415. No tomorrow

From the Stanford alumni magazine:

Shortly after she was named to head the Commodity Futures Trading Commission in 1996, Brooksley E. Born was invited to lunch by Federal Reserve chairman Alan Greenspan.

The influential Greenspan was an ardent proponent of unfettered markets. Born was a powerful Washington lawyer with a track record for activist causes. Over lunch, in his private dining room at the stately headquarters of the Fed in Washington, Greenspan probed their differences.

“Well, Brooksley, I guess you and I will never agree about fraud,” Born, in a recent interview, remembers Greenspan saying.

“What is there not to agree on?” Born says she replied.

“Well, you probably will always believe there should be laws against fraud, and I don’t think there is any need for a law against fraud,” she recalls. Greenspan, Born says, believed the market would take care of itself.

Greenspan denies he said that, and as proof cites his after-the-fact self-justifying book.  One fact remains, though: he fought (along with Robert Rubin and Lawrence Summers) against regulation of the derivatives market. 

Oh, and a second fact, too: unless Greenspan has grown comfortable with the idea that history will remember him as a buffoon servicing villains, his incentive for lying is approximately 100,000 times greater than Born's.

Of course, Greenspan was right, in one way: the market is taking care of itself, with a severe recession.  Why, in another half-century, 2008-10 will be just a distant memory.

Unfortunately, I think it's possible that Greenspan and most of the Wall Streetish brain trust of the Bush and Clinton administrations misunderstood the market involved. It wasn't a derivatives market.

Once Wall Street bonuses reached a certain astronomical level, they became a market.  Derivatives and other ways of packaging dog shit (sorry, I just couldn't resist showing off my mastery of Wall Street lingo) were methods for maximizing returns in the bonus market.

As soon as annual bonuses topped the $10 million mark - and they topped it by a lot -- the market incentives were clear: grab with both hands and you'll be set for life. 

The future of the company, and even of one's own career, was pretty meaningless compared to that.  After all, if you don't need more money, you don't need a Wall Street career.

So the Wall Street types naturally, rationally, behaved like there would be no tomorrow.  No going into the office tomorrow was the whole idea.

Second verse, same as the first?  Here's a story from another profession:

Candlewood [Timber Group] retained Debevoise & Plimpton after it brought the case. But about eight months later, with trial only two months away, Candlewood became unhappy with Debevoise's work and brought in Susman Godfrey to try the case, with Debevoise staying on in a secondary role.

Despite the secondary role,

"Over a 10-month pertrial and trial period--during which time D&P had the assistance of BM&F and later Susman--D&P managed to bill for more than 15,000 hours, the equivalent of 10 lawyers working full-time for the ten-month period," Candlewood's counterclaim alleges.

That's right, counterclaim.  Debevoise & Plimpton started the fight by suing Candlewood for $6 million in unpaid legal bills.  Six million dollars for second-chairing a trial on what, by big-firm standards, was a rocket docket.

Those excerpts are from the Am Law Litigation Daily.  Here's a little more, as one would expect, from Above the Law:

[Debevoise] assembled a team of between 87 and 119 time-billers (the bills are so obfuscatory that even the number of people who billed time cannot be determined with accuracy) and missed crucial aspects of the case.

It shouldn't be a surprise that a team of so many time-billers would miss crucial aspects of the case.  Each of the 87-119 couldn't hope to acquire even as much perspective as a blind man investigating an elephant.  They were so many blind ants crawling over the case files.

But then, why would any of the 87-119 want to acquire  perspective on the case?  What would be the point?  Each time-biller was competing in the firm's own internal market.  In good years (Candlewood's case went to trial in 2006) that was a market offering promotion, prestige and compensation galore.  The time-billers were racking up points toward their year-end bonuses. 

Take a look at Debevoise's would-be dignified response to the humiliation it brought upon itself.  There's something almost sublime about the way the press release sounds the two notes most characteristic of parasitical law: inflated self-regard combined with an utter lack of self-respect.  That seemingly-paradoxical combination of attributes is well-known to all legal practitioners, shovelers and shovelees alike. 

Still, it must be acknowledged that the combined fees of the 87-119 didn't even add up to an  investment banker's year-end bonus during those get-out-while-the-getting's-good years.  As economic parasites, lawyers are strictly minor league.

To circle back to Greenspan, fraud of one kind or another - not necessarily, or even primarily, the kind of fraud that our courts are prepared to recognize as tortious or criminal - isn't an irregularity in the smooth operation of markets.  It's the market operating smoothly.

The problem is that in the smoothly-operating market, the timber company becomes the timber.