Recipe for Disaster: The Formula That Killed Wall Street, is the tale of the Gaussian copula function. The Gaussian copula function, which determines correlation between “disparate events,” allowed the CDO and credit default swap markets to believe that they correctly priced the risks in complex financial instruments. The “simple and elegant mathematical formula” was too simple and elegant for the real world, or perhaps the problem was that its simplicity beguiled the market into relying on it too much. But “[t]he relationship between two assets can never be captured by a single scalar quality.” It’s an informative and revealing article, well worth the time.
With Security at Risk, A Push to Patch the Web in today’s NY Times reminded me about OpenDNS, a free domain name system service. The article, which deals with a serious security flaw discovered in the operation of the domain name system earlier this year by Dan Kaminsky, an Internet security expert, notes that individuals and small businesses can protect themselves from the flaw by using OpenDNS. I configured my home network router for OpenDNS a few years ago and never thought about it again. The router failed six months ago and, reading this article this morning, I realized I never changed the default server settings on the new router to use OpenDNS. Making and implementing the changes took just a few minutes. The OpenDNS site provides simple instructions for configuring popular routers and changing DNS settings in Macs, PCs, and other devices. Take five minutes and do it.
The SMG website features an interesting 7-minute podcast from colleague Marshall Van Alstyne, Associate Professor Information Systems, on IP and Open v. Proprietary Systems. Among other things he advises “don’t make the classic lawyer’s mistake” and equate “maximum value with maximum protection,” which he illustrates with a discussion of the birth of Google mashups. In a world of digital technology openness can enhance value.
Lawyers too often care more about not being wrong than about being right. We are trained to protect clients by erecting fences and installing padlocks, and overcoming that training requires conscious effort. Last week I had dinner with a friend who is in-house counsel for the regional branch of a retail mall development company. He wants to convince his client to save tens of thousands of dollars in legal fees by abandoning the typical, paragraph-by-paragraph slash-and-burn lease negotiation and focusing only on the narrow range of business and legal terms that go to the heart of each deal. “Why spend thousands of dollars negotiating condemnation and casualty provisions? They almost never matter.” It’s the “almost” that causes the problem. The company’s general counsel, back at HQ, will never agree to Steve’s proposal, which flies in the face of every lawyering-by-numbers manual and would require the company to change it’s risk-assessment culture.
David Pogue’s weekly column in the NY Times linked to a PBS Frontline video segment (part of its Growing Up Online series) titled The Child Predator Fear. Unlike most news treatments the Frontline piece does not raise hysteria. It focuses on a New Jersey family in which the mom fears stalkers lurking on Facebook and her teenage children possess common sense of online dangers. A telling moment: the mom voices specific concern about the safety of her attractive teenage daughters while the camera pans their faces. In other words, in sounding the alarm about Internet predation she is exposing her daughters to view of anyone who sees the video on television or online. The video closes with experts concluding that teenagers engage in risker behaviors and face more danger from their offline activities.
I’ve posted before that prospective law students must honestly consider their prospects for success in law school because, unless they attend one of the very top-ranked schools, their job opportunities will be limited if they are not ranked at the top of their classes. The Wall Street Journal Law Blog recently interviewed “law school naysayer” Kirsten Wolf, a 32-year old BU law graduate. Wolf went to law school a few years out of college believing that she would obtain a marketable skill that would justify the cost of borrowing to pay tuition. In the fall of her second year, when she realized her B+ average was not good enough to land her a summer associate position with a large firm, she began to question her decision. Already $45,000 in debt she stayed, graduated in 2002, passed the Massachusetts bar, and found no law jobs waiting. She went back to the company she worked for before law school and then eventually moved to New York where she landed a job she enjoys, as an office manager for a literary agency. She is paying her $87,000 student loan debt over 30 years–which means she’ll still be paying for law school as she approaches her 60th birthday. In Wolf’s words:
I’m on a one-woman mission to talk people out of law school. Lots of people go to law school as a default. They don’t know what else to do, like I did. It seems like a good idea. People say a law degree will always be worth something even if you don’t practice. But they don’t consider what that debt is going to look like after law school. It affects my life in every way. And the jobs that you think are going to be there won’t necessarily be there at all. Most people I know that are practicing attorneys don’t make the kind of money they think lawyers make. They’re making $40,000 a year, not $160,000. Plus, you’re going to be struggling to do something you might not even enjoy. A few people have a calling to be a lawyer, but most don’t.
