Legal Profession Blog

Lend to Family...Really?: A Critique of Some Weird Financial Advice and an Aristotelian Lesson

Posted by Jeff Lipshaw

Somebody had ripped my gym's Time, the one with Glenn Beck on the cover, to shreds, so I was reduced to reading the October 2009 edition of Money or this month's edition of Club Management.  I went with the Money, and read an article (pp. 25-27) that made me wonder what kind of financial planners and economists they are hiring over there.  Also, since I've been giving financial advice in the blogosphere anyway, why stop now?

The article says that lending to relatives could be a sweet deal.  Son can only get a 9% interest on a $100,000 home equity loan (for you finance rookies, that's one secured by a second mortgage on your house).  Dad has some money just sitting there earning 1% or 2% in a money market account or savings account.  So he lends $100,000 to Son at 6% and everybody is happy.

Wait a minute.  Now, in fairness, the author lists several cautions, but misses the most important ones.  I often criticize welfare economics consequentialism that goes to one extreme in assuming that every perception or value or duty held by an individual is ultimately a matter of utility (read some of the early Posner on rational actor sex and love), even if the measure is somewhat difficult.  That is, in that view, people don't engage in charity out of altruism; they do it because they get some kind of material, psychic, or other benefit from it.  This odd financial advice from Money (of all people!) goes to the other extreme, and fails to put ANY cost into the equation for the effect of love, harmony, conflict avoidance, divorce, mental anguish, public embarrassment, or the like when you lend a lot of money to a relative, and it's not getting paid back.

For example, nowhere does it discuss getting security for the loan.  The bank was willing to lend at 9% AND TOSS SONNY OUT OF HIS HOUSE IF HE DIDN'T REPAY!  Dad is lending at 6% on an unsecured basis?  Or even if he takes a second mortgage, is he really going to foreclose and evict his grandkids?  And we haven't done anything yet to put a cost on the tension you can cut with a ham carving knife (unless it's Honey Baked Spiral Sliced) at Christmas or the matzoh kugel ladle at Passover when Son and the spouse and kids went to Disneyworld the week before and said, "oh, we'll pay you at the end of the summer."

The point is that there are costs that are hard to measure, and so Dad's real cost here isn't $100,000 and his real return isn't 6%.  It's something a lot more than $100,000, and that reduces his effective yield on the money substantially.  It's NOT a sweet economic deal for Dad unless none of that peace, love, and family harmony stuff means anything to him.  I say this as a child who borrowed from parents, and as a parent who stands prepared to help out his children:  if you think of that loan as anything other than a contingent gift, you are smoking the drapes.

You know what?  I don't think the truth about whether those intangible can be reduced to money lies at either extreme - it's probably somewhere in the middle.  Aristotle* would be proud of me, I think.

* That's Larry Solum's Aristotle, not Larry Solum.

Lipshaw on Leiter on Religion, and a Little More

Posted by Jeff Lipshaw

I suppose it's appropriate to conclude the Ten Days of Awe of the Jewish calendar by tying up, on the eve of Yom Kippur, a loose end I started to unravel when I was sitting here at my computer instead of participating in ritual observance on Rosh Hashanah.  As I noted, "what I find difficult about religious ritual, which is the reification of the sense of awe, wonder, and mystery of life, being, and consciousness into a set of rules.  (Hence, my appreciation instead for the music.)  That's the tension I described three years ago, between kevah - fixed prayer - and kavanah - inspiration."  I have a lot of regard for what Martha Nussbaum described as the source of the religious (and all conscience-related) impulse:  "the faculty in human beings in which they search for life's ultimate meaning."  I'm just not crazy about what my fellow humans generally do to act on that impulse.  (I also have the same kind of naive idealism about academia as a place of pure exchange of ideas, with much the same result.  But that's not new.  I had a kind of naive idealism about fiduciary obligations when I was a corporate officer and general counsel.  My conclusion is nobody is more or less insulated from human nature in the actual practice of religion, scholarship, or business.)

Some time over the last ten days, I came across Brian Leiter's published essay on the constitutional tolerance of religion by way of his more recent draft on whether religion is even entitled to moral respect.  (I agree with him that, as a matter of law, the appropriate standard is tolerance.  I also agreed not to quote or cite the draft, other than this minimal reference to its context, and with the clear indication it is a draft.  It is available publicly available on SSRN, albeit with the "don't quote or cite" request.)  The arguments depend on his already completed conceptual construct of religion with which I take issue, and I've posted an essay to that effect on SSRN.  The title is Can There Be a Religion of Reasons?  A Response to Leiter's Circular Conception of Religion, and this is the abstract:

This is a comment on a definition of religion recently proffered by Brian Leiter in support of different conclusions we ought to draw with respect to religion. His analysis is ultimately circular: the problem with religion is that it is not science. Exposing the circularity requires identifying the trick, which is that he employs an appeal to common sense to distinguish religion and science. Nevertheless, the very belief in common sense is the same as the religion Leiter attacks: it is categorical and insulated from further reasons. My argument in response has three major themes. (1) The argument based on receptiveness to reasons and evidence itself arbitrarily picks and chooses reasons and evidence. (2) It is possible to posit a religion whose categorical demands on action and requirements of foundational bedrock are minimal. (3) Religion uses reason (in the sense of concepts apart from evidence) to grapple with the source of our bedrock beliefs. It differs from other such grappling only in degree and not kind of thought; once we accept the role of concept (or reason) in such work, religious or secular, we necessarily must accord bedrock status (or categoricity) to at least one concept. Finally, I suggest that adoption of Leiter's definition has a troubling implication as to our respect for personhood.

By the way, if you are curious what to say to a Jewish person on Yom Kippur, since "happy Yom Kippur" is something of a contradiction, say "g'mar tov" which is short for the full Hebrew phrase that means "may you be sealed well." The mythology is that we are inscribed in the Book of Life for the coming year on Rosh Hashanah, and the inscription is sealed on Yom Kippur.  The actual prayer is called the Unetaneh Tokef, and it is the inspiration of Leonard Cohen's (above left) "Who By Fire."  Consistent with the kind of grappling with which I credit the religious impulse in the essay, I interpret this as "Recognize there is a distinction between what is and what ought to be, and we can't always make them match.  Let's do the best we can even when the world throws obstacles in our way."

