "financiers" really making in the boom times anyway? We're all familiar with Goldman's 600K-per-employee figure, but I heard that generally, VP's and above were making that kind of money and associates were making less. How much less? And what about at other banks? Considering how hard these guys work and how quickly they're laid off, I'd want at least 400k to do it.
who cares about pecking order, lets talk about whether or not the new regulations will equal a lot of new work for lawyers
I think the peon ibankers made about as much as us biglaw lawyers, except they didn't have anything above an UG degree. Maybe after their 4th year or so they started making more.
Ok - I think I can clear this up:
Penn State is a state school and has a renowned football team that plays in the Ivy League athletic conference. It has a law school which was consistently ranked in the top 20 but has dropped to #77 as of this year.
University of Penn (State Philadelphia campus) is a private school, and its football team plays in the Big 10 athletic conference. It has a law school which was in the tier2 but has recently risen to the top 7.
Yes, and don't forgett University of PENN State Philadelphia Campus (UPSPC) is the home of Wardhen, the nation's top vocational training program. I heard a lot of the big time finance guys that cauased this mess went there. Well, either there or ITT Tech.
hell, you are an idiot.
you are an idiot too 3:39
How will the poors afford to stay in PA housing without NYC getting a piece of the ibank action? Hit the bricks, kids!
Keep wishing. Housing prices in New York will never be affordable to biglaw lawyers. The only lawyers who are going to be able to afford a decent place are the big time plaintiff's lawyers. The time of lawyers being able to afford a respectable place passed long ago.
How many biglaw partners could even afford Paul Cravath's mansion? 22.5 million. You'd have to be pulling Herb Wachtell money to even make the downpayment.
"The time of lawyers being able to afford a respectable place passed long ago."
Yeah, in about 1997, when you were in what, 7th grade?
If they really shake up the regulators... we will have a whole career of figuring out what this crap means.
It will be a while 'til "many of the city’s middle class, especially those in the creative class" (read Williamsburg hipsters) improve their standing in the pecking order. As for lawyers, I wouldn't hold my breath either. Manhattan real estate is holding up pretty well and foreigners paid in Euros and Yen are propping up the luxury business. The NYT displays a typical misunderstanding of the interplay of economic forces.
first
From You Say Recession, I Say ‘Reservations!’ [New York Times]
"Robert H. Frank, an economics professor at Cornell, has written about the phenomenon of Americans who feel impoverished because of the towering wealth of those above them. In New York City, he said, those feelings are compounded by the sense that much of the wealth at the top is derived from financial instruments that merely move money around.
“It’s one thing if people are adding value to society,” Professor Frank said. “But there is skepticism that this is all a shell game and these guys are not adding value, at least to the extent that justifies their salaries.”
4:08 - the irony is that the type of people who are most vocal about added value by others are ivory tower types whose contributions to society include articles in the Journal of 16th Century Austrian Hermeneutics.
David,
How could you have let DB take the lead on generating comments on the Treasury plan and then just wrapped the news up in another been-there-done-that lawyers-v-bankers post?
For shame. You know you can and have done better than that, because this seems like new, newsworthy and legally substantive stuff. Could a reorg of the entire system of financial institution regulation have the same effect on the business of law and the law of business as Sarbox?
Or would it just be find-and-replace (e.g. INS to BICE) but no new substantive work?
Going into finance:
Above the law should start a discussion on exit opportunities for transactional attorneys. What I know is that going from M&A lawyer to M&A banker is regarded as a common path: it happened many times and IBanks are pretty open to that. You'll have to look for positions, do some networking and talk to a headhunters, but you can do it, specially if you have 2-3 years of experience (once the market recovers from this crisis, that is).
Other career changes (sales and trading, for instance) are more difficult, but still feasible if you are a transactional attorney. Tax lawyers also get offers for positions in structuring now and then. Goldman Sachs's CEO was a tax attorney at a middle-size law firm and made the move, and he's done pretty well. The former CEO of Citibank, Chuck Prince, was a former lawyer as well. I was told that Robert Rubin, former secretary and Goldman trader, was a lawyer with Cleary - not sure if that's true.
Another exit possibility: moving from a BigLaw firm to a legal position at a prestigious IBank, and then switching to the business side there.
If you are a litigator, it should be harder to make a move into finance or any other business position.
Anyone out there has any more information?
agree with 4:15
It's amazing how much crappier ATL is on a slow news day without Kash.
Kash is beautiful.
most biglaw partners have re-invented their practices several times over. they and the associates whose jobs depend on them will be ok.
The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market.
Lat, could delete the anti-Penn troll threads as they pop-up? They are for teh dumbs.
4:26: do you really make the rules? If so, how do you have time to post on an internet website like this and, more interestingly, why would you? If you make the rules, you should be partying in Rio right now.
Manhattan Home Market Slows as Wall Street Cuts Jobs (Update1)
By Sharon L. Lynch
March 31 (Bloomberg) -- New York City's residential real estate market is showing the first signs of fallout as U.S. banks and securities firms cut the most jobs in seven years.