Legal Blog Watch Alert picked up Wolf’s story and also reported about a lawyer who auctioned his law school diploma on eBay. The post notes the lack of discussion on academic law blogs about whether to attend law school.
For years I have advised students that exceptional performance in law school is more important than where you go. Wolf’s story bears this out. She must have been a good student and gotten good LSAT scores–BU law would not have admitted her otherwise–but that doesn’t put you at the top of your class. Even at BU, which is always ranked as one of the top 25 or 30 law schools in the country, a B+, top-half of the class performance will not open the most lucrative doors. I’m seeing this again with a friend who is currently in her second year at BU. She is quite smart, works exceptionally hard, is one of the most personable and engaging people I know, and yet has been unable to crack into the Big Law summer associate track. And if you aren’t on that track after your second year of law school, your earnings horizon changes dramatically. Yet had Wolf gone to a lower-ranked school and finished at the top of her class–say in the top 10 or 15 places, or top 3.00%–odds are that she could have obtained a high-paying job. Finishing in the top 3% of one’s law school class does not happen without brains and lots of hard work. That’s why those at the top of their class will still merit a look from the most selective employers, because the employers know what it takes to get there.
I’ve always taken a laissez-faire approach with prospective law students. I’ll be honest about the risks and pitfalls of a legal career and then support the student’s decision to attend law school notwithstanding my warnings. I’m now rethinking my approach. Should I recommend a student who has not shown the academic ability to finish in the top five percent of his or her law school class?
A comment on my post Not Covered by LSAT Prep takes exception–quite respectful exception–to my statement that “If you can’t assess and accept the risks of spending three years and $150,000 to earn a law degree there is a simple and cheap two-word solution: Don’t Go.” The poster writes “such a statement may be easier to make in retrospect than prospectively. According to your bio, you graduated in 1981.” His point is that in the century since I graduated from law school the cost of legal education has risen faster than wages and inflation, and it is much more difficult to pay back student loans on a law graduate’s average salary now than it was then.
I’m sure that’s true. I see that reality in the pressures facing my oldest son, who is a 3L, and in students I’ve mentored over the years. A friend who graduated law school six years ago owed more in student loans for college and law school than the outstanding balance of my home mortgage. She is one of the fortunates who landed a BigLaw job at what was then the highest starting salary in Boston because she is smart, talented, incredibly hard-working, and proved herself while working as a law student.
The increasingly-skewed relationship between the cost and economic benefit of law school education only reinforces my point about doing due diligence. My mantra for the dozens of prospective law students I mentor each year is get life experience, investigate whether law is a good choice for you, and consider the enormous commitment of time and financial, psychological, and emotional resources law school requires. The profession is filled with unhappy lawyers. They can be unhappy because they don’t make enough money, or their practices are stultifying, or they are worn down from years of arguing, or they don’t like their clients, or they think they would be happier raising goats in Maine. The legal profession suffers disproportionately from alcohol abuse. Why would any sensible person enter this profession without assessing honestly how well it fits them?
And why would any sensible person enter law school without assessing honestly their chances of success? The Wall Street Journal article that prompted my prior post discusses the tiered nature of the legal profession. There are the few who finish at the top of their classes and garner BigLaw offers, but they are the exception. The income gap between the high and and low-paying poles is enormous. If financial necessity dictates that you start at $160,000/year when you graduate and your historic academic performance suggests that you won’t be among that top ten percent (or fewer) of the Type A personalities who will dominate your class, you need to ask “what am I doing?” You need to revisit your expectations. Note that I’m not saying don’t go–that admonition applies to those who don’t do the due diligence and make the risk/reward calculation. But don’t count on a payoff and define success on terms that are likely to be unattainable.
