Making the Grades

The New York Times reports that at least ten law schools have raised their grade curves in the last two years. The new rationale for this timeworn response is that students need a competitive edge in a tight job market and higher gpa, however contrived, is just the thing. Ironically, by outing the culprit law schools, the New York Times has probably reversed any advantage their students might have reaped from the sudden lift in gpas.

The premise that a law school can give its graduates the edge in the job market simply by raising their gpas across the board is offensive. Rank in class and rank of law school provide much more useful comparative data than gpa, so the premise that higher gpas, all other things equal, will translate into more job opportunities is dubious. Even assuming that raising the grade curve for all students yields a benefit among a segment of the market (gpa fetishists), the benefit to students at a particular school is at best a wash. Students with otherwise lackluster gpas benefit at the expense of the top of the class who find it increasingly difficult and pointless to distinguish themselves from their peers. If everybody is special as a matter of law school policy, why bother with the time consuming ritual of studying?

Raising the grade curve may make a law faculty feel compassionate in the short run. But all it really accomplishes is to make the faculty less relevant to the market as an evaluator of relative quality. Expert faculty differentiation among students (via competitively awarded grades) is a huge part of what makes a JD valuable. If the market doesn’t perceive any meaningful differentiation among students on the basis of the grades we assign, we’ll be out of business in the blink of an eye. At the very least, we won’t be worth our current salaries.

Two things remain true regardless of the winds of grade inflation. I’d hire someone with a C+ in Corporate Tax over another with an A in (fluff of your choice) any day of the week. And, all students want A’s until the day everybody gets them.

Beyond Understanding

Ironic, isn't it, that proponents of federal overhaul of financial services industry regulation criticize structured finance transactions, derivatives trading and the interconnectedness of national and global financial systems on grounds of complexity. The implication is that mortgage backed securities and other collateralized debt obligation deals were so complicated that even the most sophisticated investors couldn't understand the risks they were incurring.

The bill before the conference committee, Restoring Financial Stability Act of 2010 (H.R. 4173), is over 1600 pages long.

You Not Only Have The Right To Remain Silent, But, If That's Your Choice, Then The Responsibility, Too

The recent Supreme Court opinion handed down, as they say, in the case of Berghuis v. Thompkins, allows law enforcement to continue questioning a suspect, and to use what that suspect says against him in court, in the absence of an express declaration, either in writing or orally, that the suspect is invoking his right to remain silent.
As with other issues of its kind, this one managed to split nine identically educated lawyers five to four.

Mr. Thompkins, who refused to sign a declaration acknowledging he had been read his Miranda rights, was going along fine maintaining his silence in the face of questioning, until he was done in by the God wheeze:
Detective: "Do you pray to God to forgive you for shooting that boy down?"
Thompkins: "Yes."

The jury at trial was presented with this dialog and, inter alia, finding praying for forgiveness for an act evidence of having committed the act, convicted Mr. Thompkins.

Justice Sotomayor dissented in grand fashion, offering a document longer than the opinion. In it, she at least avoided the tired phrase that the majority had stood (Miranda here, but substitute any statute/rule/doctrine) Miranda on its head. In its place, she offered this equally prosaic but less hackneyed synonym: "Today's decision turns Miranda upside down." Justice Sotomayor, seizing on an apparent contradiction flowing from the ruling, writes, "Criminal suspects must now unambiguously invoke their right to remain silent- which, counterintuitively, requires them to speak."

Of course, criminal suspects could say nothing at all. The guilty ones could add that restraint to their tool kit, already containing, for example, guns and knives and such. Mr. Thompkins, perhaps and poetically, was done in by the same lack of impulse control (his own) that did in his victim.

Now we'll find out if the new principle, universally applied, is on balance salutary or not.

