The Problems We Face, Why We Are Now Facing Them, And What You As An Attorney Need To Do To Survive It

I think it has begun to dawn on people that we are in for a hard patch ahead, and most people are worried.  Attorneys should be worried.  Many ordinary people have been worried for some time because the issue of the economy has been impacting them longer.  Wall Street, financial institutions, insurance companies and the government just were not looking ahead very far.  Hence, they feel blindsided.

The question is what do you do when the whole world becomes a bubble?  What we are learning is that nearly the entire World is facing the same challenge.  What is it?  In simple terms it is over capacity.  There is nary an industry, area, service or profession that now does not face over capacity.  For example, we probably, by best estimates, build 4 million too many cars in this country right now.  We have too many banks, too many stores, too many malls, too many houses, too many in the real estate trades, and too many lawyers, to name a few.

The issue is not the free market system in which property rights are exchanged freely and voluntarily.  It is the laissez-faire nature of letting the greed of the markets operate without any reasonable oversight.  The issue that the market is always right is a canard.  Snake oil salesmen never see themselves as snake oil salesmen.  It takes a reasonable regulation to control this.  In a perfect world we would want a subsistence economy in which we produce no more output per period than we must consume.  But, let us face facts, how do yo do that?  That is not reality.

Over capacity took place based upon the markets ever growing sense that consumers, and especially Americans, would continue to buy and grow the economy at astonishing rates.  What the market and the government failed to realize is that this world wide growth was not built on increasing wealth, at least for average people, business, governments and law firms.  It was built on increasing debt.  The growth would only continue as long as consumers and companies could borrow ever increasing amounts of cheap money.  (Or, in the case of consumers not always cheap money).  Like a fat man who got his ample beer gut out in front of his legs and had to run to keep up, we were bound to trip at some point.  The problem is that people and companies and government cannot keep expanding with debt alone.  At some point you have to pay it off.  To put it another way, debt does not tolerate contractions.

You can look at this way.  If society loans out a hundred dollars with interest, and it expects to get a hundred and ten dollars back for that loan, where does that extra ten dollars come from if there is no money being produced that is not being debted into society?  The only way for one hundred and ten dollars to be paid back is for someone, or some company, or some government, to borrow more money to pay back the original one hundred dollars plus the interest.  So, when new debt is not occurring at higher levels than in the past (when the money was borrowed), the economy contracts and there is no money in the system to pay back the hundred and ten dollars owed.  When everyone calls there loans in about the same time, there is going to be a serious problem because not only do we, collectively, not have the money to repay the amount owed, there is actually not enough money in the system to repay the money owed.  No new debt, no new money.  No new money, no way to pay back what was owed. When those in Washington and Wall Street talk about a liquidity crises, they are talking mainly about the fact that not enough new money is being borrowed -- in other words not enough new money is being debted into society.

Many of the institutional creditors have sensed this for years. They thought the answer was that if you restricted bankruptcy attorneys and closed the financial emergency room for consumers then somehow the bad decisions of this strategy would not catch up with them.  But, just because many consumers cannot or will not file bankruptcy, does not mean they can continue to pay for cars, houses and fancy financial instruments, much less go on new spending sprees.

You will hear economist talking about the Fed keeping interest rates too low too long, and you will hear that George Bush spent us into oblivion.  All of that is partly right.  But, what it means is that we did nothing to restrict over capacity based upon debt.  But, this problem is as old as the first Bank of the United States.  We elect to debt money into society.  In short, the government turns over the people's money to the federal reserve banks and other types of companies, instead of keeping it for itself, and then allows the banks to create money via usury.  In short, banks and other companies get a dollar from somewhere (savings, the government, the stock market, investors) and they lend it out in many varying ways in multiples of what they have.  If you put a dollar in the bank, the bank is likely to lend it out to 8 or 9 different people.  In short, for every dollar the bank borrows it lends out $8 to $9 to other people.  It takes debt and creates more debt.  This is how money is actually created.  Back in Biblical times this was called usury.  We now think of usury as charging high interest rates, but it was originally considered the process of creating money out of money and it was a sin.  That is fine and good in that it gets money into distribution, but as a result virtually all money in the United States, and most of the World, can only be obtained by every increasing amounts of debt.  Sure, someone might pay you a dollar out of their pocket for legal services, but that money came from and is subject to debt somewhere.  Only the money spent directly by the Federal Reserve Board for salaries and the like (which is different from the Federal Reserve Banks) is not debted into society, and this is relatively little money.  So, the United States government gives away the people's money (all of it), and then, as a result, it has to borrows the money back or tax it away from you and I.  We have taxes to fund the social issues and work of the government mainly because the government gives away the people's money to private interest who debt it into society, including back to the government, based upon interest.

It is not that money does not need to be debted into society.  Some debt is inevitable.  The problem is that virtually all money, at least in America, is debted into society.  Think for a moment.  If you have a printing press in your house and you could legally print all of the money that you want and need, what reason would there be for you to ever have debt?  Absolutely none!  Why would you borrow money when you had all the money you needed and wanted?  You would not!  Want a new car, print some money.  Have medical needs, print some money.  Need to hire a lawyer, print some money.  So, if what I am saying is not true, then why does the United States Government have $10 trillion dollars in debt?  The reason it the government gives all of its rights to the people's money to private interest and those private interest create money of their own based on debt.