G'mar Tov.  (UPDATE:  A good friend reminds me that a less highfalutin' greeting or wish is "fast fast" or "easy fast."  Since that rarely applies to me, I forgot!)

Liturgy, Heresy, and Rawls: A Yom Kippur Meditation

Posted by Jeff Lipshaw (practicing without a license).

I'm not in synagogue.  I have come to the point in my life where I pick and choose my spots.   Last night, the Touro Synagogue in New Orleans had a substantial attendance for the Kol Nidre services, and the voice of Cantor Seth Warner was appropriately spectacular.  I attend at least one service each High Holy Day if for no other reason than to hear my favorite piece of liturgical music, the Max Janowski setting of Avinu Malkeinu.  (This is the long version - beginning with "Avinu Malkeinu, sh'ma koleinu," available on CD with Jan Peerce doing the honors, and is not to be confused with my second favorite piece of liturgical music, the setting of the last piece of the prayer "Avinu Malkeinu, khaneinu v'neinu," a lovely version of which is available on the Western Winds recording of The Birthday of the World, Part II:  Yom Kippur, narrated, in goosebump-raising manner, by Leonard Nimoy.)  When I bought the Jan Peerce CD several years ago, I was astounded to learn that the Max Janowski piece was written in the 20th century, by the man who served as the music director of K.A.M. Isaiah  Israel Congregation of Hyde Park, Illinois from 1938 until his death in 1991.  Yet it is, at least in all the synagogues and temples I've attended, a cantorial canon, notwithstanding its relatively recent composition.

This is a public confession (if I were really clever I would do it as an acrostic in the style of the ashamnu prayer) of a life-long discomfort with the concept of worship.  As is obvious to anyone who has slogged his or her way through one of my pieces (in the words of Scott Turow in One L on the subject of reading cases, it's like stirring concrete with one's eyelashes), I can find elements of Kabbalistic mysticism everywhere, including contract law.  But the ultimate conception of God in the Kabbalah is actually a recognition that the minute God is reduced to a human conception, it can't be God.  The best language can do is the Hebrew Ein Sof -- there is no end.  Getting in touch with that sense is called kavanah.  The great Jewish scholar and philosopher Abraham Joshua Heschel wrote a lovely book called Man's Quest for God, in which he tries to reconcile the goal of kavanah with the far less inspiring aspect of worship known as kevah, or fixed prayer.  (Though kavanah and kevah are polarities, if you just wait for kavanah, instead of working at it in kevah, you probably won't get kavanah either.)  I can hit my moments of kavanah, but not in the talking section of the sanctuary (more common in Conservative and Orthodox services), and certainly not with the male-centered anthropomorphic reductions of Ein Sof that constitute the liturgy.  But if I don't think Adonai ("My Lord") for the unspeakable tetragrammaton name of God, and consider the unreducible emanations of mystery in the world (like the emotional zenith provoked by Max Janowski's juxtaposition of notes and chords), I can at least get a sense of it.

More of this random mumbling below the fold.

I'm lucky in that Judaism is a religion largely of ritual, practice, custom, and law, and not one of theological dogma.  Indeed, I think one of the reasons Jews often take to Buddhism or the Tao as a source of spiritual insight is their similar absence of intermediary or interpreter between the individual and God.  That's not to say we don't have our sectarian squabbles.  You say tomato; I say tomahto. Kippah or no kippah, organ or no organ, etc.  Does God as Ein Sof care if we eat shrimp?  (I am indebted to Rabbi Dennis Sasso for that line.)  Or, if so, does it rank on the same magnitude, say, as honoring your father and mother?

My interim conclusion is a mix of Rabbi Abraham Kook, a great Kabbalist, and the chief rabbi of Palestine in the mid-20th century, and John Rawls.  Kook wrote an essay entitled "Spiritual Heresy" in which he compared the attempt to put human definition to God to idolatry.

From learning and knowing too little, the mind becomes desolate, which leads to much thinking about the essence of God.  The deeper one sinks into the stupidity of this mental insolence, the more one imagines that one is approaching the sublime knowledge of God. . . .  When this habit persists over many generations, numerous false notions are woven, leading to tragic consequences. . . .  The greatest impediment to the human spirit results from the fact that the conception of God is fixed in a particular form, due to childish habit and imagination.  This is a spark of the defect of idolatry, of which we must always beware.

Daniel C. Matt, The Essential Kabbalah (1996), at 32.  I now test essential belief against a kind of Rawlsian "veil of ignorance": would you accept a teaching not knowing if it is derived from your religion or someone else's?

My thesis is that this distills and distinguishes universalisms from particularisms.  As long as one recognizes that all human invented constructs are an approximation or an approach to a end that would be universal, regardless of the road taken, I'm fine with it.  I think that's the approach most enlightened religionists take, even when they are comforted by the particular rituals of the particular religion. Religious communities, at their best, provide shared, safe, and peaceful environments for the mutual contemplation of universals, and are bound together by rituals and ceremonies and history, all of which are human constructs. When the human construct trumps the divine, that to me is the essence of idolatry.  Even, to take Judaism, when the method by which you pray trumps the end of prayer, it seems to me we have constructed an idol, albeit in the form of a particular ritual or incantation. So the appropriate attitude is humility in the face of the mystery that lies at the end of all inquiry of any kind, philosophical, religious, or scientific.

Double Entendre Headlines

I'm blogging up a storm here, and the fact that the first hurricane since we moved to Boston is on the way, I can blog about a storm.  There are rip tide warnings out for the Cape Cod, Martha's Vineyard, and Nantucket beaches.  Plus there are stories in the paper here about New England as presidential summer hangout (the Obamas are on their way to the Vineyard, and the Clintons were there earlier this summer).

But first, a digression.  A number of years ago, our daughter had a boyfriend named Max, who was an aspiring theatrical director in New York.  We also have a dog named Max who isn't always well-behaved.  One day, my wife called me at work and said "Max got into the New York Times."  I said, "Is that about Max the human and a good thing, or about Max the dog and a bad thing?"

