"I Think I Can, I Think I Can"

I too am at the mid-point in my law school career. As with most things in life, sometimes it feels like the time has flown and other times I can't even remember life before law school. One thing is certain, the longer I am a law student the more I am aware that, echoing Kelly here, "Law school is both about learning how to think AND ACT like a lawyer." I want to focus on the acting part and go in a slightly different direction . . .

First year I denied all of life around me and did nothing but hit, hit, hit the books. I was non-stop, focused, in the zone, and it was all-consuming. That was exactly the right tack to take. First year grades are so critical, you only get one shot, and you are laying the foundation for years to come. However, as second year rolled around I decided that I had to find a way to occasionally work life (family & friends) around being a law student. My law degree will not grow old and gray with me, in 60 years it will not sit next to me on the porch and talk as the sun sets on the years of my life. I have a sneaking suspicion that if we do not learn now as law students how to have a healthy balance, once we become lawyers and our Blackberries are blowing up every other second we will not be well-positioned to find the balance then. These are critical learning years in more ways than one.

Now, over Christmas break, I am faced with three substantial legal projects: a comment, an appellate brief, and a source check. This is an opportunity to build legal muscles. It's preparation for managing a multiple-case load, each with different but converging deadlines. This could be daunting, and to some degree it is, but even more so it's challenging and exhilarating. This is where the rubber meets the road and we find out that we really have been developing legal skills. We really do know how to digest and analyze complex legal problems. We really do know how to construct and draft briefs. Like the little engine that could ("I think I can, I think I can") we realize that we really are becoming lawyers.

We are learning how to think and act like lawyers.

Class is Money

Another term is over; for my fellow 2Ls and I, this marks the half way point of our law school career. This semester has highlighted for me the true value of regular class attendance. Aside from the obvious point – learning the material – attending class is worthwhile for reasons that last beyond the confines of the semester. Job opportunities depend upon class rank, class rank depends upon grades and grades are completely dependent upon exam performance. Professors give tips to enhance exam performance in class; regular class attendance improves the odds of picking up these tips. While enhanced exam performance should be incentive enough, the real benefits of class attendance last long beyond exams.

Law school is about learning how to think and act like a lawyer. Timeliness, preparedness and decorum are essential to professional life; class attendance and in-class performance simply reinforce these habits. This includes the ethical motivation: we owe ourselves and our future our best, and that obligation begins in class. Furthermore, our professors are lawyers. The more time spent listening to, emulating and interacting with our professor-lawyer-mentors, the better equipped we will be to handle issues we will likely encounter in practice. We can hope that the more successful we are in our practices, the more lucrative our careers will be.

For a less lofty and more pragmatic reason to attend class, consider this. Each class hour costs about $50 tuition dollars.* Some may consider this a sunk-cost. The price of admission has been paid in advance so the choice to attend class on a particular day ought not to be affected by a previous investment decision. This reasoning, while comforting for those who choose not to attend class, is flawed. The investment decisions (to pay tuition; to attend class) are not unrelated. Return on a student’s tuition investment is affected, positively or negatively, by the student’s decision to attend or not attend class. There’s really no way around it, attending class affects each student’s ultimate bottom line.

*Estimated using the following: $15K tuition per semester, 15 credit hours, 16 week semester, 80% of tuition.

Merry Christmas from Red Lion Reports

God Bless Us, Every One.

Instalink for Marie

Congrats to Marie for getting an instalink from Glenn Reynolds for her post on It's A Wonderful Life. The only problem is the link is to Moneylaw and not this blog...

Bad Debt Deduction = Good Tax Policy

In her post below on the Mortgage Forgiveness Debt Relief Act of 2007, Marie wonders why the revenue loss wasn’t paid for by denying the bad debt deduction to the lenders for debt forgiveness excluded under the Act.

There are several good reasons why that would have been a very bad idea. First, a primary goal of our tax system is to measure (and tax) net income. These lenders have lost real money on these transactions and thus general tax policy supports the allowance of deduction for that loss. Denying the deduction as a stick to penalize the lenders further is not an appropriate use of our tax system.

There are instances where we have determined other policy goals trump a more accurate measurement of net income (for example, the general realization requirement). Perhaps this is another one of those situations, the policy of penalizing the “bad” lenders trumps allowing a deduction for money that is truly lost. In the end, this argument does not hold up. First, we know that not every lender out there holding the subprime bag engaged in deceitful practices so the penalty would be overbroad. Second, many lenders don’t even hold the loans anymore. They were sold to someone else who had no connection to the original loan. Unless we want to say that we should penalize people for even investing in this market, the denial of the deduction would not be affecting the “bad” people. Personally, I wouldn’t deny the deduction for anyone (even if we know they engaged in deceitful behavior) since again I don't believe the tax system is the appropriate tool for that but an overbroad denial would penalize many people with no connection whatsoever to the practices that many are now complaining about.

Another reason that denial of the deduction is bad policy is it would discourage lenders (or those who hold the debt) from forgiving the loans. Marie could probably tell us why there are still reasons why it would still be good for lenders to get bad loans off the books even if they would not get a bad debt deduction, but it is clear that a lender is more willing to forgive debt knowing that they will get a tax deduction.

Winter Solstice

In the Northern Hemisphere, the Winter Solstice occurs on December 22, 2007 at 1:08 AM EST; and at 6:08 AM UT (Universal Time). This moment marks the astronomical beginning of winter, and the shortest day and longest night of the year. For all but the most recent tick of the clock of history, darkness and cold pointed to one inescapable truth. Food and fuel might run out. Darkness and death might win against light and life.

This year, the winter solstice corresponds with the end of PSULaw exams. After days of looking down, look up at the night sky. It shines with the brightest stars: Orion, Canis Major, Gemini, Taurus. The brilliant light of these winter stars sailing farther into the western sky with each night are proof that light is on the rise.

Photo by Philip Appleton, SIRTF Science Center, Caltech

Tax Relief for Mortgage Default Income

Yesterday, President Bush signed into law the Mortgage Forgiveness Debt Relief Act of 2007. Under the tax code, a lender who forgives a borrower's debt must provide a form 1099 to the IRS reporting the forgiveness of indebtedness as income to the borower. The new legislation provides taxpayers who experience a home loan foreclosure or renengotiation resulting in forgiveness of indebtendness income with a three-year exclusion up to $2 million. Bush said during the signing ceremony: "The law will increase the incentive for borrowers and lenders to work together to refinance loans -- and it will allow American families to secure lower mortgage payments without facing higher taxes."

When one group of taxpayers gets tax relief, another group of taxpayers picks up the slack. The new law provides an estimated $1.153 billion in tax relief. It's paid for in part by imposition of new tax penalties for taxpayers who fail to file Sub S or partnership tax returns and an increase in corporate estimated tax payments due in 2012. The estimated revenue effects of the tax relief law are here.

If home mortgage borrowers are entitled to forgiveness for the income tax consequences of their default, who is to blame? Forgivness of indebtedness income corresponds with the forgiving lender's bad debt deduction. Why not eliminate the corresponding bad debt deduction for the lenders whose home mortgage loans produce a forgiven deficiency? Tax News reported that when the bill was before the House Ways and Means Committee in September, Rep. Kevin Brady, R-Texas, said that he wished the cost of paying for the relief was more tightly targeted to the lenders and real estate speculators who helped create the subprime lending crisis. Committee Chairman Charles B. Rangel's, D-N.Y. response explains it all for you. "It's so much easier to give the tax break than to pay for it."

It's a Wonderful Life

I love It's A Wonderful Life (Frank Capra, 1946). It's a gorgeous film and a moving story of conflict and redemption. And it's utterly free. Just click here to start the credits rolling in black and white on your laptop. The film was not particularly successful when it opened in theaters. It became a classic years later when it fell into the public domain and TV stations began playing it over and over during the lead up to Christmas.