These fights about how money is handled are the stuff of history that we never touch on in school.  Most Congressmen do not know the issue.  Most people really have not read the Federalist Papers. Congressman Wright Patman was the last person to almost succeed in correcting the problem.  He got through both houses of Congress legislation to alter this process, but Franklin Roosevelt who, despite the rumors was a man of Wall Street himself, vetoed the legislation.  Before that it was Andrew Jackson that got rid of the first Bank of the United States.

We as a nation now talk about the need for energy independence, but we also need to be talking about monetary independence.  Now what we are doing is we are privatizing gains and we are socializing losses or risk.  That is not right.

It presents a problem for us as a people because as a result of turning money over to private interest (who make the money and decisions concerning it), we have to pay taxes and social security and medicare to the government.  The government does not wish to make us pay our fair share based upon this give away, so the government borrows ever increasing amounts of money itself from wherever it can find it.  But, it pays a high costs for this money both politically and in interest. Politically it divides Americans based upon class, social issues, and priorities because now, rather than the government spending "our money" on what is deemed needed to be a good society, the government is now spending "my hard earned money" collected directly from me by way of taxes or debt obligations on things I might much prefer not paying for from my personal stash of money.  In other words, because the United States government gives away all of our money - the people's money - with which it could provide for our elderly and our sick and the education of our children, it must then take from us - its people - the money we have accumulated or borrow the money from others.

It has had many different manifestations, but in early America we debted money into society because the government was relatively weak, not that big, and society was not overwhelming based upon money.  The best way to get currency established was to debt it in as needed.

Over the many years since, the few that have thought about it that much, have feared that if you turn the money back to the rightful owners of it (the American people and the federal government collectively) then the politics of the situation will just drench the world in cash and make it useless.  So, we create these mechanisms such as a federal reserve board (which is only partly governmental) to help oversee the federal reserve banking systems (which are private cooperatives).  The problem, however, is that we have fared no better with this system. Now private enterprise has so weakened regulation that it floods the world markets with dollars through debt.  Because it is in the form of debt we have created a bubble involving substantial over capacity that now must be corrected.

I have been a voice of one that we need to stop this insanity.  We need to nationalize, not private banks, but the Federal Reserve Banks and take back the people's money - our money.  Pay off our sizable debt over the course of the notes we have issued.  Stop allowing usery. Banks and other institutions can borrow money from the Fed or depositors or the credit or stock markets, and loan it for a return on money.  Period.  The Fed would then have to set firm limits on the amount of money the government could create (because most money is not in print as it is in digits) for its own use, and we would have to stay within those boundaries.  This eliminates all taxes on American people and corporations and we no longer have to fight over what is equitable and what is not.  If the government can spend, for example, half of the GNP per year itself, then it is limited to that amount of money for war, to give to the states to offset their taxes and liabilities for government mandates, and the care of the American people, then that money is spent into circulation and not debted.  It does not require a payback of the funds with interest, and the government is debt free. And, then half of the money is still debted into circulation.  We let business be business and the government be the government.  We no longer need these argument as to whether the rich or the middle class are paying too much in taxes.  I am sure there will be bubbles in the market still, but the government can more appropriately deal with these.

What we likely will not have are these credit induced bubbles like we have now which has created substantial over capacity in almost every sector in almost every part of the World.

Now,as a result or our current system, the markets are contracting. That is painful.  What is making it beyond painful for the credit markets is the lack of oversight by the government in this area called "swaps".  As the markets contract, there is a lot of defaults on a lot of debt instruments.  I think you will find out, no matter how much debt the government throws at it, they will not be able to stop this.  It will bottom out somewhere.  But, these swaps are really insurance products that Wall Street and insurance companies issued directly as to the sanctity of these debt products that were being sold.  We have heard about swaps in terms of the housing market, but in truth they exist as to almost every financial product now involving debt.  By calling them swaps instead of insurance these companies were allow to charge what they wanted to "guarantee" the debt product from default, and put the entire amount of the money it collected to the bottom line -- read billions of dollars in bonuses to captains of the financial industry. Because it was allowed not to be called insurance, no reserves were set aside to cover these actual defaults.  This is much like an insurance company insuring you against your house blowing down, taking all of the money you paid it, spending it on frivolous things, so that when your house blew down there was not any money to cover the loss insured.  So, the issue is not really the housing bubble.  We can deal with that.  We have multiple bubbles all happening at the same time, we have a painful contraction because of overcapacity, and now we have bad insurance products magnifying this problem because these companies took all of the money and spent it so that none of it was available to cover these defaults.  The amount of swaps outstanding are thought to be $62 trillion dollars.  Even from over capacity and too much debt the markets contract 5% to 10%, the amount of the obligations owing on these swaps will exceed what we can do.

Times will get better.  I do not know if we have the political will to permanently solve the problems of our financial markets.  But, this default will bring on fundamental change in some form.  It will certainly force us attorneys to fundamentally change how we practice.

To survive, attorneys will need to start thinking immediately about what areas of laws might be best for them.  Some areas are not going to do as well as others.

Next, the issue is money and earnings and profit.  If you are caught in the contraction, you have to follow it or you will get killed.  So, my solution is the cut back staff, cut down on space in that those are the most costly areas of what you do.  Move your office home, if you can, and stop the commute.  Move all of your people home, downshift, and start collaborating with them online.  The savings are amazing. You can operate more effectively, with less work, more profitably.

The choice is yours, but the consequence could be rather dramatic. If fundamental change is on the horizon, then you had better start thinking about fundamental change in the way and costs of you doing business.