Given the first paragraph, I had a similar reaction to a hypothetical headline "Bill Spares Martha's Vineyard," (the actual one this morning was "Bill Spares Bermuda").  I leave you, dear reader, to figure out the double entendre.  [Jeff Lipshaw]

Thinking About the Financial Crisis - It's Scary When We Don't Know What We Don't Know

Posted by Jeff Lipshaw

At the end of April, I attended a fascinating day-long symposium organized by fellow blogger Dave Hoffman and two of his colleagues at Temple, Jonathan Lipson and Peter Huang, on issues of complexity arising in the current financial crisis. One of the questions that kept occurring to me was the context of the complexity issue - what exactly were we trying to fix, if anything?  My analogy was this:  if law is a "science," and something about the financial crisis (whether complexity or something else) reflects a disease, then what is the relationship between what we know about the disease and the regulatory medicine we would want to prescribe?  I liken financial boom-and-bust to bipolar disorder - is there a regulatory equivalent of lithium that we are assured will tamp down the peaks and valleys?  And even if there is, do we want to prescribe it?  Maybe we like the booms enough to bear the busts!  There's a good chance Tchaikovsky and Van Gogh were bipolar - would we have their art if they had been medicated?

Anyway, when I get to thinking, I usually get to writing (particularly when ensconsed in our Michigan house). This seemed like grist for the mill on one piece of a longer work on the difficulties in forward-looking judgment, namely, the difference between looking backward and assessing causation as a matter of attributing blame, and understanding what is going on as a descriptive matter sufficient to make a good forward-looking decision in real time under conditions of significant uncertainty.  The result is The Epistemology of the Financial Crisis:  Complexity, Causation, Law, and Judgment, which I've just posted on SSRN.  (I apologize for the use of the word "epistemology" but I like it.)  Here is the abstract:

The focus on complexity as a problem of the financial meltdown of 2008-09 suggests that crisis is in part epistemological: we now know enough about financial and economic systems to be threatened by their complexity, but not enough to relieve our fears and anxieties about them. What marks the current crisis is anxiety that the financial world has evolved to the point that there are hidden structures, like concentrated "too big to fail" institutions and mechanisms, or like credit default swaps, that have widespread and adverse downsides. I propose an analogy between medicine and law in the sense of "regulatory technology." If bubbles are the disease, then the analogy is to bipolar syndrome - exuberance, or even a little hypomania is okay on the upswing, but true mania is bad, as is the resulting swing to depression. Good regulation, then, would be something like lithium, which keeps us on an even keel. The question is really whether we understand the forces well enough to regulate them. Regulation is a function of prediction; prediction is a function of observed regularity; observed regularities invoke the problem of causation; causation raises the issue whether the process being analyzed is reducible. Complexity in itself relative; what seemed inordinately complex to ordinary people, much less deep thinkers, in 1787 or 1887 might not seem at all complex to us now. What we are dealing with instead is a crisis of confidence in those who purport to be experts in what we cannot fathom merely through common sense. The conundrum, of course, is that if it takes an expert to see the problem caused by complexity, how are we, possessing merely common sense, supposed to do anything but rely on their judgment? The epistemological crisis arises from our own judgments to rely on, believe in, trust, or have faith in, that judgment.

Congratulations

Congrats and further best wishes to Jeff and Alene Lipshaw, who are now celebrating their 30th wedding anniversary (?!!) in Santorini, Greece.  I know they are having a good time.  And we are happy for them!  [Alan Childress]

UPDATE:  Thanks, Alan - this is this year's alternative to the Law & Society confab in Denver.  Damn!  And who's the dorky guy with the beautiful woman?  [Jeff Lipshaw]

El Dorado, the Cusp, and Cost-Benefit Analysis

Posted by Jeff Lipshaw

Several times over the years I've quoted Robert Louis Stevenson:  "to travel hopefully is a better thing than to arrive."  I decided to find the source of the quote, and it is in the essay "El Dorado," the sixth in a book called Virginibus Puerique, published by Scribner in 1904, and now in the public domain.  As is often the case, it turns out the entire quote and, indeed, the entire essay, is rewarding.

The essay is a meditation on the irony or paradox of our pursuits: "we all shoot at the moon with ineffectual arrows," knowing that the goals we attain are not really the end, even though we work toward them as if they were. 

A strange picture we make on our way to our chimaeras, ceaselessly marching, grudging ourselves the time for rest; indefatigable, adventurous pioneers. It is true that we shall never reach the goal; it is even more than probable that there is no such place; and if we lived for centuries and were endowed with the powers of a god, we should find ourselves not much nearer what we wanted at the end. O toiling hands of mortals! O unwearied feet, travelling ye know not whither! Soon, soon, it seems to you, you must come forth on some conspicuous hilltop, and but a little way further, against the setting sun, descry the spires of El Dorado. Little do ye know your own blessedness; for to travel hopefully is a better thing than to arrive, and the true success is to labour.

Yesterday we had the pleasure here at Suffolk of listening to Doug Kysar (Yale, right) speak elegantly about the book he has under contract with Yale University Press, Regulating from Nowhere: Environmental Law and the Search for Objectivity.  It's a critique of the predominant cost-benefit approach to environmental regulation, not so much to propose an alternative solution, but instead to suggest that there is a seed of brute explanation in the quest for social scientific objectivity.  While there's much food for thought for the environmentalists, there's also something here for jurisprudes.  It struck me that Doug is another "philosopher of the cusp," struggling to say that for all that social science (including welfare economics) aspires to objectivity, there's something missing.  As I said a few days ago, we who are sufficiently empiricists (in the philosophical, not the methodological, sense) acknowledge that all we are ever going to "know" is what we can observe and measure and record, and recoil at human claims to knowledge of the supernatural.   Yet we feel, as Charles Taylor says, "a sense of unease at the world of unbelief: some sense that something big, something important has been left out, some level of profound desire has been ignored, some greater reality outside us has been closed off."  

I've been studying Michael Moore's new book, Causation and Responsibility, and thinking about the strange picture we do indeed make to our chimaeras.  Whether it's the universal moral grammar of John Mikhail, the evolutionary determinism of Joshua Greene, the naturalized jurisprudence of Brian Leiter, the strange anti-metaphysical metaphysics of Dworkin's claim to have divined objective moral truths, I'm skeptical of any claim (or apparent claim) to arrival.  The problem with "naturalist" or "empiricist" or "consequentialist" responses to deontology is that, to my mind, they aim at a straw person.  I'm not prepared to speak for God, don't know if there is a God, am skeptical if there is a God that it's anthropomorphic.  So I'm not suggesting that some ethereal or spiritual brute explanation substitute for scientific or otherwise rigorous inquiry.  Neither, however, do I accept what I read as Leiter's "burden of proof" argument; that naturalism is the only acceptable approach to what's real and the onus on demonstrating otherwise is on whomever is a non-naturalist.  In the face of the continuing evidence that we have paradox in the world - the inexplicability of consciousness (is it reducible or not?), problems of recursiveness and infinite regress, the limits to self-contained mathematical systems, and others - it seems to me just as much a matter of faith that science will solve the problems as that those appearing most intractable will ever be solved. As Doug pointed out, consequentialism in the extreme (say, wholly utilitarian approaches to the value of life) leads to absurdity (lots of wealth but no living people to spend it).  Yet on the other end of the philosophical spectrum, so do extreme exercises in reason (called dogmatism or fanaticism).