I love It's a Wonderful Life because it's the greatest financial services movie ever made. Sure, Jimmy Stewart is unforgettable as George Bailey. And Donna Reed as Mary Bailey has permanently blown the curve in the annual competition for ultimate Christmas wife and mom. For me, though, the unsung star of the film is the Bailey Building and Loan.

At the beginning of the 19th century, there was no banking as we know it. Rich people needed safekeeping services to store gold or other forms of wealth, and banks provided secure vaults. The first depositary savings bank is thought to be the the Philadelphia Savings Fund Society, established in December of 1816. It launched an industry that profoundly changed the American economy.

Savings and loans emerged as small businesses that accepted cash deposits from customers and made loans to borrowers in the community. During the nineteenth century, as urbanization and wage income grew, savings and loans encouraged wage earners to save. They replaced extended family as a source of capital. And all in the nick of time to finance the rapidly growing consumer sector. A wage earner needed finance to acquire the "American Dream" consisting of big ticket items like a home and a car. The connection between savings and loans and the emerging consumer middle class was more than skin deep. As a regulatory matter, savings and loans were "of the people" in a way that banks were not. Depositors controlled the investment strategy deployed by savings and loan management. In contrast, equity investors, usually with no connection to the deposit community (e.g., Mr. Potter), controlled the management of banks.

The course of George Bailey's wonderful life, to his great frustration, tracks the fate of the Bailey Building and Loan. Throughout the film, George is the archetypal investor. He saves. He reinvests dividends. He takes the long view while the others around him mock him and snap up short term gains. He puts his core values first and his short term pleasure second. He feels shortchanged and foolish. He longs to escape Bedford Falls and engage in a conspicuous consumption trip around the world. But his father dies unexpectedly. George cancels the trip and instead takes his late father's staff as the shepherd of Bailey Building and Loan.

Just when George seems about ready to reap a return on his investment, life deals him another blow. State regulation prohibited savings and loans from maintaining their own deposit accounts (an odd feature of savings and loan law that persisted through the S&L debacle in the late 20th century). Uncle Billy, who plainly is not cut out for the demands of the financial services industry, walks the Building and Loan's daily deposit envelope across Main Street to the Big Bank which Mr. Potter controls. (I've used this scene many times to explain to clients why they should invest in electronic payment processing). Potter seizes Uncle Billy's mistake as an opening to destroy the Building and Loan.

Coincidentally, the savings and loan examiner is in the house. George feels the double-whammy crush of Potter's political and economic power. He worries he will face criminal prosecution for embezzlement, humiliate his family, and appear as a betrayer to his flock. (All criminal defense lawyers dream of the chance to defend a George Bailey). He considers his most liquid asset, a life insurance policy, with a paltry cash value. He contemplates suicide.

The famous part of the movie involves Clarence the Angel, the bridge, and a film noir look at Bedford Falls and its inhabitants as a kind of 1940's Breezewood, Pa. The Bailey Building and Loan doesn't figure prominently in George's redemption journey. But, in the end, George's twin investment strategies-- short term sacrifice for long term gain, self-sacrifice for the good of the community-- are vindicated. He sees the value of his strategy, and his own worth, as the inevitable and invaluable return on his investment.

The entire script of the film is here.

I've posted here my favorite scene. It takes place in the modest lobby of the Bailey Building and Loan. An economic panic has just swept through Bedford Falls. Depositors are pounding on the door of the Building and Loan demanding cash. Potter is buying claims against the Building and Loan for the proverbial cents on the dollar.

(Camera pans with George as he vaults over the counter quickly, speaking to the people.)

GEORGE: Tom! Tom! Randall! Now wait... now listen... now listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan there'll never be another decent house built in this town. He's already got charge of the bank. He's got the bus line. He's got the department stores. And now he's after us. Why? Well, it's very simple. Because we're cutting in on his business, that's why. And because he wants to keep you living in his slums and paying the kind of rent he decides. (The people are still trying to get out, but some of them have stood still, listening to him. George has begun to make an impression on them.)

GEORGE: Joe, you lived in one of his houses, didn't you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? (to Ed) Here, Ed. You know, you remember last year when things weren't going so well, and you couldn't make your payments. You didn't lose your house, did you? Do you think Potter would have let you keep it? (turns to address the room again) Can't you understand what's happening here? Don't you see what's happening? Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's picking up some bargains.

Now, we can get through this thing all right. We've got to stick together, though. We've got to have faith in each other.

MRS. THOMPSON: But my husband hasn't worked in over a year, and I need money. WOMAN: How am I going to live until the bank opens?
MAN: I got doctor bills to pay.
MAN: I need cash.
MAN: Can't feed my kids on faith.

(Now comes my absolutely positively most favorite part)

During this scene Mary has come up behind the counter. Suddenly, as the people once more start moving toward the door, she holds up a roll of bills and calls out:

How much do you need?

George and Mary, through their steadfast adherence to good, their commitment to each other, and to the value of sacrifice for the good of others, are a literary beacon of hope. The Bailey Building and Loan survives as a stalwart against Mr. Potter's power and greed because George and Mary and all the depositors of Bailey's Building and Loan stick together. We can't feed our kids on faith. We can invest and diversify to smooth out the bumps of life for ourselves and each other. As for Mr. Potter, he'll always be around with a higher salary, a swankier office, and a cigar. Mr. Potter is everywere. His seductive power is especially compelling when the chips are down, and doubt overtakes our confidence in the long term investment strategy. Here's a response to tuck away in your briefcase for when you meet your own Mr. Potter. "In the... in the whole vast configuration of things, I'd say you were nothing but a scurvy little spider." You may have money and the power that goes with it. But you are no match for George Bailey and the Bailey Building and Loan.

Make Lemonade Out of Lemons

As students retreat to the recesses of libraries and cafes to prepare for exams, I imagine they find one of two things inter alia: they were either taught or not taught.

When students review a course they were taught, there is a sense of peace and accomplishment. Students tie threads together and connect dots that might have seemed disparate and abstract throughout the course of the year. While there is minor wrestling, for the most part it's a wholly pleasant and intellectual exercise because it makes sense. After all, it was taught.

When students review a course they were not taught, the experience is quite different. Students feel frustrated as they dig through and wrestle with material, trying to make sense of something that never made sense the day it was covered (not taught) in class.

I must say that while the latter process is not ideal, in a bizarre way it is encouraging. After students graduate and are practicing lawyers, they will not have someone to teach them, they will have to teach themselves. Lawyers are life-long students of the law. If students can digest and make sense of complex material, teaching themselves the material, it bodes well for their future. Students pay $30k a year for actual teaching (not self-teaching), true, but in a circumstance like this what else can they do? They are stuck. So, hopefully the best of them can make lemonade out of lemons.

Good Credit for Sale

If you've got a bad credit score, don't worry one more minute. TradeLine Solutions, Inc. will sell you a better one. TradeLine's website explains that it will insert your name as borrower of record on a paid up mortgage, or assign to you a shelf corporation that's been aging long enough to have a credit history for scoring purposes.

Is this legal? In the FAQ page on the website, TradeLine explains: "Yes, it’s 100% legal. There are no laws prohibiting this practice. This technique has been used for many years by mortgage brokers, bankruptcy lawyers and real estate agents to help boost their client’s FICO scores. Our goal is to help you increase your score so that you can get financing at better terms and start saving money. " In a LA Times story over the weekend, Ted Stearns, the chief executive for TradeLine was a little more forthcoming. Stearns acknowledged that people will view his business as mortgage fraud. Not to worry, though. Though it's "possible" that his customers might face legal problems, "it is really hard to enforce the law."

Good luck with your business plan, Ted. A whole lotta lawyers read the LA Times and they don't take trash talk from the likes of you.

Hat tip to Consumer Law and Policy Blog for the LA Times story.