Manhattan apartment sales fell in January and February from a year earlier and new properties came to the market at the fastest pace since at least 2000, according to data from New York-based real estate appraiser Miller Samuel Inc. Transactions slid 6.4 percent to 3,250, while the number of condominiums, co- operatives and townhouses for sale at the end of last month climbed to 6,225, 15 percent more than at the start of the year.
Declining sales indicate that the nation's most expensive urban property market may founder this year as Wall Street retrenches, said Miller Samuel President Jonathan Miller in an interview. Financial companies have taken at least $208 billion in asset and mortgage-related writedowns. They've cut 34,000 jobs in the past nine months with more to come from the takeover of Bear Stearns Cos.
http://www.bloomberg.com/apps/news?pid=20601103&sid=ahgWx1z6LFxE
Agree with CGSH Assoc (4:18). I think a lot of us on this site are looking to switch eventually, so maybe there should be some sort of open thread on making the move. If you'd like to share your wisdom with lowly first years who would like to do it, please do.
"He would eliminate the SEC, FDIC, CFTC, OTS and OCC. And after dumping out this bowl of alphabet soup, he would fill it right back up again with the Prudential Financial Regulatory Agency , the Conduct of Business Regulatory Agency, the Federal Insurance Guarantee Corporation and the Corporate Finance Regulator."
Boy, Bush is really desperate to make it into the history books for something other than being the worst Prez in history
what's good for the goose is good for the gander
I would love to see something like CGSH Assoc (4:18). Some of the stuff on abovethelaw is not worth it at all!
4:33 - please rent "Wall Street," bring it back to the rock you live under and watch it. Then come back and apologize for not realizing that 4:26 was quoting Gordon Gecko.
kthnxbi
4:33 -- it was a quote from Wall Street
4:33 you are an idiot...rent Wall Street sometime.
In response to the post above, first year ibankers (read, 1 yr after graduating with MBA) make a base salary of just under $100k with a bonus that can be up to around 2-3x salary. Total comp= up to $300-400k. Granted, that's info from the last few years when things have been very good.
As for the move from M&A law to ibanking, much tougher than implied above. Possible during booming markets, but from what I've heard, nearly impossible in down to average markets. And the added annoyance of having the ibankers look at you like a freak for having been a lawyer.
Those job loss figures don't include Bear, the enormous pending layoffs at ML and the constant hedge fund blowups from the deleveraging that is going on (most of those shell games don't make money at "normal" amounts of leverage).
Manhattan is going to take a beating. This isn't even halfway yet.
There have been several threads about making the move from transactions into finance. They're usually just filled with platitudes, though.
WRT hedge funds:
Cravath tax associates have gone into complex structuring at funds of funds.
(XM capital).
Also look up Farralon Asset Managment in San Fransisco; they have a few lawyers now on the business side, looks like they were standard corporate associates.
Peter Theil of Clarium Capital was a lawyer.
Watershed asset management was founded by a former Simpson Thacher associate, but she spent a couple years in banking before the hedge fund jump.
One practice area that seems to lead to good exit ops that is typically overlooked is bk/restructuring. It may be the case that you learn more about a business and its industry and delve more deeply into its capital structure as a restructuring partner than as an M&A lawyer.
Oaktree Capital was founded by restructuring lawyers.
So was Ramius Capital, which is now one of the 10 biggest funds.
James Srayregen left K&E to go to Goldman.
I also think Real estate leads to great exit options that are not frequently mentioned. The business is really all about contracts. Lawyers are much more integral than, say, in running a retailer. You negotiate the construction, negotiate the leases, negotiate the sale, repeat. Pretty law-intensive.
What a silly argument. I suppose if the finance folks fall on hard times, us lawyers will have more "standing" by comparison. The problem is we're also at greater risk of losing our own jobs if/when the economy tanks.
Unemployed people are lower on the pecking order than any profession.
Keep your status. I'll keep my job.
As a lawyer who elected to be a middle-class local-government wage slave, I think this whole recession thing is pretty funny. You can't lose what you never had...
Heck, even my IRAs and 401K are holding up pretty well, thanks to some judicious investments. I feel like I'm in the eye of a storm, relaxing in sunlight and calm waters, while all around me greedy douchebags are being tossed and turned and financially shipwrecked.
Enjoy the ride down, suckers. I know I will!
Thanks 5:36pm, that's very helpful. Anyone else there has anything to contribute?
5:09 -- wrong. ifcheck US News B School Rankings you will see that even with bonus, the average salary for HBS is only $135. not all of them are ibankers, but even so, there is no way the ibanker's salary/bonus is $400k/year
5:49
Despite your unnecessarily rude response...
I'm talking about first year ibankers at bulge bracket investment banks over the last few (read, good) years. Business schools place people in dozens of business-related professions -- ibanking, s&t, consulting, management, academia. And I'm speaking from the experience of seeing actual paychecks, not looking at the Harvard website.
5:49 - I would add to 5:58's post that, as much as US News says they are printing average "total compensation", they are probably not including year end bonuses. certainly not full year-end bonuses, maybe just the stubs from the first partial year.
In any case, I would imagine that even bulge bracket ibankers vary greatly in compensation within the same class year. nothing like the flat biglaw market.