We on the cusp sense intuitively that microeconomics gets a lot right; yet we read a passage from Derrida or Robert Cover, and while recoiling from complete indeterminacy or skepticism or post-modernism, nevertheless understand there's something big that science or economics leaves out.  (This leaves us unlikely ever to appear on Hardball or The Situation Room, and quaking at the mere prospect of being interviewed by Stephen Colbert.)  We just shy away from soundbites like Moore's "In truth, I find libertarian metaphysics to border on the unintelligible. . . .  The will as uncaused causer is a very strange idea.  How can there be an event that cause other events yet is itself not subject to causal influences by earlier events?"  (p. 272)   (So much for Kant!)  Well, that's the mystery!  We don't know if our sense of free will is shaped environmentally or as a matter of evolutionary adaptiveness.  Without rejecting that there can be objectivity, we're just skeptical that claims to objectivity about ourselves (whether micro- or macro-) aren't one more conspicuous hilltop on the way to an unattainable El Dorado. 

It's hard to write in the legal academy and not have some prescription at the end (see Schlag), but Doug Kysar's was, it seemed to me, appropriately humble.  It simply asks that we focus more on traveling hopefully than operating on the illusion we've arrived.

Law Dog and Other Curiosities

Posted by Jeff Lipshaw

Max the Law Dog and I went for a walk today.  Here's Max just after marking the Harvard Law School. I  believe his comment was "nice shrubs."

Just before we got to the Law School, we passed by the inspiration for Peter Jackson's conception of Sauron's Dark Tower, Barad-dur, in the evil land of Mordor.   Compare Memorial Hall (right) to the model used in making the movie (below left). 

Well, they sort of look the same. 

And finally, to complete the photo gallery, we have James Lipshaw, working hard at proofreading the Teacher's Guide to Ribstein & Lipshaw, 4th Edition (appropriating the office of Professor Carter Bishop).

My apologies to any of you who tuned in to hear about something significant.

Coming to Terms with a Dorky Name

Posted by Jeff Linden Tree

It's not easy having a dorky name.  I mean, there's no way that Lipshaw fits on the back of a sports jersey.  I feel better today, however, even though it came at the expense of being mocked by my son, who told me he had already told me this. 

Where do all the "Lip" names come from?  Lipson, Lipski, Lipciowa, Lipsey, Lipschitz, Lipstein, Lipinski.  It turns out that "lipa" is Slavic for linden or lime tree, and is the root of all of these related surnames and place names, like Leipzig and historic town of Liebeschitz in Bohemia (now the Czech Republic).

I feel better now.   But I still envy Mike Madison.

Happy New Year!

Posted by Jeff Lipshaw

Over at Volokh Conspiracy, they are having a grand debate on whether Happy Holidays should or should not replace Merry Christmas.  One of the reasons I like Christmas going by is that we can all agree on Happy New Year!

From the Lipshaws, Happy New Year!  Thanks for your readership in 2008, and all the best in 2009 (it's gotta be a lot better than this past year)!

Beetles, Frogs, and Lawyers

Posted by Jeff Lipshaw

Several weeks ago, I was provoked (in a good way) by Usha Rodrigues' reference to Ronald Gilson's 1984 article on how transactional lawyers create value as the "reigning academic account."   I wrote a quick little essay and let it sit until this weekend when Gordon Smith reported on a clever quip from Professor Gilson about lawyers who become professors, and in the classic line:  "I resemble that remark."  I decided to update the little essay a bit and it is now on SSRN as Beetles, Frogs, and Lawyers:  The Scientific Demarcation Problem in the Gilson Theory of Value Creation.  Here's the abstract:

Recently, Ronald Gilson described a transactional lawyer turned law professor as someone who was a beetle, but became an entomologist. This is not the first non-mammalian metaphor used by an economically inclined legal academic to demarcate those who study and those who are studied. As Richard Posner so colorfully explained rational actors as they appear to economists studying them objectively: "it would not be a solecism to speak of a rational frog." In this short essay, I suggest that both say something about the prevailing view of theorizing that is entitled to privileged epistemic status in the legal academy. I assess Professor Gilson's classic 1984 article on value creation by lawyers in terms of its implicit claims to (social) scientific truth.

Massive Voting Problems in Cambridge, Mass.

Posted by Alan Childress

Blog post, updating regularly, here on how registration lists in Cambridge were incomplete and many voters were forced to vote "provisionally."  I already thought Cambridge was the heart of communism so this may be some indication of that.  Jeff reports that he and Alene voted without a hitch but the woman in front of them was unhappily redirected to the provisional pile.

In Louisiana, I received a text message last night on my cell phone telling me that due to long lines expected today, obama voters must wait till Wednesday to vote.

And seeing CNN right now, they just cannot get their heads around race (or past it).  They are interviewing black person after black person about voting for Obama.  It is as if a white person could not identify with him or see the historical moment.   The white voters are certainly not being interviewed about how they "feel" about this.  (It reminds me that during the convention the TV cameras always caught black delegates' reactions and ignored white ones, whenever black speakers spoke, as if Obama was the candidate for one demographic of the party.  Was it Chris Rock who said the cameras do that during Oscar telecasts?)   I honestly believe that most Americans, Democrat or Republican, are fairer and more mature about race than many in the media are, if only because keeping the racial-divide story going is such good entertainment for ratings purposes.  Why ask a white person (or a black one, for that matter) if they prefer Obama's tax policy or McCain's stance on Iraq?  Not a real story in their eyes.  Too boring.  Really it is appalling that many in the media just cannot see a vote for either McCain or Obama as about anything other than race.  I had hoped we'd gotten past that in the primaries, but apparently not.  Maybe someday, and maybe starting tomorrow.