The Federal Bailout: Part I

On December 6, the President and Treasury Secretary announced a limited private response to the subprime mortgage crisis. RLR covered it here. At the same time, in the background the House Financial Services Commitee is working on a public response. Rep. Michael Castle (R-Del) introduced in November the Emergency Mortgage Loan Modification Act of 2007. The bill modifies the Truth in Lending Act to provide mortgage servicers a six-month 'safe harbor' from lawsuits by investors while servicers work out modifications to loan terms to stave off wide-spread default and foreclosures. The bill has drawn criticism that it retroactively affects private contracts ad may run afoul of constitutional protection for property rights.

The FDIC is urging a more conservative (and far more complicated) approach to the problem of investor disgruntlement. Through written testimony to the House Financial Services Committee, FDIC Chair Sheila Blair recommended that instead of a safe harbor style moratorium on investor litigation against servicers, the bill should impose, absent contract language to the contrary, an obligation on servicers to maximize the net present value of the loan pool for all investors, and expressly deeming servicers who implement across the board loan modifications as "acting in the best interests of investors," provided the modifications meet certain specified criteria. Bair's approach is more conservative than Castle's bill in that it clarifies servicers' obligations to investors in a way that is arguably consistent with existing law. But it is more aggressive, and costly for investors, in that it clamps down the lid on investors' legal redress against servicers forever, provided the servicer acts consistently with proposed provisions.

How Bad is It?

The Mortgage Bankers' Association (MBA) just reported that home mortgage foreclosures hit a record high in the third quarter of 2007. the new record is 0.78 foreclosures per hundred. The previous record, set in 2Q2007 was 0.65, more than double the rate 0.32 in 2Q2006.

MBA reported that 0.78 percent of all home mortgages entered the foreclosure process in 3Q2007. That's up from 0.65 percent in the second quarter - the previous record high - and more than double the 0.32 percent rate a year earlier. The total percentage of home loans in foreclosure as of 2Q2007 is also a record high 1.69 percent

How many loans are in trouble? One way to think about the magnitude of the problem is to consider the perentage of loans in default. MBA reports that 5.59 percent of borrowers are now at least 30 days late making their mortgage payments, which is just below the record high of 5.68 percent set in 1986. 1.26 percent of the borrowers were 90-plus days late. Record high rates of mortgage delinquency bode badly for the future. A high percentage of borrowers 90 days or more behind in their mortgage indicates that the borrowers have no options to sell, refinance or borrow against equity to make the payments and buy more time. For these borrowers, foreclosure is inevitable. MBA's economists predict that foreclosures and delinquency rates will continue to climb at least through the third quarter of 2008.

What's the Deal with the Subprime Interest Rate Freeze?

This afternoon, President Bush and Treasury Secretary Henry Paulson announced an agreement among home mortgage investors to absorb some of the blow about to befall homeowners as their subprime mortgage interest rates reset. This isn't the government bailout of which Jeff laments. Nobody doubts that's coming. The plan announced today is a political maneuver in an election season by the White House to appear to be doing something to help American people in crisis. Paulson was guarded in his estimation of the impact of the plan on consumers. "[T]his plan is not a silver bullet, you're not going to be able to solve every conceivable issue. What five years does is it gives people, it gives us as a country, a chance to work through this housing cycle." A five year freeze gives the set of borrowers who qualify for it time to boost their credit scores, and build their income to qualify for a conventional prime home loan. What if five years isn't enough time? Paulson said,"Under the worst condition, you're going to go through a refinancing program five years from now but we'll have five years to deal with it." The unspoken subtext: "And this problem will be on the desk of another president." FDIC Chair Sheila Blair, in a press conference of her own this afternoon, spun loud and clear: "I applaud Secretary Paulson's vision in recognizing that we are in a virtually unprecedented credit environment and that difficult choices have to be made."

That said, the plan is no small accomplishment. Paulson, with the political muscle of the White House, appears to have brokered a deal among investors who hold subprime mortgage portfolios to freeze home mortgage rates for an estimated 1.2 million homeowners . Paulson said at a press conference today: "I saw a role for government here -- to convene market participants with common interest to determine if, and then how, they could develop a shared framework to address both the market complexity and the upcoming value of mortgage resets." (Reuters coverage here.).

The story I have yet to see reported is how this deal was made. We can infer a little from the terms. Key mortgage investors agreed (with no remedy for breach) to freeze in place the starter or "teaser" interest rate on some home mortgages. The agreed freeze only affects borrowers who are current on payments and who can make monthly payments under the teaser rate. Borrowers who are currently or previously in default get no freeze. And, borrowers who don't have the financial ability to make payments at the teaser rate get no benefit under the plan. Moreover, there's no freeze for borrowers financially capable of paying the higher reset rate. Regardless of the borrower's payment or financial status, the plan covers only mortgages with adjustable rates that will reset beginning in 2008. Borrowers with mortgages that have already reset together with those who are in default or otherwise can't make the teaser rate payment on their loans remain at square one. They will have to "work with" their mortgage servicers on an individual basis to save their homes from foreclosure.

It appears that mortgage investors agreed that taking a little pain voluntarily would build their public image as responsible citizens, perhaps enough to garner the support they'll need in upcoming months to escape open heart surgery without anethsthesia at the hands of Congress. Perhaps the driver for investors' acceptance of the plan is fear of litigation over modification of loans for which the lender is not easily identifiable after layers of securitization. An agreement among investors to freeze rates on a set of loans across the board could blunt expensive inter-investor litigation.

The effect on investors of the plan is nothing, nothing at all, compared to what the Democratic presidential front runner has in mind for them. Yesterday, news of Paulson's plan leaked as Hillary Clinton was presenting her own plan for resolving the subprime mortgage crisis during a speech in NYC and later in an interview on CNBC. (see video here.). Clinton proposed a $5 million gift from the government care of US taxpayers to help communities cope with foreclosures. She pointed a menacing finger of blame in the direction of "corporate America." "Wall Street helped create the foreclosure crisis, and Wall Street needs to help solve it." (coverage of Clinton's speech here).

Master and Servant

Thank you Kelly for pointing out who is the true master of the universe. (Clue: It's neither Kahn nor Reilly). For those of you who are believers or might be as exams roll in:

But we hold this treasure in earthen vessels, that the exceeding greatness of the power may be of God; and not from ourselves. 2 Corinth. 4:7

Weighing in on Mastering the Universe

Much can be said for which area of specialty in the law is superior; we all have our bias. Since we are on the topic, though, I thought I would note that underneath all of the law (including Tax and Bankruptcy) is historical context. For one who truly wants to master any area of law, it is essential to first gain a solid foundation in the history, social policy and philosophy of the law. Only by knowing where we as a society have been, can we hope to begin to understand the intricacies of our discipline. So many pages in our casebooks are devoted to understanding the historical context of the law, and for good reason. Even our Tax Prof makes every effort to highlight the policy behind the oft-times unintuitive Internal Revenue Code. So, I think anyone who wants to truly “master the universe” of law, must first master history and philosophy!

The Holiday Season is upon us, which means that finals are almost here (gasp!). As hard as it may be, it is important to stop and remember that there is life outside of law school. Today is the Feast of St. Nicholas, and while it is not celebrated nationally, it is easy to see how this Advent Saint has become a part of our cultural fabric in the form of Santa Claus. St. Nicholas lived a life of charity and love; by remembering his good deeds and seeking to mimic them, we can celebrate this season in a way which keeps us mindful of the needs of others and thankful for the many blessings we have.

"Will Reorganize Bankruptcy Estate for Food"

Based on this story, if the government is willing to bail out people who make lousy financial decisions then we won't need bankruptcy lawyers much longer.

My School Rules Your School

U.S. News released online its rankings of US high schools. It analyzed data on 18,790 schools and ranked 505 schools from 40 states. State College Area High School received a silver medal ranking. Go Little Lions!

