What do you call 500 lawyers at the bottom of the ocean? A good start.
I am a fan of the law and the Supreme Court in particular, but I still hate what many lawyers have done to over complicate the law and regulations in particular. 2100 page Obamacare? 800 page Immigration reform? 2300 page Financial reform? Laws that are “of the people by the people for the people” should be simple enough that you don’t always need a lawyer to understand them.
I read a story the other day that Blackrock, the world’s largest money manager and one of the largest creators of ETFs had laid off 300 employees in March. This is a result of a cost saving reorganization plan put in place last year. On May 3, the CEO announced that the company will hire 300 lawyers to help it cope with global banking regulations.
We criticize CEO pay and management ineffectiveness, but here is a company that manages huge amounts of our pension and retirement assets, trying to safeguard our financial future by providing specific products that were created with very low costs (ETFs), to protect our returms. They came up with a plan to save money further, which may in turn have led to even lower fees as downward pricing pressure has effected management fee bps across the industry. The 300 were most likely lower level associates that got pink slips, you think they make as much as 300 corporate lawyers? Don’t I have to conclude that in this case government regulations are widening the income gap?
What did they realize after years of trying to figure out what is going on? That banking regulation across all of the world’s monetary systems has become so complex that the largest holder of banking debt/equity needs to hire an additional 300 full time lawyers over the course of 2013 just to address the regulatory mess. Some of that mess results from laws passed whose regulations have not even been written. Basically companies are playing a game in which the rules for how to play are in flux. Imagine moving your rook across a chessboard only to find that the rules have changed and you can no longer move it backward. As you evaluate your next move, how do you consider acting when you know there will be more rules changes? When you see that so many corporations have cash sitting on the sideline and are too afraid to hire and invest, do you really think Elizabeth Warren, Barney Frank, Chris Dodd and the rest of the regulatory rules making committees really had our best intentions in mind?
Four years after the financial collapse, the market has returned to pre-crisis levels. But hiring and investment has not. I wonder if we could put a price tag on the lack of economic development, growth, tax revenue, personal income, etc that has been caused by the slow economic recovery over the past few years. It is uncharacteristically slow for a ‘recovery’ and is undoubtedly partially caused by uncertainty in the market with businesses not investing. I’d like to compare that ‘cost’ to the macroeconomic cost of what another 9 month financial crisis price tag would be and then ask people if they really want to spend all this time living in stagnation so that lawyers can try to legislate and regulate for a crisis we can’t really conceptualize.
If I asked you if you would want to endure years of construction and $millions of cost trying to build a strong enough roof over your yard so you could go out and enjoy the fresh air without having the risk of being killed by a meteorite, would you say “yes”? Oh and that super fancy roof will do nothing to protect from flash floods, gangbanger drive-by’s, hurricanes or other natural disasters. You still want to buy shares in this here Brooklyn Bridge?
There’s a reason they call it “risk” folks, get out there and take some. Oh and be sure to tell every political lawyer you see to go take a swim in the Atlantic.