Rankings, Accounting, and Gaming

Posted by Jeff Lipshaw

Fresh off the front page Wall Street Journal article this morning, friends Larry Ribstein and Nancy Rapoport nail the analogy between law deans gaming the USNWR rankings and accountants massaging the numbers to meet the quarterly estimates, so permit me a moment of "I told you so" when I see this quote:

As for the charge of “gaming” the system, Phillip Closius, former Toledo dean, who successfully used the part-time strategy to improve the school’s ranking, says:

U.S. News is not a moral code, it's a set of seriously flawed rules of a magazine, and I follow the rules...without hiding anything.

My discussion of the resemblance between models like USNWR rankings, and games like football or chess is posted on SSRN and will be coming out in this volume of the Cleveland State Law Review.  The piece is Models and Games:  The Difference Between Explanation and Understanding for Lawyers and Ethicists.  Here is the abstract.  Enjoy.

There is value for lawyers in thinking about constructs of rules as games, on one hand, or models, on the other. Games are real in a way models are not. Games have thingness - an independent reality - and they can be played. Models have aboutness - they map onto something else that is real for the sake of simplification and explanation. But models and games are not as dichotomous as the preceding claim makes them out to be. Sometimes models look just like games, and sometimes games can serve as models. Because models look like games, we may come to believe they are real - that the models have thingness rather than aboutness. People are prone to think some of the models they deal in all the time are real, like games, and perhaps even more real than the reality the models are supposed to represent. When that happens unreflectively in business, ethical and legal problems can ensue.

There is also a relationship between games and models as a way of thinking, and the position of the thinker as modeler, game creator, or game player. To engage in any of those acts is to use the legally trained mind to make sense of what is going on, and to act on it. But there are different ways of making sense, either by explaining or understanding, and it is not common in legal education to undertake the exercise of thinking about thinking, or theorizing about theory. I explore the consequence of confusing games and models in two contexts, financial accounting and contract interpretation, and consider the possibility of co-optation from models into games and vice versa. I conclude that practicing lawyers (or law professors) need to think about thinking itself or face the possibility of being misled by precisely the same context facing their clients. In short, lawyers need to be pragmatic ontologists.

Some Thoughts on the Bi-Modal Distribution from a Former Partner and Retainer of Partners

Posted by Jeff Lipshaw

Coming up for air after working on some other stuff, I finally had a chance to digest Bill Henderson's post on bi-modal distribution of starting associate pay.  I have some visceral reactions to the data, as well as some "the sky is not falling" thoughts about how things will play out.  This is all casual empiricism and seat of the pants theorizing, so take it for what it's worth.

1.  Bill's post doesn't talk much about industry consolidation, but there's no doubt that has substantially impacted the law business since I started at a big Detroit firm in 1979.  At that time, there was a big premium to working in a New York law firm - as I recall, as much as $10,000 a year.  This will sound quaint and somehow Great Depression-ish, but my offer letter in the fall of 1978 from Dykema promised a starting salary of $22,000, and I am pretty sure an offer from Cravath at the time would have been in the low $30,000s.  The gold standard of pay at the time was not as a lawyer, but as a consultant at The Bain Company, which was mainly a place for the JD-MBAs.  (I remember this because the starting pay was $44,000, exactly double my offer, but the word was you worked three times as hard.)  What Detroit (Dykema), Milwaukee (Foley & Lardner), Pittsburgh (Reed Smith), St. Louis (Bryan Cave), as exemplars, offered, even then, was a trade-off of life style for dollars:  billable hour goals in the 1700-1900 range, versus 2200-2800, lower cost of living, accessible suburbs, greater assurance of partnership (ratios then were 1:1 in the smaller cities, with the 4:1 or 5:1 leverage even then in New York.)

What seems clear to me is that the midwestern model indeed did not work, and the continued admission of partners created what one of my late partners used to rail about at partner admission meetings:  the creation of negative leverage by admitting so many people as equity partners.  The solution was growth, but organic growth opportunities are cyclical with the business cycles, and consolidation growth is the alternative.  And that's what we've seen.  DLA Piper may be the best example, as a decent firm out of Baltimore turned itself into a global powerhouse over the course of a few years (my late friend Jeff Liss being a major player in that strategy).  Dykema just swallowed up a medium-sized firm in Chicago.

My theory is there's less to distinguish the Am Law 200 now, and hence, less to distinguish in terms of non-monetary compensation, hence the trend to bi-modal distribution.

2.  I want to suggest the banking consolidation model as a prediction of the way the law industry will go.  Banks, like law firms, are natural consolidators.  It's largely a service business, the services are fairly homogeneous, and consolidation offers huge cost synergy opportunities.  But what happened with all the banks turning into Citis or Chases or Keys or National Citys is that market opportunities sprang up for local service oriented banks.  The "private bank" phenomenon is a response to that.  I used to listen to radio ads for a locally-owned bank in the Detroit area, Franklin Bank, that made this the focal point of its value proposition.  (I'm hearing something similar this summer here in northern Michigan from local pharmacies, particularly those that do compounding, as a reaction to the CVS-Walgreen's-Rite Aid-Walmart consolidation.)

As smart and ambitious lawyers get tired of the bureaucracy of the mega-firms (and more importantly, like David Boies, having fruitful and remunerative new business killed by a conflict!), my prediction is we will see a cycle of boutique firms that return to something like the market distinction of the late 1970s.  I can reveal here a not-very-hidden secret:  GCs of big companies know that much of what they purchase in legal services is fungible, and they can get quality work in Albuquerque or Nashville or Birmingham, Alabama or Jackson, Mississippi.

My faith in the corrective power of markets is not quite as ardent as my friend and about-to-be co-author Larry Ribstein (Ribstein & Lipshaw, Unincorporated Business Associations, 4th ed., to be available for the 2009-10 school year, get it while it's hot!), but I think that's where we are going (see Larry's observations on this business acting more like other capitalist businesses).  Like Larry, however, it's the debt that bothers me, and I second his historical observations on that score.

Thoughts About Judgment: Lawyers versus Clients and Lawyers versus Professors

Posted by Jeff Lipshaw

Call me a fool, but I like to get stuff out there as early as I can short of being humiliated (I am okay with merely embarrassed).  I have wrestled now for four years on the precipice either of an practitioner who thought too much like a professor (actually, that accusation goes back a long time), or a professor who was tainted by so many years of practice.  I think Tevye in Fiddler on the Roof spoke to this:  "a fish could marry a bird, but where would they live?"