The Way In is the Way Out

THE ROAD AHEAD
by Thomas Merton

My Lord God, I have no idea where I am going.
I do not see the road ahead of me.
I cannot know for certain where it will end.
Nor do I really know myself,
and the fact that I think I am following your will
does not mean that I am actually doing so.
But I believe that the desire to please you
does in fact please you.
And I hope that I will never do anything apart from that desire.
And I know that if I do this you will lead me by the right road,
though I may know nothing about it.
Therefore, I will trust you always
though I may seem to be lost and in the shadow of death.
I will fear not, for you are with me,
and you will never leave me to face my perils alone.

A Reply to Masters of the Universe

Tax is a good ride. I have to disagree with Jeff and WSJ Law Blog though. Despite a few data points in your favor, tax lawyers are not masters of the universe, at least not by themselves. Here's why. Unless a tax wonk works for the IRS, mastery of the Tax Code is but a single tool to reduce liability relative to assets, and to increase income relative to expense. A true tax master knows that the best tax planning from the swankiest most expensive tax lawyer is a but a cog in the wheel of fortune. The universe allows for the persistent possibility of insolvency. When the wheel stops on the red square marked "Belly Up"-- all the little gods of the solvent world step aside for the warrior armed with the Bankruptcy Code. The demi masters stand in safety and only watch the end game (in this life) where failure and redemption meet the rule of law at the hands of the Chosen.

Master of the Universe

As we get close to another semester and students picking new classes, this should settle the debate on whether to take that tax course or some other (less important) commercial course like antitrust or bankruptcy.

And the Winners for Best Law Blawg Are . .

ABA Journal announced the best 100 Law Blogs. The list of winners is worth a look.

Brother Can You Spare a Mortgage Payment?

Yesterday, Martin Gruenberg, vice chair of the Federal Deposit Insurance Corporation taught one heck of a class at the Consumer Federation of America's consumer financial services confererence. BNA reports that Gruenberg explained it all: why the subprime mortgage collapse happened, and how it got so bad so fast. The image he painted is haunting and stark. What we see now, Gruenberg explained, is exactly what we saw in the home mortgage market before the Great Depression.

Before the Big Crash, most mortgages were unstable, short term and required the borrower to pay off the principal balance at the end of the term (a balloon payment). In the wake of economic collapse, the market changed to embrace Federal Housing Administration (FHA) policy and the longer, flatter thirty year fixed rate home mortgage. The 30 year fixed dominated the market from the 1930's through the 1980's. Enter recession and sharply rising interest rates. The home mortgage market responded with the re-appearance of the adjustable rate mortgage (ARM) which accounted for 15-25% of the home mortgage market between 1980 and 2000.

Then something happened. Between 2001 and 2006, the percentage of all home mortgages that were 30 year fixed dropped from 84% to 55%. Adjustible rate mortgage products' share of the market grew from one quarter to almost one half of new mortgages. During the same period, subprime mortgages as a percentage of the home loan market grew from 5 to 20 percent. (For last year, Standard & Poors reports subprime originations were $421 billion; the Mortgage Bankers' Association reports all originations were were $2.5 trillion.) Almost all of these subprime loans had adjustable interest rates, and most featured an interest term known as "2/28," where the rate resets sharply upward by 5 or 6 points after two years and on short intervals thereafter. Gruenberg reported that the subprime loans were underwritten at the original teaser rate based on the borrower's statement of his or her current income with no documentation required as to credit history and with no expectation that the borrower could continue to make the payments at the reset rate given his or her stated income. In plain language, subprime lenders sold their mortgage products without regard to the borrower's long term ability to repay. Greunberg and others noted that subprime lenders aimed their product at minority borrowers, and the marketing worked. Between 2001 and 2006, 55% of all black home mortgage borrowers signed on for subprime mortgages, as did 47% of all Hispanics. Only 18% of all non-Hispanic white customers opted for them.

But wait, there's even more. During the same 5 year period, the home mortgage originators began "securitizing" their loans. In 2000, most home mortgage originators sold loans to government sponsored entities (Fannie Mae and Freddie Mac). Only about 18 percent of all home loans were sold to private investors as of 1999. By 2006, 70% of all mortgages were sold to private investors who in turn sold securities backed by the payment streams to yet another set of private investors, all explained for you in an earlier RLR post, Tranche Warfare.

Subprime mortgages originated in the boom years of 2005 and 2006 will reset in the fourth quarter of 2007 and the first quarter of 2008. 2 million adjustable rate subprimes will reset during 2008.

Those who do not study history are doomed to repeat it.

[The photo of Florence Owens Thompson and her children is by Farm Security Administration photographer Dorothea Lange and was taken in Nipomo, California, in March of 1936. ]

Rising to Fall to the Bottom of the List

Paul Caron on TaxProf published a list of law schools ranked lower than their respective universities. PSULaw is 5th from the top of law schools in order of the size of the positive difference between university ranking and law school ranking. Edging out PSULaw are Tulsa, Datyon, Syracuse and Michigan State. PSULaw's collective goal is to plummet through the bottom of this list and then to rise on Caron's other list of law schools with a negative difference between university and law school ranking. So let's get going.

Prayers for Students at Exam Time

Over at MoneyLaw, Jim Chen has posted a benediction for law students who are bending to the work of preparing for exams. The sentiment comes from Hands, a song by Jewel:

If I could tell the class just one thing
It would be that you're all okay
And not to worry because worry is wasteful
and useless in times like these
You won't be made useless
Don't be idled with despair
You should gather yourself around your mind
for light does the darkness most fear



In the end, only kindness matters.

Thanks, Jim.

Making the Most of the Middle

Recently I heard a lawyer speak about the great need for affordable legal services to the middle class. He set in opposition to the middle class the following: (1) the high cost of law school which drives up the price tag for legal services; (2) the flood of lawyers to large firms that the middle class can't afford (suggesting that BigLaw doesn't help the middle class); and (3) the focus on providing free legal services to the indigent. His basic conclusion was that if you are rich or poor in America you get legal services, but if you are in the middle you lose out because there's nobody out there doing anything for you.

I feel for the middle class. I came from and am currently a member of the middle class. However, the idea that people in the middle class are somehow victims of the system is just not true. The middle class is an intelligent, resourceful group of people that are not suffering at the hands of Corporate America. They are people who shine their brightest when they embrace personal responsibility.

First, lawyers who serve corporations in "BigLaw" firms DO indirectly serve the middle class. Many people in the middle class work for corporations and benefit from lawyers’ efforts on behalf of those corporations. Lawyers in large law firms, doing their best work, save corporations countless dollars which helps job retention for the middle class. Just because a lawyer serves the corporate world directly does not mean that lawyer is not indirectly doing a great deal of good for the middle class.

Second, one reason the middle class can’t afford legal services is that many are deep in debt and live above their means. This is actually true for more than just the middle class, but here I address the middle class in particular. If middle class people lived below their means and saved for rainy days, they would be able to afford legal services. There are lawyers who directly serve the middle class, but the middle class has to be able to pay them. People in the middle class are stuck in the middle, hence, their moniker. They don’t have money to burn, but they aren’t in such great financial need that people give them a break. Okay, so that’s life. They still have to live responsibly and save for rainy days because rainy days do happen and they often involve lawyers.

I am sure there are many more angles to this issue, Here are just two observations:1) We should quit demonizing corporations and the lawyers who serve them. Both do a lot of good for a lot of Americans. Anyone who preserves jobs provides a much-needed service to the middle class. (2) We should quit excusing the middle class for their consumptive lifestyle. You may have read The Millionaire Next Door and know that many millionaires drive beat-up Fords, not the latest SUVs on lease. If I were a betting woman, I would wager that the average millionaire next door can afford legal services in their times of need. A person in the middle class who confronts a legal problem may not be rich afterwards, but they're not going to be broke either. They survive financially to see another day and save another dollar, just in case there's another rainy day.

