Tag Archives: Default

News

Another looming debt crisis: law school students racking up $100,000+ in debt

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Consider this scary article from the Competitive Enterprise Institute. (H/T Hans)

Excerpt: (links removed)

Federal financial aid policies haveencouraged law students to borrow increasing amounts to attend law school, despite the glut of lawyers (oddly, government policies encourage more people to go to law school, driving up law schooltuition, even as the Obama administration seeks to cut back on vocational education aimed at training the skilled blue-collar workers who are in desperately short supply in much of the country). The result, says law professor Brian Tamanaha, is a “Quickly Exploding Law Graduate Debt Disaster” in which most recent graduates of many law schools will never be able to pay off their staggering student loan debt. At the liberal Balkinization blog, Tamanaha notes that the average student has over $100,000 in debt just from law school at many schools…

[…]As one commenter noted earlier, federal financial aid and student loans have driven up law school tuition and student loan debt: “education loans . . . often have implicit government guarantees,” even those not explicitly backed by the government. As a result, “like the GSE’s, the supply of credit for education loans has continued to expand. So in a way colleges and universities, public and private have been in a bubble akin to the housing bubble. The benefits to the institutions are irresistible and so there is no way they will try to reign in costs and thus tuition. Not as long as students are willing and able to borrow.” When the bubble pops, taxpayers will be on the hook for countless billions of dollars (many graduates already are not repaying their student loans). “Why is college so expensive? A new study points to a disconcerting culprit: financial aid,” notes Paul Kix on page K1 of the March 25 Boston Globe. I and professors and education experts commented earlier on that study at Minding the Campus. Other studies also have concluded that increased federal financial aid, such as student loans, drives up college tuition, and you can find links to some of them here.

[…]When law school graduates are unable to pay off their student loans, lenders will come after their elderly parents who co-signed for the loans.  As the Washington Post notes, “Americans 60 and older still owe about $36 billion in student loans . . . Many have co-signed for loans with their children or grandchildren to help them afford ballooning tuition.”

According to the liberal New York Times, law schools do a woeful job of preparing students to practice law.

Excerpt:

The lesson today — the ins and outs of closing a deal — seems lifted from Corporate Lawyering 101.

“How do you get a merger done?” asks Scott B. Connolly, an attorney.

There is silence from three well-dressed people in their early 20s, sitting at a conference table in a downtown building here last month.

“What steps would you need to take to accomplish a merger?” Mr. Connolly prods.

After a pause, a participant gives it a shot: “You buy all the stock of one company. Is that what you need?”

“That’s a stock acquisition,” Mr. Connolly says. “The question is, when you close a merger, how does that deal get done?”

The answer — draft a certificate of merger and file it with the secretary of state — is part of a crash course in legal training. But the three people taking notes are not students. They are associates at a law firm called Drinker Biddle & Reath, hired to handle corporate transactions. And they have each spent three years and as much as $150,000 for a legal degree.

What they did not get, for all that time and money, was much practical training. Law schools have long emphasized the theoretical over the useful, with classes that are often overstuffed with antiquated distinctions, like the variety of property law in post-feudal England. Professors are rewarded for chin-stroking scholarship, like law review articles with titles like “A Future Foretold: Neo-Aristotelian Praise of Postmodern Legal Theory.”

So, for decades, clients have essentially underwritten the training of new lawyers, paying as much as $300 an hour for the time of associates learning on the job. But the downturn in the economy, and long-running efforts to rethink legal fees, have prompted more and more of those clients to send a simple message to law firms: Teach new hires on your own dime.

“The fundamental issue is that law schools are producing people who are not capable of being counselors,” says Jeffrey W. Carr, the general counsel of FMC Technologies, a Houston company that makes oil drilling equipment. “They are lawyers in the sense that they have law degrees, but they aren’t ready to be a provider of services.”

[…]Consider, for instance, Contracts, a first-year staple. It is one of many that originated in the Langdell era and endures today. In it, students will typically encounter such classics as Hadley v. Baxendale, an 1854 dispute about financial damages caused by the late delivery of a crankshaft to a British miller.

Here is what students will rarely encounter in Contracts: actual contracts, the sort that lawyers need to draft and file. Likewise, Criminal Procedure class is normally filled with case studies about common law crimes — like murder and theft — but hardly mentions plea bargaining, even though a vast majority of criminal cases are resolved by that method.

[…]“We should be teaching what is really going on in the legal system,” says Edward L. Rubin, a professor and former dean at the Vanderbilt Law School, “not what was going on in the 1870s, when much of the legal curriculum was put in place.”

