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The 2022-23 Economic Crisis Megathread

Started by Tamas, May 25, 2022, 05:15:04 AM

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Gups

There's been insane growth in salaries for lawyers - at least at the higher end of the market - for several years now. It seems to have come to an end now, thank God

Sheilbh

Yeah. Even as someone who sort of benefited from that I have thought the NQ and associate salary arms race must be unsustainable - and I assume largely just because of the impact of the US firms then everyone trying to keep pace.

(Having said that I've just realised that an NQ at the firm I trained at now earns more than I do several years in - admittedly having moved in-house... :blink: :huh:)
Let's bomb Russia!

Josquius

My income has literally doubled since lockdown. Even taking into account I've switched jobs to a generally higher paying industry in a higher paying part of the country I do suspect my job has gotten that big boost too.
Fingers crossed if the increase ends it just ends and doesn't pop.
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The Minsky Moment

Quote from: Gups on December 14, 2023, 08:46:44 AMThere's been insane growth in salaries for lawyers - at least at the higher end of the market - for several years now. It seems to have come to an end now, thank God

The market for legal services at that level is weird; there isn't a lot of cost discipline.

On the deal side, the legal bill is usually an afterthought. If a company is taking in a billion in capital and paying the bankers 25+ million, they aren't going to quibble over a legal bill in the (single) millions.  Same for M&A fees, the legal bill barely registers.

On the litigation side, if it is a significant case, no GC ever got fired because they paid their successful lawyers 5 million instead of 3 million.  But if the case is botched . . . so firms establish competence and build good relationships and then they can get away of having armies of associates billing the snot out of cases, reviewing millions of pages of obviously low relevance docs and writing up redundant memos.

What all these means for big firm finances is that they have been able to increase rates annually well above inflation and keep ratcheting up "leverage" (associate to equity partner ratio).  That yields huge profit increases, even after leaving plenty of financial room to bid up associate salaries.

Is it sustainable?  Automating tools have already decimated the legal secretaries.  It's hard to justify objectively the large associate heavy teams the big firms throw on all their matters to maintain their leverage.  The question is how long companies will continue to tolerate the situation.
The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.
--Joan Robinson

Habbaku

Quote from: Tamas on December 14, 2023, 04:54:11 AM
Quote from: Admiral Yi on December 14, 2023, 04:27:04 AM
Quote from: Tamas on December 14, 2023, 04:19:14 AMLol to be fair there has been enormous happiness in the stockmarkets lately.

Data suggests inflation is coming down without wrecking the economy (I mean last US data had inflation kind of pausing but hey).

Now of course the reason markets rally on this is the conviction that this will lead to interest rate cuts from March. I was listening to the Fed chair's press conference yesterday and nearly all of dozen or so questions were along the lines of "when are rate cuts?" which is a bit perplexing to me. If our financial system cannot anymore function without near-zero interest rates, they does not seem good.

The financial system is functioning right now and rates are not near zero.

Yeah but the only reason markets are going up is that they think cuts are just around the corner.

Markets have been going up all year with zero sign until yesterday that rate cuts were coming.  :huh:
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Gups

Quote from: The Minsky Moment on December 14, 2023, 09:39:17 AM
Quote from: Gups on December 14, 2023, 08:46:44 AMThere's been insane growth in salaries for lawyers - at least at the higher end of the market - for several years now. It seems to have come to an end now, thank God

The market for legal services at that level is weird; there isn't a lot of cost discipline.

On the deal side, the legal bill is usually an afterthought. If a company is taking in a billion in capital and paying the bankers 25+ million, they aren't going to quibble over a legal bill in the (single) millions.  Same for M&A fees, the legal bill barely registers.

On the litigation side, if it is a significant case, no GC ever got fired because they paid their successful lawyers 5 million instead of 3 million.  But if the case is botched . . . so firms establish competence and build good relationships and then they can get away of having armies of associates billing the snot out of cases, reviewing millions of pages of obviously low relevance docs and writing up redundant memos.

What all these means for big firm finances is that they have been able to increase rates annually well above inflation and keep ratcheting up "leverage" (associate to equity partner ratio).  That yields huge profit increases, even after leaving plenty of financial room to bid up associate salaries.

Is it sustainable?  Automating tools have already decimated the legal secretaries.  It's hard to justify objectively the large associate heavy teams the big firms throw on all their matters to maintain their leverage.  The question is how long companies will continue to tolerate the situation.

Sure, absolutely affordable for the Lathams, Kirklands and Skaddens where PEP is $5m+ but their battles for juniors has knock on effects for us on the lower rungs of the ladder even a small specialist planning firm (we benchmark against the silver circle).