The Tenacity and Captivating Power of Books

There are hundreds of reasons not to pick up a book for recreational reading. Despite distractions like YouTube, America's Next Top Model and even lowly RedLion Reports, we keep on buying and reading books. In last Sunday's New York Times Week in Review, Motoko Rich wrote about why we keep on reading books. The National Endowment for the Arts recently noted that Americans are reading less. The decline is greatest among teenagers and young adults. At the same time, reading scores among those who do read are dropping, and employers complain that workers lack basic reading comprehension skills. In a competitive market for leisure activity, as seductive alternatives to reading expand, reading loses ground. The good news, amazing really, is that readers persist in reading. Book sales are growing slightly. Book Industry Study Group, a publishing trade association, reports that the book trade sold 3.1 billion books last year, up 0.5 percent from last year. Compare Apple's investment in marketing the IPod and its supporting services, accessories and progeny with the marketing budgets of book publishers. Goliath has not succeeded in snuffing David.

In the New York Times story, Rich wonders why some people turn to reading and stay with it. A leading theory is that the right book at the right time is catalytic -- sets off a chain reaction of lifelong reading. Sherman Alexie won the National Book Award for young people's literature a few weeks ago for The Absolutely True Diary of a Part Time Indian. In his acceptance remarks, he thanked Ezra Jack Keats for the picture book, The Snowy Day. The main character, Alexie noted, "resembled me physically and resembled me spiritually, in all his gorgeous loneliness and splendid isolation." Azar Nafisi, writer of Reading Lolita in Tehran thought that people read for the "excitement of trying to discover that unknown world." Some books are like potato chips, the first one is delicious and you can't stop after just one. For some, the chip of choice is Harry Potter or the Hobbit. For me, it was Nancy Drew, the Brontes and Jane Austen.

What about you? Why do you read? What book or books got you started?

Define "Quality" Teaching

Ted Seto, a tax law professor at Loyola University New Orleans, and a fellow contributor on MoneyLaw recently published Understanding the US News Law School Rankings ,60 SMU L. Rev. 493 (2007). Seto criticizes the USNews law school rankings, among other reasons, because they undervalue or do not take into account at all some attributes law students deem most important in evaluating law school performance. The November 2007 issue of National Jurist revealed the results of its survey of law students on what matters most to them. Over half the student respondents, 66%, said that quality teaching was the most important attribute in law school quality, outweighing all twelve of the factors the USNews rankings track. Indeed, USNews does not collect data on teaching quality and does not factor it in the rankings. Runners up according to students: bar passage rates, job placement rates nine months after graduation, and practical skills training (also not a factor in the USNews rankings).

It's no surprise that consumers of legal education value most highly the product they consume -- legal education. A quick look at the USNews graduate schools ranking website is all it takes to see that USNews produces the rankings to help students comparison shop for legal education. Why isn't USNews responding to market demand and accounting for what students value most?

USNews doesn't consider qualilty of law school teaching because there is no accepted metric for it. What makes a law teacher great? Teaching and learning are intensely personal and idiosyncratic activities. Students in the same class perceive the professor differently, sometimes radically so. Moreover, evaluating relative quality of teaching takes perspective and comparative experience that law students lack. My story, I suspect, is typical. The quality of my law teachers appeared most clearly in the rear view mirror after I graduated and had occasion to hear their words in my head: "Consider the impact of procedural posture." Or, "You'll just have to come up with something better than that." We could correct somewhat for the temporal problem of judging teaching quality by asking alumni for their retrospective assessments. But, we return to the fundamental and inescapable truth. Teaching quality is in the eye of the beholder and thus controversial.

We law professors know that student evaluations are fickle measures of teacher effectiveness. We review them for "warning signs" not so much of quality but of social deviance: drunkeness, distracting bigotry, sexual predation, and the like. We tend to discount glowing recommendations by attributing some of the glow to a teacher's decision to lower the performance bar for students in order to raise their short term satisfaction. We are uncomfortable passing on the quality of our colleagues' teaching. This is puzzling. We justify our collective abdication of a meaningful quality control role as a noble exercise of respect for academic freedom. While academic freedom surely protects external intrusion into the substance of what we profess in the classroom, I see a kind of double standard. We tend to be far less reticent in passing on the "quality" of a colleague's scholarship (although we are much happier to simply count the number of articles than actually read them). This is so, even though most of the time our evaluation of scholarship is more about presentation than substance, and presentation is a written manifestation of communication skills rendered live in the classroom.

Given the difficulty, expense and controversy inherent in evaluating quality in teaching, it is no surprise both that law schools don't invest much in evaluating it, and USNews doesn't try to account for it directly in the rankings. Ted Seto's observations about the rankings are powerful. I can't help but try to defend the market though. A law student buys a portfolio of law teachers. In any year, at any school, some teachers will pay off and others will not. A quality teaching faculty, like a quality mutual fund, is one that outperforms its competitors over time as a group. Some of the factors USNews does measure may be the best we can do under the circumstances to find quantifiable surrogates for the overall performance of a law school's teacher portfolio.

It's Not You, It's Me

Ken Adams on AdamsDrafting heard lawyers at a conference for corporate counsel using the phrase "termination for convenience." He checked the SEC's EDGAR site and discovered that the phrase appaears in a variety of contracts calling for performance over time. Here's an example from a T-Mobile services agreement:

6.2 Termination by T-Mobile for Convenience. T-Mobile may terminate this Agreement, the Services performed at any Site or any one or more Statements of Work hereunder for convenience by giving at least ninety (90) days’ prior written notice to the Provider. However, unless otherwise provided under this Agreement, T-Mobile will not exercise its termination for convenience rights for the Agreement during the first year following the Effective Date.

Adams eschews use of the phrase. He suspects that drafters use it "simply because it sounds less threatening than termination for any reason and rolls off the tongue more readily." He suggests tightening the language to something like: "Acme can terminate for any reason. " Ok, that's more direct than "for convenience." The problem, as Adams concedes, is that it's a little "in-your-face" for the taste of some drafters.

The task of reserving explicitly the right to dump your contract partner on a whim is a snarly practice issue for the same reason that negotiating express escape terms is tricky in personal relationships. Marriage, as a legal matter, features mutual termination for convenience rights. But, most people think of termination rights in marriage as limited, perhaps by usage of the trade, to something short of "for any reason." How to negotiate through that is a topic for another day.

Adams concludes with a suggestion for the careful contract drafter: "Unrestricted Termination.” Nice try, but that's not much better. No matter how you phrase it, the fallout from unilateral exercise of unfettered walk off rights is a broken heart.

Coffee and the Law

Coffee has a surprising and so far unexplored social history. About one thousand years ago, coffee from Africa crossed the Red Sea into Arabia where Muslim monks brewed it into a kind of wine used for spiritual rituals. During the 16th century, Muslim religious leaders prohibited coffee drinking as forbidden by God. But, coffee caught on and became so popular and so troubling to Muslim religious and political leaders that in the 17th century, a Turkish sultan prohibited it again for the Ottoman Empire. In 18th century Germany, the government took up regulation of the demon drink and proposed prohibition, but only for women. J.S. Bach, a noted coffee house hound, was so outraged (too much coffee?) that in 1732 he composed an operatic political screed. The Coffee Cantata , one of Bach's most famous secular compositions, features a libretto by Christian Freidrich Henrici. It recounts a father's poignant struggle to free his daughter from her coffee habit. (For more detail on the story and the music click here).

The daughter, plainly buzzing, sings:

"Oh, How sweet coffee tastes
Lovelier than a thousand kisses
Smoother than Muscatel wine
Coffee, coffee... I must have
And if someone wants to delight me
Let him pour me coffee!"

– J.S. Bach, The Coffee Cantata
(Bach may have had more invested in women's unregulated access to coffee than just a burning sense of gender equity).

I'm thinking that we lawyers need to scrutinize the history of regulation of coffee and its implications for religious liberty and sexual equality. Seminar anyone?