I've posted a short and preliminary essay that reflects what I've been thinking about and reading about over the summer, and it has to do with the theory and practice of judgment - how judgment differs as between clients and practicing lawyers, and in turn, how it differs between practicing lawyers and the professors who taught them.  The piece is entitled Law's Illusion:  Scientific Jurisprudence and the Struggle with Judgment.  Here's the abstract:

Why are there two fairly clear chasms that affect practicing lawyers - one between themselves and their clients, and one between themselves and their professors? Both have to do with the irreducibility of judgment - perceiving regularities, applying rules to new situations, and deciding in advance what to do. I suspect Kant was right over two centuries ago, and there has not been much progress theorizing about it since then (even after the behavioral theorists like Tversky and Kahnemann and popular expositors like Malcolm Gladwell); judgment, either the inductive inferences from what we observe to what we generalize, or the leap from what we generalize to what to do next, is not teachable, but only achievable through practice. Practicing lawyers are reductivists in comparison to their clients - reducing the complex world through the "science" of law to a model; professors are reductivists in comparison to their students - either reducing the practice to a rational science, or avoiding the question of judgment at all.

This is a thought piece preliminary to a more detailed treatment of the idea.

(By the way, this is the first time I've posted a new piece on SSRN in a while; the system is improved, but still capable of being screwed up.  Key advice:  remember to click the "save" button to the upper right when you are done with each entry.)

The Summer Cherry Harvest

Posted by Jeff Lipshaw

Over at Conglomerate, native Wisconsin cheese head Gordon Smith has been posting about his study of artisan cheese makers.  I wish I had something blog-relevant to say about this, but here in northern lower Michigan, the big thing is cherries.  At left you see a tub of these lovelies, tart Montmorency cherries picked from our cherry tree in front of the house (this morning, by yours truly, on an OSHA-compliant twelve-foot ladder) and now destined for a cherry crisp.  (They are much redder than this picture makes them appear - my lousy cell phone camera.)  If you happen to be in the neighborhood, feel free to stop by and pick a few yourself (hurry, the birds are eating them) after signing the appropriate waiver of liability.

Caught Between the Infinite Regress of Rational Choice and Psychological Determinism

Posted by Jeff Lipshaw (cross-posted at Concurring Opinions)

I neglected to mention, in my original commentary on the Cerberus opinion over at Concurring Opinions, that I am indebted to Frank Pasquale (the real one!) for directing me to Paradoxes and Inconsistencies in the Law, edited by Oren Perez and Gunther Teubner.  I'm now doubly indebted to Frank because he pointed out another blog post that makes for an interesting counterpoint about practical reason - how we decide (particularly as lawyers) what to do.

In his introductory essay to Paradoxes, Oren Perez (Bar-Ilan) makes a point about rational calculation, in the context of the Learned Hand formula for negligence, that had never occurred to me, and which seems to make sense.  (I invite anyone to explain why it is wrong!)  This has broad application because it gets at the heart of the core relationship between the ex post outcome of cases (like Cerberus' "lessons" on eliminating ambiguities in drafting) and the ex ante calculation in respect of that outcome that lawyers (those most rational of actors) are supposed to make.

Perez's argument goes like this.  The potential tortfeasor, informed by the case holdings, knows that she will be liable for the injury she causes if the cost of precaution is less than the probability of an accident times the magnitude of the accident.  For the model to work, it has to assume that potential tortfeasors and judges are perfect welfare maximizers with perfect information.  But information and deliberation are not costless.  So maximizing actors need to make a decision about whether to invest costs in obtaining the necessary information and spending the time deliberating about the choice.  That decision is itself not costless; one needs to gather information about whether gathering information and deliberating is a fruitful way to spend one's maximizing time.  And so on to the infinite regress. This appeals to my intuition in the same way as, and seems to be related to, at least analogically, the idea that rules cannot determine their own correct application.  (If there were a rule for the application of a rule, then what would the rule be for the application of the rule for the application of a rule, and so on to the infinite regress.) 

Perez's conclusion is that this is why we have rules of thumb for deciding what to do - they sit somewhere between unsatisfying calculation and pure intuition.

But wait.  Maybe we don't calculate or intuit.  Maybe we just frame, conform, and comply.  That's a thesis proposed by Sung Hui Kim (Southwestern) over at The Situationist, a law and psychology blog affiliated with the Project on Law and Mind Sciences at Harvard Law School. In Part II of a series speculating on why lawyers acquiesce in the frauds of their clients, Professor Kim says:

Inside counsel, as employees of the firm, are inclined to take orders and accept the “definition of the situation” (a phrase coined by Milgram) from their superiors.  These superiors happen to be a cohort of non-lawyer senior managers vested with the authority to speak on behalf of the organization and entrusted to give direction to inside counsel.  They create the reality for inside counsel: they define objectives, identify specific responsibilities for inside lawyers and, ultimately, determine whether an inside lawyer’s performance is acceptable. And accepting management’s “definition of the situation” means accepting management’s framing of the inside lawyer’s role and responsibilities.

This framing provides that compliance responsibilities be segmented.  Although inside counsel’s duties include a prominent role in corporate compliance, it is business management that jealously guards the right to decide whether to comply with the law, which is seen as the ultimate risk management decision.  For inside counsel to challenge management’s decisions or management’s authority to make decisions would then amount to clear insubordination. Obedience in the corporate context will be substantial, so we should not be surprised by the banal tendency to listen to superiors.

Full disclosure.  I spent eleven years of my career as an in-house lawyer, so it's entirely possible that I resemble that remark.  (Professor Kim can also call on real-world experience as outside and inside lawyer, and in fairness, her very thoughtful and interesting Fordham Law Review article on the subject, which I recommend heartily, is more nuanced than the blog post.)  But I'd be a lot more comfortable accepting this sweeping conclusion were it made on broad empirical evidence of actual in-house lawyer conduct rather than on what appears to be a combination of inference from the Milgram conformity lab tests and well-known examples of lawyers behaving badly.  I knew a lot of in-house lawyers, and while I can't say how they would have performed in the electric shock tests, and can't deny the impact of framing on decision-making, I sure saw a lot of thoughtful and courageous pushback to management on lots of legal and moral issues.  Indeed, my casual observations were that individual moral choice and leadership in context, while certainly more elusive in its measurement, showed up more than just from time to time.  I can't determine whether that was the exception or the rule.  Indeed, I applaud the coda to Professor Kim's bio: "I tell my students that there are two questions that every lawyer should ask when counseling a client about a proposed course of action. The first is: 'Is it legal?' The second is: 'Is it right?'" But how do you make that call? 