I agree with you generally. I think any due diligence exercise is absolutely vulnerable to AI. To a large extent comapnies are paying for names (so the GC can cover himself) and for insurance.

Tamas

Quote from: Habbaku on December 14, 2023, 09:40:26 AM
Quote from: Tamas on December 14, 2023, 04:54:11 AM
Quote from: Admiral Yi on December 14, 2023, 04:27:04 AM
Quote from: Tamas on December 14, 2023, 04:19:14 AMLol to be fair there has been enormous happiness in the stockmarkets lately.

Data suggests inflation is coming down without wrecking the economy (I mean last US data had inflation kind of pausing but hey).

Now of course the reason markets rally on this is the conviction that this will lead to interest rate cuts from March. I was listening to the Fed chair's press conference yesterday and nearly all of dozen or so questions were along the lines of "when are rate cuts?" which is a bit perplexing to me. If our financial system cannot anymore function without near-zero interest rates, they does not seem good.

The financial system is functioning right now and rates are not near zero.

Yeah but the only reason markets are going up is that they think cuts are just around the corner.

Markets have been going up all year with zero sign until yesterday that rate cuts were coming.  :huh:

Uhm, no? Bond market has been pricing in cuts at X month ahead since like mid-2022, it just kept being pushed out or pulled back in based on what's been going on.

Sheilbh

Isn't that how markets are supposed to work? That seems like it is functioning to me, no?
Let's bomb Russia!

Tamas

Sure. By financial markets I was referring to the stock market and what I meant was that what this resulted in for most of the last couple of years was stock prices rising when news indicating recession came out, which to me seems quite dysfunctional.

But to be fair lately good news has been good news, in addition to bad news being good news.

Grey Fox

Between January 2020 & now, I gained about 20%. I did not switch job or even any of my tasks.
Colonel Caliga is Awesome.

crazy canuck

Quote from: Josquius on December 14, 2023, 03:42:31 AMWho gets a big raise?
Is this something that actually happens?
If you need more money you switch jobs. This is a fundamental law of reality.

It is indeed something that happens

The Minsky Moment

Quote from: Gups on December 14, 2023, 09:59:31 AMSure, absolutely affordable for the Lathams, Kirklands and Skaddens where PEP is $5m+ but their battles for juniors has knock on effects for us on the lower rungs of the ladder even a small specialist planning firm (we benchmark against the silver circle).

I think the effect is mixed for small firms.  The huge rate increases prices out a lot a solid companies and wealthy individuals and give room for small firm lawyers to raise their own rates.  But it makes it hard if you need to rely on junior lawyers.

These days, in my own practice, it is mostly working to my benefit. . When COVID caused us to shift over to virtual office space, gross margins went over 90%; that gives us a lot of room to discount rates while still keeping profits respectable. 

On the cost side, we don't keep any associates on staff.  It's a pure litigation practice.  The doc analysis tools are sophisticated enough we can much of that work ourselves and hire contract attorneys selectively as needed. Other cases are multi-defendant where there is a larger firm representing a co-defendant and I can lean on them for that support.

The technology has done a lot to make boutique-style micro-practices possible - there is no way this kind of practice could have worked in the 80s or 90s - and the rate environment has helped the business case. If AI improves I think that trend could accelerate with a possible hollowing out of the middle.
The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.
--Joan Robinson

crazy canuck

Quote from: The Minsky Moment on December 21, 2023, 08:42:11 PM
Quote from: Gups on December 14, 2023, 09:59:31 AMSure, absolutely affordable for the Lathams, Kirklands and Skaddens where PEP is $5m+ but their battles for juniors has knock on effects for us on the lower rungs of the ladder even a small specialist planning firm (we benchmark against the silver circle).

I think the effect is mixed for small firms.  The huge rate increases prices out a lot a solid companies and wealthy individuals and give room for small firm lawyers to raise their own rates.  But it makes it hard if you need to rely on junior lawyers.

These days, in my own practice, it is mostly working to my benefit. . When COVID caused us to shift over to virtual office space, gross margins went over 90%; that gives us a lot of room to discount rates while still keeping profits respectable. 

On the cost side, we don't keep any associates on staff.  It's a pure litigation practice.  The doc analysis tools are sophisticated enough we can much of that work ourselves and hire contract attorneys selectively as needed. Other cases are multi-defendant where there is a larger firm representing a co-defendant and I can lean on them for that support.

The technology has done a lot to make boutique-style micro-practices possible - there is no way this kind of practice could have worked in the 80s or 90s - and the rate environment has helped the business case. If AI improves I think that trend could accelerate with a possible hollowing out of the middle.

On the contrary, boutique litigation firms became the norm here in 90s