On Property Tax Appeals

Here is a story concerning the growing trend, in many jurisdictions, of property tax appeals among homeowners. In my own state of New Jersey, property taxes are big potatoes. Here, as elsewhere, property taxes are a significant part of how localities within the state finance their governments. And New Jersey has the highest property taxes in the nation. In many property tax-setting jurisdictions across the state, property tax assessments are yet pegged to home values that were assessed at or near the high-point of the real estate boom. Because many jurisdictions have not conducted new assessments since that time, many homeowners may be paying significantly more in property taxes than they should be paying. Of course, one governmental incentive is to delay any reassessment for as long as legally possible, the better to keep the money coming in to finance local governments; this is especially true at a time when Trenton, under a new governor, is poised to reduce state aid to localities. Nevertheless, more home owners and some businesses in the state are pressing forward with appeals to have their property taxes lowered. As an attorney in the state, I've had occasion to become familiar with the appeal process in the County of Mercer.

Homeowners may bring appeals on their own before the county assessment board, and, generally speaking, they will be opposed at the hearing by the relevant township assessor's office. Chances for homeowners of prevailing are not great. For one thing, state law allows a 15% margin of error to the township assessor, which diminishes not just the number of appeals, but can also affect any write-down. Moreover, townships are likely to aggressively contend any appeal, because revenue is scarce. And if you are a corporation and want to appeal your property tax assessment, you are required to have a lawyer licensed in the state prosecute your appeal. For small corporations without a counsel's office, that means the cost of representation must be considered alongside the uncertainty of prevailing, and the magnitude of any savings coming from prevailing, in arriving at a decision whether to appeal your current property tax assessment.

New Jersey is in bad fiscal shape. And local governments in the state, long on current and legacy promises to highly compensated public employees, now find themselves between the rock of a new governor intent on lowering their state aid and the hard place of corporate and private citizens looking to reduce their property tax bills, many of which are based on inflated property values.

Comes the bill due.

Required Reading for Lawyers (and Everyone Else)

The group Keep America Safe recently ran an ad pressuring the Obama Administration to reveal the names of seven Justice Department lawyers (appointed under this Administration) who in the past volunteered to represent Guantanamo detainees. In this weekend's Wall Street Journal, in the Weekend Journal section, are two essays on the subject.

One essay is written by Stephen Jones, the lawyer who represented, upon judicial request,Timothy McVeigh. Mr. Jones' essay is in line with the published opinions of many other lawyers regarding the propriety of the Keep America Safe ad. But his essay also includes harrowing details of Mr. Jones' life during and after his representation of McVeigh.

The other essay is written by Andrew C. McCarthy, who as an A.U.S.A. in the Southern District of New York prosecuted Omar Abdel-Rahman, known as the Blind Sheikh, and his co-conspirators, for the so-called Bridges and Tunnels terrorism plot. Whatever its prescriptive merit, McCarthy's essay is certainly courageous, as he stakes out a position strikingly at odds with the near-universal opinion (shared by lawyers on both sides of what may loosely be called the national security debate) that the Keep America Safe ad was out-of-bounds. McCarthy does a service at least to this extent: he points out a number of relevant legal distinctions between the circumstances of the detainees and the so-called "al Qaeda Seven" on the one hand, and prior defendants and their attorneys on the other hand, that lawyers like Mr. Jones, for example, have used to substantiate the out-of-bounds nature of the Keep America Safe ad. McCarthy writes more extensively on his views here.

The best and most balanced thing I have read on the subject was written by former Attorney General Michael B. Mukasey. That essay calls foul both the demonization of the likes of John Yoo and Jay Bybee, and of the so-called "al Qaeda Seven." And for the same reason.

Collateralized Debt Obligations Tutorial

An Easily Understandable Explanation of Derivative Markets

Perhaps one of the clearest explanations I have seen.

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Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed in a ledger (thereby granting the customers loans).

Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively.

A young and dynamic Vice President at the local bank recognizes that these customer debts constitute valuable future assets, and increases Heidi's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank's corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.
Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations, she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the various BOND securities. They find they are now faced with not only having to write off her bad debt but also with losing over 90% of the presumed value of the bonds. Her wine supplier claims bankruptcy, closing the doors on a family business that had endured for three generations, and her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar, no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi's bar.