I struggle with the line between psychological "truths" and moral free agency.  I am willing to accept the conclusion that we are hardwired to seek and justify physical and material well-being, and hence, a natural inclination for people, not just lawyers, is to comply and avoid conflict.  I don't like, however, blanket statements about in-house lawyers doing this and that, and having this and that tendency.  If I may engage in another exercise of shameless self-promotion, the point of my piece, Law as Rationalization:  Getting Beyond Reason to Business Ethics, was to explore the difference between lawyers using reason to justify a desired material world outcome, and lawyers using reason as autonomous moral agents trying to discern ethical obligation.

The implication is that I don't think you can change things by incentives (more cheese for the rats).  My answer is there has to be personal engagement in a continuing struggle to ask questions with the hope of getting answers along the way.  To borrow from Robert Louis Stephenson, sometimes it is better to travel hopefully than to arrive.

Scenes from a Lawyer's Life

Posted by Jeff Lipshaw (cross-posted at Concurring Opinions)

The Arts Section in today's New York Times highlights the renewed interest in the work of Diego Rivera, exemplified by a series of exhibitions ongoing in New York.  The theme is Rivera's stepping out from behind the overwhelming interest in his third wife, Frida Kahlo.  Our family takes a special interest in all things Rivera and Kahlo as a result of a particular historical interlude:  their four year stay in Detroit, beginning in 1929, when, at the behest of Edsel B. Ford, Rivera painted his monumental murals on the walls of the Detroit Institute of Arts.   

We have hanging in our living room three prints signed by Rivera, part of a collection of ten he gave to my wife's grandfather, Nathan Milstein, a lawyer in Detroit, who did work for and befriended Rivera and Kahlo.  (Family legend has it that Kahlo made a pass at him, but this is unconfirmed.)  Nathan was born in 1907, graduated from Detroit Central High School in 1924, and attended the Detroit College of Law (then the Detroit City Law School and now the Michigan State University College of Law) and Wayne University Law School, receiving his LL.B. at age 21 in 1929.  Nathan passed away in 2003, having continued to practice until his late eighties, and his seventy-four year tenure as a member of the bar is supposedly one of the longest in Michigan history.

Alene and I spent many hours going through his voluminous files.  One truly appreciates the historian's and the biographer's art of distilling the story from the data when looking at records like these.  The documents are tantalizing.  For examples, Nathan was a bachelor until 1946, when he married Alene's grandmother, who was a widow with two children.  Before that, he was supporting his mother and sisters.  When the war broke out, he tried for years to find a way to serve without being drafted as a private (which in 1941 paid $21 a month, not enough to support the family.)  Ultimately he found a job as a civilian flight instructor, but the file of letters and rejections to almost every branch of the military and government agency is about two inches thick.  I have framed in my office my personal favorite:  the letter signed by John Edgar Hoover advising Nathan he had failed the F.B.I entrance exam, which I had first interpreted as having been on account of Nathan's being Jewish while taking it.

The Rivera piece inspired me to go back through some of the files this morning (a quiet Christmas task).  I realize now it's entirely likely Hoover objected to Nathan not only because of his ethnicity, but also because he consorted, in the course of his immigration practice, with all sorts of "undesirables," and espoused public positions to which the F.B.I. director of long memory must have objected. As to his practice, I'm just now organizing a series of correspondence relating to his representation in late 1932 of one Halvard Lange Bojer, the son of noted Norwegian author, Johan Bojer.  The younger Bojer, an engineer who had emigrated to the U.S. in 1928, was working for General Electric in Fort Wayne, Indiana, when he was arrested by the Immigration Service, and transported to the Wayne County Jail in Detroit, on the grounds that he was a member of the Communist Party.  Bojer himself described it to a reporter as follows:  "They tell me that I'm a Communist. . .It so happens that I'm a member of the Communist Party Opposition, whose headquarters is in New York.  Members of that Party, though glad to take Moscow's advice, refuse to take Moscow's dictation.  There are other differences, such as our belief that the worker's solution is in the organization of a Labor Party, comprised of Trade Unions, similar to that of England.  Also, we disbelieve in Moscow's theory that existing labor organizations, such as the A.F. of L., should be wrecked for the formation of Communist units."

The American Civil Liberties Union attempted to intervene on Bojer's behalf.  (I can't tell if Nathan was already representing Bojer or if the ACLU retained him on Bojer's behalf.)  On December 12, 1932, Roger Baldwin, the ACLU Director, wrote to Nathan, urging Bojer to fight deportation as a test case.  Baldwin stated:  "The issue is far more than personal to him.  This is the first case, so far as we are aware, when a member of his particular Communist group has been held for deportation on the ground of membership.  It is worth fighting through because it offers a test of the application of the law to other than members of the Communist Party."  Nathan met with Bojer in the Wayne County jail, where Bojer, "a very affable and highly cultured young man," advised that he had no desire to appeal the deportation, and was willing to return to Norway.  He was released pursuant to a bond posted by his friends in Fort Wayne, and joined an "East bound deportation party" on December 29, 1932.

As to Nathan's political views, here's an excerpt from his tribute to Judge Arthur C. Denison on the occasion of his retirement from the 6th Circuit Court of Appeals in January, 1932:

Humanizing the enforcement of existing laws relating to admission and deportation of aliens has become a serious problem confronting social leaders throughout the country.  In the present delirium of unemployment when a vague terror seizes the nation, this fear is translated into alien hatred.  Public discontent must be directed away from the cause of the unrest and to accomplish this, a counter irritant is administered.  The ever oppressed alien is again victimized.  The term alien becomes synonymous with undesirable.  Deportation "drives" and "spectacular raids" then become common occurrences.  Wholesale deportation follows as a panacea for what ails the nation.  This national hysteria influences the action of public officials and finds expression in more rigid and relentless enforcement of deportation laws.  Even the courts are sometimes swept into the whirling cyclone, marring the annals of juridical science with unprecedented decisions.  To espouse the cause of the under-privileged requires great courage.  Those who bear the courage of their convictions and refuse to be swayed, belong to the school of Holmes and Brandeis.  So few do they number that a loss in the ranks is keenly felt by liberty loving citizens.