My Drug of Choice

A nutritionist I saw a few years back asked me, “what’s your drug of choice?” The question seemed slightly offensive to me, as I did not want to consider myself as using (let alone abusing) any “drug.” As she went on to explain, her point became clearer: we all utilize something to relieve stress and to cope with our realities, a drug can be any substance used to enhance our mental well-being. For me, the answer was simple, caffeine – in the form of coffee – and I am not alone. Between eighty and ninety percent of Americans (depending on who is doing the math) consume caffeine on a daily basis, and the average consumption is three cups of coffee per day. We are a nation fueled by caffeine. (There are over 10,000 Starbucks stores in the United States.)

Is this a bad thing? I will be the first to say that I derive a great deal of pleasure from coffee. The smell in the morning is synonymous with waking up, and the ritual of coffee drinking makes me feel focused and ready to work. But much can be said about the negative side-effects of caffeine. Chinese medicine calls caffeine “false energy,” and caffeine dependency is even listed in the DSM-IV as a psychological disorder. Whatever the downsides, caffeine has been consumed by humanity for roughly 4,700 years, making it so commonplace that to think of it as a drug seems antithetical. In fact, it is notable that coffee consumption seems to be the highest in first world economies. Does a capitalist economy encourage this form of self-medication? Perhaps it could be argued, caffeine is undoubtedly good for the economy.

Personally, I wish there were more days when the pleasure of coffee outweighed its utility, but lately that has not been the case. I rely on coffee to help me to stay focused and get through an appreciable amount of work when I would rather curl up and read a book (one without Blue Book citation). Sometimes, false energy is better than no energy, but the point is that caffeine should be used – and enjoyed – in moderation.

In State College, there are a few wonderful places to enjoy a great espresso or regular cup of coffee, here are some of my favorites.

Saint’s Café on Beaver: Pros – everything they do is great and they offer free wireless access. Cons – they close early (6pm on weekdays).
Webster’s Bookstore Café on Allen: Pros: great food, coffee and tea; used bookstore provides great ambience; free wireless. Cons – it can get crowded.
Peet’s Coffee and Tea in the Smeal College of Business: This isn’t the traditional Peet’s store, but the coffee and teas are and it is great proximity to the law school.
Wegman’s Café: Pros – lattes and sweet drinks, free wireless. Cons: cappuccinos and espresso.
Panera Bread on Beaver: Pros – wonderful sweet drinks and great bagels and pastries. Cons – the hearty espresso drinker would prefer to go next-door to Saint’s.
Starbucks, of course, is great for consistency. The Starbucks on College Ave. is close enough the University to get the PSU wireless signal, but it is often packed and the lines are long. The Starbucks on N. Atherton has a drive-through. A new location is opening up soon on Garner at Beaver.

Motherly Love

The last post was a bit of tough love. This one is something different. Who loves you? Your momma loves you. If your mom is your lifeline through law school, you're not alone. In a 2005 Pew Research Center Study 61% of adults with both parents still alive said they had the most contact with their mother compared to only 18% who said they had the most contact with their father. In the same survey, 17% of respondents identified Mom as the go-to parent in times of crisis. Less than half, 6%, named Dad. In terms of closeness with adult children, Dad ranks below the family pet. On average, dog and cat owners feel closer to their pets than adult children feel to their fathers. Don't feel too bad for dads. Pew survey research shows that for dads, their relationship with their kids is less important than their relationship with their wives. For moms, the reverse is true. Based on the survey, moms place a higher value on their relationships with their children than on their relationships with their husbands.

If you are missing your mom and wondering if it's normal, check out this post on Motherly Love by Diana Winston on a blog I like: Killing the Buddha. Diana didn't just go to law school. She joined a Buddhist convent in Burma. And you thought your wireless bill was big.

The Tao of Studying Law

It is the second week of November. Tension is in the air. Law students have donned the full body clench of anxiety, self doubt, and despair. The time for reckoning is approaching. Law professors can sense the rising tide of anxiety. A student raises a hand in what appears to be a question about the current discussion. Instead she asks: "Will this be on the exam?" A subtle wave of nervous laughter ensues. The professor takes note. The game is on.

These days, law students are not thinking about law. To the contrary, they are becoming hostile to new information of any kind. These days, law students are focused on how to study law for the exams. Ok, let's talk about that.

I offer to you advice I received from an extraordinary man, Bill Irwin. I met Bill ten years ago in Columbia, South Carolina at the University of South Carolina Solomon Blatt Natatorium. Bill is a former swim coach at Adelphia University, a collegiate All-American at Rutgers, and a Masters All-American in 2000 in the 70-74 age group. I went to the pool to get my laps in, to blow off stress, and fight off middle age. Bill came to the pool to coach. He is a swim coach and he coached all of us who were open to it. In the years that have passed since I first met Bill in the deep end of the water, I have discovered that what he taught me about swimming is good advice for the study of law.

1. Studying Law (Swimming) is a Mind/Body Practice, Like Tai Chi.

Bill said to me, "Reilly, you are a much better swimmer than you think you are." Nobody had ever said that to me before. I was a functional swimmer. I filled the lane. I finished. I was never fast. At my age, I had no thought of swimming fast. I had no thought at all about swimming other than to get it over with. I left my mind on the side of the pool.

I learned that the point of swimming -- like studying -- is to swim better. Swimming better requires a conscious connection between mind and body. By focusing both mind and body on swimming more efficiently (more like a fish), speed comes. This concept is known as "Total Immersion" -- a practice of swimming that focuses on grace, balance and efficiency of movement in the water. Think about what you are doing with every inch of your body every moment in the water, and speed will come.

As you study, think not only about what you are to learn, but also how you are learning it. Like a swimmer makes subtle adjustments in stroke and breath to correct for wake, drag and fatigue, watch for and correct the little things that hold you back in your study. Do not leave your mind by the side of the pool.

2. The Shape of the Vessel is As Important As the Size of the Engine.

As you study for exams, consider the mistake many people make when learning to swim. They believe that swimming faster is simply a matter of more effort and power. Sure, swimming fast takes physical strength and stamina. But, speed through the water, as a scientific matter, is a product of a balance between the shape of the vessel and the size of the engine. Bill told me to stop thinking about my arms (puny), and lungs (wimpy) -- aspects of the big engine I lacked. "Reilly," he said, "You are a long canoe." A canoe does not need a big motor to slip over the water. A canoe moves fast and a long way with a single stroke of a paddle, thoughtfully placed.

Rid your mind of its fixation on what you are not. Focus on the attributes you have. Use them, all of them, to their maximum advantage. Consider what activity you consider "studying." Perhaps you have made the mistake beginning swimmers make in emphasizing drill, drudgery and exhaustion as the key to success. In swimming, after each wall there is a "push off"-- a long glide in which a swimmer rests and focuses on the lap ahead. During the push off, a swimmer seems to be doing nothing. But the glide off the wall before the swimmer turns on the big engine are typically the swimmer's fastest yards. Use the glide to your advantage. Consider redefining "studying" to include not just the time you are actively bent over the books, but also the time you spend reflecting, sorting, and wondering throughout your day. Sometimes the less you appear to be doing, the more you are actually doing.

Of course to reap the benefit of the Tao of Studying, you must actually commit to studying and follow through. For swimmers, the key to swimming better is to go to the pool and get in the water. The concept in swimming has a name: TIW (time in the water). The idea is that the more time a swimmer spends in the water, the more sensitive he or she will be to inefficiency in movement. Swimmers call this "feel" for the water. Law students who spend TOS (time on studying) in law school will experience the same effect -- feel for how they are learning. Lawyers understand TOS. What swimmers call "feel" for the water, lawyers call judgment.

3. If You Want to Swim Fast, Practice Swimming Fast.

If you want to earn A's, study like an A student. Look around. Who among your classmates is training for the Olympics? You know who they are. You may think they are weenies, gunners, kiss ups or worse. You are wrong. The best swimmers got out of bed at 4AM every morning in the dead of winter to get to swim practice. They got no glory, just goggle eyes and green hair. Most of us never noticed them, until they were champions.

Instead of ignoring those in your class with the hearts of champions, resolve to study like they do. Your actual results may vary. But this I learned from Bill and I know to be true. Results depend on commitment and consistency. Every day is a chance to train.