5:49: The USNews data (which btw is garbage compared to the other more reputable magazines like FT/WSJ etc) does NOT include bonuses. It only includes guaranteed compensation (like signing bonuses etc). Year-end bonuses in a normal market are around 1 - 1.5x base, in a boom market they can be a bit higher. A few years out and those year-end bonuses become many multiples.
Is anyone else not buying the implication that NYC's "creative class" is part of the "middle class"?
What % of the creative class is people who can afford to bum around trying to make it as an artist or actor because their parents are rich? The few creative types I've met are definitely NOT what I consider to be middle class.
UPenn State= NYC's creative class.
GULC = NYC's upper class.
Deal with it.
Monday, March 31st 2008, 12:56 PM
JERUSALEM - Israel announced plans Monday for 1,400 new homes on land the Palestinians claim for a future state — just hours after U.S. Secretary of State Condoleezza Rice ended a peacekeeping mission to the region.
http://www.nydailynews.com/news/us_world/2008/03/31/2008-03-31_israel_announces_new_west_bank_construct.html
anyone know where i can get salary info for mgmt consultants with mbas from top 10 schools? i'm looking for the kind of info we find here on lawyers, but for consultants.
642- you can get that information for mbas from UPenn's website-- www.dls.psu.edu.
6:18--Creative class refers to architects, designers, computer programmers, engineers, etc. Basically all of those somewhat-creative service industries. Generally they are middle-class. Generally they are not artists and actors.
meh - stupid premise, stupid question. the collapse of bear will mean nothing but trouble for the corporate legal world for the most part, a decidedly different issue than whether a contracting of the banking world will mean that there will be less blue shirt-wearing d-bags prowling around. less of those folks, whose locale trajectory includes jumps from the UES to murray hill, and whose culinary trajectory includes jumps from all-you-can-drink sushi to some godforsaken bistro in meatpacking, will make nyc a happier place for just about everyone on a social level.
648 - thanks, isn't that penn state (not upenn)? significant difference in employment stats. i checked out the stats on sloan's site, but doesn't give full year's comp. it looks like mgmt consultants make about the same as biglaw associates.
7:06, i agree in principle but all-you-can-eat sushi is a good thing and meatpacking for all its flaws has some fun restaurants.
7:13pm: You are right, management consultants (McKinsey etc.) make salaries comparable to BigLaw.
Graduating from Business School does not guarantee a higher salary than a law firm associate's. It's those people with Ibanking, sales and trading jobs at top IBanks, private equity shops and hedge funds that make much more than attorneys.
Let's not lose perspective here. We make very good money, more than most business graduates. Also, let's not forget that most people in finance never make it big, but they are all but invisible: we only look at the winners, who are very few compared to all those who failed, even people with good background. In finance, unlike law, being good is not enough: you also have to be lucky.
7:22 - you have to read more closely. i was referring to all-you-can-DRINK sushi places, eateries of a considerably different stripe than all-you-can-eat sushi places.
7:25 - very true. Also, its about what you yourself can be good at. we can look at averages all day, but maybe the better way to pick a career is to pick the one where you can actually be one of the best (i.e. one that doesn't bore the shit out of you). very successful lawyers and very successful bankers all have millions, and at that point i dont really care of the bankers have more millions
The REALLY interesting legal angle to this story is not lawyers vs. bankers, it's new lawyers vs. old lawyers.
The complete overhaul of the regulatory system will create a vacuum of knowledge, and anyone who takes the time to follow this thing as it goes along will be very valuable in a few years' time. If your current job depends on knowing how to deal with SEC regs, then you'd better get started on reading all you can about how those regs are going to change (hint: learn about the CFTC). This is a task that will be easier for current law students than for practicing lawyers - if you write a journal article about it, then you might have the rare distinction of writing something useful to your career!!!
"How many biglaw partners could even afford Paul Cravath's mansion? 22.5 million."
3:47 -- I'm sure you were referring to the mansion's cost, but still, this reads very funny.
8:04, I hear an echo in here.
Current economic crisis, the one in the 90s, the one in the 80s...biglaw will pull through, so everyone needs to relax. We've already seen the firms that needed to make cuts, make the cuts. Others have issued blanket statements that they will NOT lay off associates. Business as usual; the market is just balancing itself out and will be fine in 18 months. Back to work, everyone.
8:04 - is there some reason you think that a lot of old lawyers are not going to be involved in drafting new regs?
Also, the fact that some orgs might get shuffled together does not necessarily mean that there will be important changes to the basic regs in each particular area.
No one has mentioned the "for the hell of it" 5-10% culls that happen every year in even good times at Ibanks. I can't imagine the screaming if a law firm started doing that.
Of course, when things get really bad, half the firm gets the ax.
Do you really think that the laws and rules don't change all the time anyway? That the '33 Act and the '34 Act are the same as they were back then? Or that they'll just scrap the whole thing and start over?
The change will be incremental at best (especially since the administration will be changing shortly) and phased in gradually - this IS the federal gov't we're talking about. Look at the cluster-f that is DHS and the TSA for an indication of how well they do restructurings such as the one proposed.