Just an ordinary kid from an ordinary school in an ordinary city.  Whose parents had been aliens.

Here's more from the tribute:

The recent resignation of Judge Arthur C. Denison of the United States Circuit Court of Appeals for the Sixth Circuit is such a loss.  As a student of social conditions, he has clearly recognized a festering condition to which the Congress of the United States has closed its eyes.  Dwelling above the sound of passing shibboleths, he has refused to harken to the murmur of the moment.  Recognizing that immigration statutes are very drastic and deal arbitrarily with human liberty, he has found it necessary to remind Immigration Authorities that aliens are human beings and as such have rights in any country in which they are domiciled, not under the principles of natural justice, but under the Constitution itself.  Aliens help to create the wealth of our nation; they are subject to its laws and must comply with all its demands of taxation.  Aliens, therefore, who have become part of our household and who have cast their lot permanently with ours, must be accorded the protection of law that is granted our citizens.

It's Not the Size of the Gift, But the Rationalization that Counts

Posted by Jeff Lipshaw (cross-posted at Concurring Opinions)

When I was at Tulane last year, I got a call from the Times-Picayune to comment on what has now become this story about the Fifth Circuit's recommendation that Federal Judge Thomas Porteous be impeached.  The issue on which I was asked to comment was the propriety of an alleged $1,000 hunting trip to which the judge was treated by a defendant company in a pending maritime injury case, and which was not disclosed to the plaintiff. Looking back at my comments, I now recall what seemed so odd about the whole thing.

"Federal judges by and large have the reputations of being absolute paragons of integrity," said Jeffrey Lipshaw, a visiting professor at Tulane University Law School. "The perception is that they bend over backwards to avoid even the appearance of impropriety."

Lipshaw said Porteous, who makes $165,200 a year, might have considered the value of the excursions so trifling that they would not be seen as swaying his conduct in court. If the judge thought there was something improper about the trips, Lipshaw said, why would he disclose them on his financial reports, which are submitted to the Judicial Conference and remain public record for five years? * * * "It is entirely possible that the gifts in fact did not influence him," Lipshaw said. "But even if in your own mind you know they did not make any difference, and you are just as likely to rule for or against on the merits, the very reason it smells funny is the reason you should not do it."

Yes, why take the tiny benefit and then disclose it?  Assuming the allegations are borne out, this is not as simple as saying a person is crooked.  I see the option backdating issue the same way.  You have managed either by frame of reference (model or game?) or by internal advocacy (call it rationalization) to put aside that moral tickle ("hmm, should I take that hunting trip when I have a case pending with the company; gosh, it's only a $1,000 and I will disclose it on my yearly report?" or "hmm, what's wrong with creating a document that says the options were granted when they weren't; I'm just correcting what is a stupid accounting anomaly?") David Brooks had an insightful New York Times op-ed on Barack Obama a few days back, and I think piece captures the essence of the theme.  Your sense of right and wrong has to predate and transcend the context or the frame.  Brooks observed:  "Many of the best presidents in U.S. history had their character forged before they entered politics and carried to it a degree of self-possession and tranquillity that was impervious to the Sturm und Drang of White House life." You can make an argument for anything, but there's still that smell test.

Twitter, Futility, and Belief

Posted by Jeff Lipshaw

I haven't been blogging much over the last month or two (I will be guest blogging over at Concurring Opinions in December, however), leaving Mike Frisch with the laboring (and probably far more useful) oar.  I have to admit that some of my inactivity has to do with things like Twitter and Facebook and MySpace, which aren't blogs, but are simply more information than I care to have about just about anybody.  So I figure that unless I have something to say on a subject, I'll do everybody a favor and keep a log of my daily activities, as illuminating as they may be, to myself.

Okay.  So much for my curmudgeonly rant.  Here at Suffolk we have a wonderful set of clinical offerings under the direction of Professor Jeff Pokorak (right).  We were talking to someone the other day about our juvenile justice clinic, and the problem of burn-out among Legal Aid lawyers who represent juvenile clients in the system.  I wondered how much burn-out had not to do to with the overwhelming amount of work without sufficient resources, but instead the ultimate futility of trying to hold back the ocean of a broken component of society on a case-by-case-by-case basis.

I have compiled a reading list for December, and one entry is Charles Taylor's A Secular Age.  (This is quite a commitment, given that there are 776 pages of text.)  The thesis, though, is fairly simple, and given to the reader in the first twenty pages.  Why is it so easy in 2007 not to believe in God (at least in the North Atlantic world with which he is concerned) when in 1500 it was almost impossible not to?  He proposes three concepts of secularity and focuses on the third:  (1) the decline of religion in public spaces (i.e. the separation of church and state); (2) the decline of religious practice; and (3) the  development of a culture in which it is acknowledged that there are many routes to spiritual "fullness"  (Taylor's term) one of which is an exclusively humanist or secular.  It seems to me that the whole notion of futility is a modern and secular one, captured by Taylor's description of a whole class of "unbelievers" (i.e. those who no longer believe in God as one might have believed in 1500), who nevertheless live the experience of something like nostalgia for the transcendent as a basis for fullness.  To put it more simply, futility arises from a kind of cognitive gap:  between the understanding that it's entirely possible nothing will ever make a difference, and the desire to be fulfilled.  If you have no particular expectation of fullness, on one hand (see pragmatism, atheism, skepticism, post-modernism), or you are positive in your belief that everything DOES make a difference (see fundamentalism), I suspect futility is not an issue for you.  But in between the assurance of a transcendent truth and an unawareness or rejection of anything but the material there is the possibility of futility.

So you just stand in awe and admiration of people who slog through it all day by day, plugging holes in the dike, or pushing back the ocean, wondering how they keep at it.   Or the cosmologists like Andrei Linde at Stanford (right) working the question of the origins of the universe knowing they will never know if their theories, like inflationary cosmology, are correct.  Or I suppose, in a comparatively trivial way the futility of my own intellectual endeavor, which is to keep proposing answers to imponderable questions, even though I know none of the answers will suffice.