The Unbalance of Balancing

Check-lists, reminder pop-ups and Franklin Covey notation on my planner, are all evidence of my effort to keep my life organized. Striving for orderly living is really my attempt at maximizing my efficiency, so that I might be able to maintain a relatively healthy work-life balance. Pre-law school, it was fairly straightforward to adhere to the rigors of my scheduling proclivities, mainly because my work schedule was predictable. In law school, and in legal scholarship, time-management becomes more art than science – making a balanced life seem elusive if not impossible (or sustainable for very long). As a “non-traditional student,” I often find myself juggling competing roles – school bleeds into home life in a way that work did not, and regrettably often, it is home life which pays the price.

The law requires, actually it demands, our full attention. To be successful in the world of legal scholarship, it seems that one must be willing to jump head-long into the depths of the law – no matter where (and when) you might emerge. The process is challenging, frustrating and invigoration all at once. The ability to immerse oneself in the abyss of legal analysis can be as blissful (or terrifying) as swimming in the expanse of the ocean. To tune into the law so completely that the pieces of the puzzle begin to take a coherent shape and solutions emerge is truly a pleasure and luxury. However, as I lose myself in the law, the bustle of life goes on around me. If I am not careful, life’s tendency towards entropy will be readily felt.

Different people have offered their advice on this issue, none of which is completely satisfying. Those in favor of prioritizing home over the law will be quick to point out that it will be my husband, not my law degree, who will cuddle up to me on the couch when we are advanced in years. I hear the argument: invest in the relationship over the degree, and it is compelling, though it gives short shrift to the simple truth that a legal career will provide a lifetime of challenge, growth and fulfillment. Others have likened the work-life balance to juggling: occasionally a ball will fall, but just pick it back up and keep juggling. While I like the analogy, I feel that there are some “balls” which simply shouldn’t be dropped. I think the balancing act is something we all must come to terms with for ourselves. For me, if possible, I should avoid juggling balls that may end up on the floor. I have found that there are some times when home must come first and there are some times that the law must come first. The principle is simple: maximize collective utility, though ascertaining how best to do this is increasingly complicated.

It’s not going to get easier. Law school has yielded an unbalance for now, but it is still far more flexible than work. Once I begin a career and have children, I am sure I will yearn for the lazy days of law school. Viewed in that light, and in the interest of efficiency, if I can learn to better balance the unbalance now, the future may look more promising.

Core: Six or Four

There is a growing trend among law schools to reduce core courses such as Civil Procedure, Contracts, and Torts from 6 credits (3 fall, 3 spring) to 4 credits in one semester. Some say it's to conserve faculty resourses, others say it's to free up those credits for an elective. As someone who took four credit core courses and an elective, one I actually enjoyed (Criminal Procedure with a former SCOTUS clerk), I'm not so sure I prefer that option. It has nothing to do with the quality of the elective, mine was actually fantastic. It has everything to do with what I didn't get a chance to learn in the core courses, or had to blow through in the blink of an eye (e.g. Erie Doctrine). It has everything to do with the fact that I had only one semester to develop rapport and an intellectual connection with core course faculty.

It was so disheartening to overhear professors stand at the podium and mutter under their breath, "I used to teach this as a six credit course, I really want to teach this material, but I have to cut something . . ." Usually the statement was accompanied by a perplexed look and a hand to the head in frustration as the professor stared at the material on the chopping block. You could almost see the wheels in their heads spinning as they flipped through the pages they knew they had to eliminate. They were hoping against hope to fit it in and still stay on track to cover the rest of the material. Then came the sigh, the final look of exasperation, and the conclusion that no, it would just have to be cut. And so the material in question found itself on the cutting room floor. It was equally disheartening to sit in other classes and hear professors say to us incredulously, "You didn't learn THAT in x, y, or z course?!" followed by more looks of perplexity.

If we are distraught by the current trend, if we realize how important it is for students to learn as much as possible in their core courses, I can't help but wonder why the tide keeps turning in favor of four credit courses. Perhaps we lack a group of consumers who will push back. 1Ls entering law school don't know how to brief a case, let alone question the credit hours of their core courses. By the time they realize that six might be better than four they no longer have a dog in that fight, it's a moot issue. Future students who will have a dog in that fight down the road have a ripeness problem. They don't have a "claim" until they are students and by then it is too late.

This leads me to faculty. Professors confront this issue year after year. They are the ones who stand at the podium and scratch their heads in frustration because they can't teach all that they know their students need to learn. For all the faculty out there who yearn for six instead of four, I encourage you to push back. Just because this is the way it is doesn't mean it's the way it has to be.

So Help Us God

"We, the undersigned lawyers, deans, professors, law students, and law school administration and staff denounce in the strongest terms General Pervez Musharraf's recent assault on the rule of law in Pakistan. By suspending the Constitution; dissolving the Supreme Court and the provincial High Courts and replacing them with judges of his own choosing; engaging in arbitrary and unprovoked arrests of thousands of opposition leaders, journalists, and other law-abiding citizens; and violently suppressing protests by hundreds of lawyers who were acting in the highest tradition of our profession, General Musharraf is trampling upon the very system of law that alone can justify a ruler's power over his people. We stand in solidarity with our fellow lawyers and the democratic values that they represent, and we urge an early restoration of legality and legitimate authority in Pakistan."

Yale Law School Dean Harold Koh has circulated this letter to US law schools. To add your signature and law school affiliation, send an email to carolyn.poole@yale.edu.

New Traditions

On TaxProf, Paul Caron posted a YouTube video of the University of Virginia Law Libel Show, a show put on by the UVA law students mocking law, law school, professors, etc...

My wife, Jessica, took part in a similar event at the University of Chicago Law School when she performed in the law school musical. During her second year, they did a show spoofing Trading Places where the dean of the law school and a 1L switched places. It was extremely well done and very funny. It also provided the students a release from the stress of law school. Jessica's involvement in those productions created some of her fondest memories of law school.

Thinking about these events reminded me that part of the reason that I came to Penn State was the chance to be a part of something new (without the usual problems that a new law school has such as name recognition and money). I wanted the opportunity to create new programs and traditions that would shape the future of the law school.

I hope our students (especially those up in UP) realize that they have similar opportunities. The annual events and organizations that they create could become part of the law school environment for years. I hope that they will grab that opportunity and create their own traditions before they graduate. I know that it will hold significant meaning for them when they come back in 5, 10, 25 years and see that the events, groups and traditions that they started are still going strong after many years.

I also know that if the students start a musical tradition here (and I hope they will), they won't make fun of tax the way that the UVA students did since there is nothing funny about tax.

I Was a Stranger, and You Took Me In

Confront homelessness and hunger in our State College and Carlisle communities.

Take part in a discussion among activists, attorneys and the PSULaw community on homelessness. The dual campus event takes place on Wednesday, November 7 with speakers live in Carlisle, Advantica 148 and University Park, Beam 330.

Read more about legal and other aspects of homelessness in displays in Advantica and Beam Library from October 29 through November 9.

Contribute to the food drive organized by our SBA as part of a national effort organized by the ABA Law Student Division's Work-A-Day Project to Fight Homelessness . The SBA will collect canned food for hungry people in our towns between November 7 and November 16 . Your first opportunity to contribute will be at the panel discussion on homelessness on November 7.

Trick or Treaty

Today the Senate is considering the United Nations Convention on the Law of the Sea, also known as LOST (Law of the Seas Treaty) and UNCLOS. The effect of LOST is to grant signatories the governance rights of the 200 nautical mile “economic zone” from a shoreline. For the United States, this would give exclusive claims to a large amount of oceanic “territory,” which could mean an enhanced ability to extract vital resources from the sea. This exclusive grant of rights is something few nations in history have attempted to attain. But, with most things that seem too good to be true, there is a catch. If the Senate ratifies LOST (as both the Clinton and now Bush administration have urged), the United Nations will be vested with the authority to regulate the whole of international waters; including sovereignty over any territorial waters claimed by a signatory state. See Article II § 3. By granting the U.N. this power, is America subjecting itself to a restriction of the basic principles of capitalism - the free-market? For an informative article about some of these issues, see WebMemo by Carrie Donovan of the Heritage Foundation.