My stack of to-be-written law school recommendations makes this Wall Street Journal headline especially timely: Hard Case: Job Market Wanes for U.S. Lawyers (Amir Efrati, The Wall Street Journal, 24-Sep-07 Page A1 Subscription Required). The story in a nutshell:
[T]he majority of law-school graduates are suffering from a supply-and-demand imbalance that’s suppressing pay and job growth. The result: Graduates who don’t score at the top of their class are struggling to find well-paying jobs to make payments on law-school debts that can exceed $100,000. Some are taking temporary contract work, reviewing documents for as little as $20 an hour, without benefits.
The article cites an increase in the number of lawyers–43,833 J.D.s granted during the 2005-2006 academic year, compared to 37,909 granted 2001-2002–, slack demand, and decline in practice areas such as personal injury and medical malpractice. According to the IRS “the inflation-adjusted average income of sole practitioners has been flat since the mid-1980s.” The result is a huge gap between those law school graduates who snag Big Law jobs paying upwards of $160,000 year and everyone else. Graduates are squeezed to pay back law-school tuition loans; according to the ABA “[g]raduates in 2006 of public and private law schools had borrowed an average of $54,509 and $83,181, up 17% and 18.6%, respectively, from the amount borrowed by 2002 graduates.”
I can empathize with the disappointment these folks face but a law degree has never been a guaranteed ticket to fortune. The article notes that many of these folks “are blaming their law schools for failing to warn them about the dark side of the job market.” Please. A law school isn’t your mommy or daddy. If you can’t assess and accept the risks of spending three years and $150,000 to earn a law degree there is a simple and cheap two-word solution: Don’t Go.
If any of the prospective law students waiting on my recommendations are reconsidering their career choices, my door is always open. And for those of you taking the LSAT this Saturday–sorry for the timing. It’s not too late to decide to spend 9/29 at the beach.
I don’t know whether it is the result of a demographic trend or merely my anecdotal experience but I spend more time each year advising prospective law students. I would not like being an official Law School Advisor with responsibility for hundreds of students I knew only on paper, but I enjoy counseling students I’ve gotten to know through class. I don’t hide the fact that I’ve not practiced law for some time. My cachet is my
zig-zag erratic varied interesting career from Big Law associate to college professor, with stops along the way as general counsel, risk manager and workout specialist, and financial advisor. I’m a long way from law school so I keep up vicariously, through a number of former students and a son who is currently a 3L. Former students who enter law school are great for a while, until being a 1L catches up with them and they disappear. I’m always looking for new law school information channels, which is why I appreciate an email I received over the weekend. At the suggestion of Jesse R., frequent former student (he was on the “take ten courses and the eleventh is free!” plan, although he never finished punching the ticket) and regular reader, I’ve added two law-school related blogs to my Blogroll: Law School Blogger and Overheard in Law School (see links at right). I’m happy to add more, if anyone has other favorites.
U.S. military involvement in World War II began on December 7, 1941 and ended on August 14, 1945, a period of 1,347 days in which Allied forces defeated the Axis forces of Germany, Japan, and Italy. President Bush’s “war on terror” began on September 11, 2001 and continues today, 2,135 days later and counting. This war has cost hundreds of thousands of lives and somewhere between $400-$500 billion and has polarized this country in a way unmatched since the era of the Vietnam War. What has it accomplished? The prosaic title of the threat assessment prepared by the National Counterterrorism Center says it all: Al-Qaida Better Positioned to Strike the West. Al-Qaida is thriving in Pakistan and, despite the time, money, and human cost, it has improved its financial, training, and communication resources. Pakistan, remember, has received billions of dollars in U.S. aid. Not a great return on our investment. The billions spent on intelligence and security produced a “gut feeling” in Homeland Security Secretary Michael Chertoff’s bowels that the United States faces an increased risk of terrorist attack this summer. This threat assessment does not even address how our disastrous Iraq venture has catalyzed creation of vehement anti-U.S. security threats.
Bruce Schneier’s sensible observations on security are always worth reading. Sometimes his observations resonate more deeply, such as this commentary in Wired: Virginia Tech Lesson: Rare Risks Breed Irrational Responses. After the Virginia Tech shootings I wrote in Sense and Senselessness about the urge to “do something” after horrific events and how both pro- and anti-gun control advocates both seized these shootings to promote their respective agendas. Schneier makes the same points in a pithy and clear-eyed overview of this phenomenon, coining this formula: “Novelty plus dread equals overreaction.”