The 2022-23 Economic Crisis Megathread

[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... )

[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.

[The Minsky Moment]

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

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.

[Habbaku]

Lol 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. 

[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

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]

Lol 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. 

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?

[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.

[crazy canuck]

Who 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]

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 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.

[crazy canuck]

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 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

[Syt]

Good news, everyone!

https://www.theguardian.com/business/2024/apr/02/world-gains-141-new-billionaires-in-amazing-year-for-rich-people?CMP=twt_b-gdnnews

Taylor Swift among 141 new billionaires in 'amazing year for rich people'
Combined assets of $14.2tn are more than the GDP of every country except China and the US

There are more billionaires than ever before. The world has 2,781 people with fortunes exceeding $1bn (£800m), an increase of 141 on 2023, according to Forbes' annual ranking of the world's richest people – with Taylor Swift among those making the list.

The billionaires are also collectively worth more than ever, with combined assets estimated at $14.2tn – a $2tn increase on 2023 and more than the GDP of every country except the US and China.

Their collective wealth has risen by 120% in the past decade, at the same time as billions of people across the world have seen their living standards decrease in the face of inflation and the cost of living crisis.

"It's been an amazing year for the world's richest people, with more billionaires around the world than ever before," said Chase Peterson-Withorn, Forbes' wealth editor. "A record-breaking 14 centibillionaires [$100bn] have 12-figure fortunes. Even during times of financial uncertainty for many, the super-rich continue to thrive."

Equality campaigners said the "staggering wealth" being accumulated by the super-rich should lead to urgent efforts "to spread this wealth more evenly, proportionately and efficiently".

Daisy Pearson, of the campaign group Global Justice Now, said: "It is utterly unconscionable that at a time where masses of the world's population are living in dire poverty, a few individuals are allowed to amass staggering wealth. This is only possible through exploitation, and their monopolisation of wealth and resources further allows them to amass huge power and influence over decisions that affect our everyday lives. Enough is enough – we should be regulating these barons out of existence."

Luke Hildyard, the executive director for the High Pay Centre thinktank, said: "The billionaire list is essentially an annual calculation of how much of the wealth created by the global economy is captured by a tiny caste of oligarchs rather than being used to benefit humanity as a whole. It should be the most urgent mission of the coming decades to spread this wealth more evenly, proportionately and efficiently."

Taylor Swift is one of 265 newcomers to feature on Forbes' list this year. Swift, 34, reached the milestone with an estimated $1.1bn fortune following her record-breaking Eras tour and concert film.

The Eras tour, a 44-plus song mega-concert that stretched to nearly three and a half hours, generated more than $700m in ticket sales in the US alone, according to Bloomberg; that's before including the 89-date international leg.

The richest person on the planet is Bernard Arnault, the majority owner of the luxury goods conglomerate LVMH, whose fortune, according to Forbes, increased by 10% to $233bn. Elon Musk is in second place with $195bn, an 8% increase on last year.

[Admiral Yi]

The wealth they "capture" is the wealth they create.  Taylor Swift is not an oligarch.  Get real.