Lawyers in Love

Apropos of Kelly's Metamorphosis, picture two lawyers, husband and wife, in a car. Husband drives while wife navigates. At a critical juncture, wife fumbles a direction. The couple end up lost in an area of D.C. where lawyers with good reason hardly ever go.

Husband vents considerable frustration at their predicament, implicitly blaming wife. She asks: "Could you possibly be any angrier if I had gotten us lost deliberately instead of merely by negligence?"

Now picture the two smiling at each other, knowing theirs is a charmed life where their strange ways are always mutually understood.

From Jackson Browne's Lawyers in Love (Asylum Records 1983):

I can't keep up with what's been going down
I think my heart must just be slowing down
Among the human beings in their designer jeans
Am I the only one who hears the screams
And the strangled cries of lawyers in love



To hear Lawyers in Love, press play.

The Metamorphosis

How do I make it stop? Case after case, element upon element, increasingly, legal analysis is taking over my ability to calmly interact with the world. I am less tolerant of inconsistencies, I become aggravated when I see inequities, I even pick-apart situation comedies and explain to my (very annoyed) husband why this or that is inaccurate. Even inefficiencies in everyday speech frustrate me (get to the point, mom). Learning to operate within a systematic analytical framework is comfortable because it is structured and principled, but life does not always follow suit. Before I end up like Gregor Samsa, I must learn what it means to be possessed of a legal mind and not wreak havoc on my community, while being mindful not to neglect the growth and development essential to my studies.

The “problem” stems from the methods we employ to learn the law. Though the methodology itself is not the problem, it provides the fuel. Learning the law is like learning a language = immersion is best. To compound this, the law is pervasive, it touches upon nearly every area of society. To become a more proficient legal thinker, we must take the law out of the casebook and apply it to everyday situations. The result seems inevitable, an inability to remove this legal framework from otherwise normal interactions with the greater lay community. I realized this metamorphosis of the mind happened to me when I began pointing out the inequities of bike-laws and analyzing television. Despite my awareness of this transformation, I still sometimes make the mistake of launching into an oration worthy of a court room with my husband over why he should recognize the merits of efficient refrigerator organization.

I have no anecdotes, no quick-fix, but I do believe this is a necessary part of legal development. By entering this profession, we are changed. We have necessarily become something other than what we were before. We are re-training our analytical thought process to adopt a framework for legal analysis, this training is imprinting on our perception of the world in such a way that it will be impossible to go back to how we were before. It now becomes our responsibility to learn how (and when) to utilize these new skills. My observations have lead me to three conclusions: first, I may never be able to watch a television show again without noting the fallacy of a will provision still taking effect despite modification by circumstance in a state that follows the UPC, but I can learn to keep that fascinating thought to myself. Second, because this profession is based on communication, I must seek out opportunities to engage in legal discourse or it will be harder to keep the former thought to myself. Finally, I must pray that those unfortunate enough to be in proximity during my rehearsals for the grand jury have super-human patience!

Be Hard On Us (but patient) We Need You

I keep reading about the disengagement of students, the lack of classroom participation, the general apathy, etc. Perhaps it's a poor analogy, but I tend to view students as children and professors as parents. Students are trained in law by their professors, just as children are trained in life by their parents. As any good parent knows (full disclosure here, I am not yet a parent) children generally respond to the boundaries and expectations set by their parents. While there may be moments of rebellion, overall when expectations are communicated and there is follow-through children often impress their parents by meeting and sometimes exceeding those expectations.

The same goes for professors in the classroom. Professors set the tone. My first year of law school I had a very parental (i.e. authoritative) professor who set boundaries and communicated clear expectations for classroom discussion. The professor then followed through. When students did not meet those expectations we all knew it and felt the shame, the good kind of shame. We had a healthy fear that inspired us to rise and meet the level of expectation. We also felt a collective sense of pride and relief when we performed to our professor's satisfaction. We strove to make our professor proud and were infinitely rewarded on the occasions we achieved that goal. My first year of law school I also had a "buddy" professor who did not set clear boundaries and allowed students to behave in a casual and jocular manner. I think the goal was collegiality, but the result was near-chaos. We, the same students who sat on the edge of our seats in a "yes, sir" sort of way in the other class, loafed in this class. We rarely performed at full capacity. What was the difference? The tone set by our professors. One professor was not afraid to show authority, but also had the patience to work with what we had to offer and used the Socratic method to pull our best out of us. The other professor was less authoritative and met with students who didn't know where the boundaries were or how to show respect. The result was frustration for all parties involved.

While I hear/read grumbling about student performance and engagement, I also know that professors have a powerful influence on students and their participation. The more professors expect of us and demand that we produce accordingly, the more students rise to the level of expectation and on the occasional, lucky day, exceed those expectations. Be hard on us, but be patient with us, we need you.

Remember the Majesty

The general disengagement experienced by many students is likely reflective of generational trends; specifically, I believe it is the result of a lack of appreciation for the relevance of law school to the practice of law. Law school, unlike medical school, produces generalists. As a result, newly minted J.D.’s have tremendous flexibility, but the reality is that even at graduation, many students still may not know what their practice area will be. If we don’t have a clue where we will ultimately end up, we are told not to worry, “you don’t really learn how to practice law in law school.” With this mindset, it is easy to see how one may (admittedly, short-sightedly) detach from the material being taught – do only what is necessary to earn the degree and get a job. Law school becomes a means to an end, something that must be endured. From what I can tell, there is a grain of truth to this frame of mind. Law school won’t teach us the in’s and out’s of the practice we eventually find ourselves in, but it does equip us to think, write and talk like lawyers. Most importantly, though, law school is our first real exposure to what it means to be a part of the legal community. As law students, we must put off believing that professional life begins after graduation, we entered the legal profession the day we began our legal studies. By impressing upon us the responsibility we bear to our future clients, and to the profession as a whole, we may find the classroom more relevant and ourselves more engaged.

A couple of weeks ago, a professor directed us to a blog that collected tips for voir dire. Last on the list, but certainly not least, was “Remember the Majesty.” The point was that though voir dire may be routine for many lawyers, there should be a reverence about the process and for the system which supports it. In my mind, we law students would do well to remember the majesty of the profession we have entered. While we may not all be starry-eyed about law school, we ought to realize that at this point we are very near entering practice which will affect lives and livelihoods in profound ways on a myriad of levels; no matter what our area of practice turns out to be, we will benefit ourselves and others through our breadth and depth of knowledge. Perhaps there is another way to instill this sense of reverence and responsibility in us, beyond a two-hour compulsory Professional Responsibility course. Lawyers take an oath when being admitted to the bar, why not take an oath when entering law school?


Several years ago, I had the privilege of attending Charles University as a visiting post-graduate scholar. Something I will never forget is the matriculation ceremony my fellow students and I went through at the start of the term. The ceremony took place in a building that dates to the fourteenth century, and possessed all the pomp and circumstance you would expect from one of Europe’s oldest universities (founded in 1348). Since the ceremony was mostly in Czech, I did not understand exactly what was being said, but there was no mistake in what I was doing. The purpose of the ceremony was the solemn act of taking an academic oath; we each in turn touched the University Mace (pictured), declared “I promise,” and shook hands with the Dean. The Rector closed the ceremony by impressing upon us the importance of our oath and the resolutions we had made. It was a powerful experience.

Perhaps instituting a matriculation ceremony and oath for all new law students would help to instill in us the gravity of the endeavor we are undertaking. It won’t reverse a trend in a generation, but it may shift our focus just enough to make a difference.

Quod bonum, felix, faustum fortunamque eveniat.