Not only that, but the marketplace is saturated with lawyers already. When supply increases and demand decreases, prices fall. The new batch of lawyers are not going to be able to command the same salaries as the old batch.

News

Standard and Poor’s: there may be more downgrades

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From CNBC.

Excerpt:

Standard & Poor’s may downgrade the long-term credit rating of the U.S. once again in less than three months after sending shockwaves through the bond and stock markets by stripping the nation of its top notch triple-A rating last week, according to an emergency Sunday night conference call for clients of Bank of America Merrill Lynch.

“We do expect further downgrades,” said Ethan Harris, North American economist, on the call. “We doubt the newly appointed bipartisan commission will come up with a credible long-term deficit reduction plan. Hence by November or December we would not be surprised to see S&P downgrade the debt again from AA-plus to AA.”

Harris said that the U.S. should have avoided the downgrade in the first place by meeting S&P’s demands of a $4 trillion deficit cut and a “demonstrating a sensible budget process.” What they got instead was a “deficit cut of $2.1 trillion and a budget process that’s been extremely chaotic,” said Harris.

[…]”If a disorderly Treasury market leads to the Fed embarking on QE3, repercussions for the dollar will be catastrophic,” said David Woo, head of global rates and currencies research, on the call. “Investors will be quick to conclude that U.S. monetary policy has been subjugated by fiscal policy and the Fed’s independence would be placed seriously into question.”

In other news, Estonia has actually received a recent debt rating UPGRADE:

In the midst of a world embroiled in economic turmoil, a few nations have managed to do surprisingly well—among them, Estonia. After near economic collapse during the 2008–2009 financial crisis, the country has managed to successfully bounce backwith substantial GDP growth, a vibrant trade environment, and a notable budget surplus.

During the first quarter of this year, Estonia had the highest rate of growth in the EU and the biggest drop in unemployment. In July, its credit rating was raised by Fitch to A+, a reflection of substantial economic growth.

But how did Estonia get here? Estonia possesses a flexible, open economy and investment climate that encourages competition and economic growth. It remains one of the world’s freest economies, according to The Heritage Foundation’s Index of Economic Freedom. However, prudent fiscal policies have played the largest role in Estonia’s impressive economic performance, particularly in recent years. Still, the path to fiscal conservatism was not easy; it required a lot of rigorous, painful cutback involving 9 percent of GDP in fiscal adjustments and large cuts to nominal wages.

Notice that Estonia’s economic policies are tea party conservative policies, not socialist policies.

Meanwhile, the White House has yet to respond to our first credit downgrade.

News

Calls for Geithner resignation in wake of credit downgrade

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Obama Budget Deficit 2011
Obama Budget Deficit 2011

First, some details about the recent downgrade of America’s credit rating by Standard & Poor’s.

Excerpt:

Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.

Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.

[…]The downgrade to AA+ will push the global financial markets into uncharted territory after a volatile week fueled by concerns over a worsening debt crisis in Europe and a faltering economy in the United States.The AAA rating has made the U.S. Treasury bond one of the world’s safest investments — and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.

Treasury bonds have also been a stalwart of stability amid the economic upheaval of the past few years. The nation has had a AAA rating for 70 years.

Analysts say that, over time, the downgrade could push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans.

A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.

Jim Demint responds by calling for Tim Geithner’s resignation.

Excerpt:

Sen. Jim DeMint (R-S.C.) responded to the nation’s downgrade at the hands of Standard & Poor’s by calling for the resignation of Treasury Secretary Timothy Geithner.

Saying “enough is enough,” the Tea Party favorite pressured President Obama to remove his top economic official and adopt a new perspective.

“The President should demand that Secretary Geithner resign and immediately replace him with someone who will help Washington focus on balancing our budget and allowing the private sector to create jobs,” he said in a statement. “For months he opposed all efforts to reduce the debt in return for a debt ceiling increase. His opposition to serious spending and debt reforms has been reckless and now the American people will pay the price.”

After S&P put the nation’s rating on negative watch back in April, Geithner said there was “no risk” the US would be downgraded.

“No risk of that, no risk,” he said at the time in an interview with Fox Business Network.

Yes, there is no risk the same way that the 864 billion stimulus was supposed to keep unemployment below 8% – except that unemployment shot up over 10%.

I saw this status update from a friend on Facebook:

If you don’t understand the current financial crisis in our country, here’s a simplified explanation: “If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, & have $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand.” – Dave Ramsey

The Obama administration has had three one-and-a-half trillion dollar deficits in a row. That is nearly TEN TIMES the last Republican budget deficit in 2007. That was the last year that the Republicans held the House and Senate. The last year before Nancy Pelosi and Harry Reid came into power.