Too bad it's not as simple as making a sign.

Yesterday the stock market experienced its biggest drop since 2008. In the wake of the Standard & Poor’s downgrade of U.S. debt on Friday night, the Dow Jones industrial average fell by 5.6 percent and the S&P 500 fell by 6.7 percent. Global markets suffered similarly.

The market decline on Monday was only the latest in a series of slides. As noted yesterday by the New York Times, “[t]he S.& P. 500 is now down 18 percent from its April 29 peak and is nearing official bear market territory, defined as a fall of 20 percent.”

(All in all, it’s pretty depressing stuff. As I tweeted yesterday, “@DavidLat isn’t looking at his #stockmarket holdings today; instead, he’s buying more #Powerball tickets – huge jackpot!”)

What’s frightening about the latest economic turmoil is that it comes on the heels of a brutal recession that the U.S. economy has not yet fully recovered from. In the wake of the aptly named Great Recession, unemployment still exceeds 9 percent, housing markets remain weak, and government policymakers have exhausted many of the tools at their disposal for attempting to revive the economy. Interest rates are basically as low as they can go at this point; fiscal stimulus is a political no-go. What is to be done?

The steep stock market declines raise a question: Are we entering another recession — i.e., the second dip of a double-dip recession? If so, what does that mean for law firms and lawyers? (We’ve already noted the implications for the IPO market — and the lawyers who work in it.)

Let’s discuss, and take a READER POLL….

Here’s what one reader wonders:

Perhaps yesterday was the beginning of the double dip? What could this mean for law firms?

Well, law firms again are heading to campus, optimistic about 2L hiring. Perhaps they shouldn’t be?

If the market tumbles down to 8000-8500 land, deal flow stops. Period. In concrete.

Four months of lateral hiring stops. Period.

The law firms might catch it earlier than they did in 2008 — but now when they turn to firing associates and partners, they have fewer tricks in their hats than they did three years ago.

This analysis seems quite right, sadly. Between May 2009 and May 2010, the legal sector as a whole lost some 22,000 jobs. Over the course of the Great Recession, large law firms — i.e., NLJ 250 firms — shed about 10,000 lawyers. There has been some hiring since the (first) recession (technically) ended, back in June 2009, but certainly not enough to offset all the jobs lost to layoffs. In short, “Biglaw” is a lot less big than it used to be.

So what can law firms do if and when we enter the second dip of a double-dip recession? They’ve already “right-sized” themselves, optimizing the ratio of lawyers to support staff. They’ve already laid off “underperforming” associates, and they’ve already fired or “de-equitized” marginal partners. What kind of cuts can they make this time around, without hitting bone?

Readers, what do you think about the future of the economy and how it might affect the business of law? Please take our poll and share your views, in the comments.

UPDATE (11 AM): If you don’t want to vote but do want to see the results, click over to Vizu.

Stocks Suffer Sharpest Drop Since 2008 [New York Times]
A Wave of Worry Threatens to Build on Itself [New York Times]
Stock Market Plunge Casts Shadow on IPO Pipeline [The Recorder]


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