Friday, March 12, 2010

Why I chose to label my blog "subprimeJD"

I will make strong arguments as to why the JD is just another form of subprime. In the last decade we have had subprime homeowners, car loans, credit card borrowers, junk bonds, CDO's, CDO squared, CDS, interest rate swaps, and now we have the subprime JD.

The JD, especially from a TTT or Tier 4 law school (which I am a graduate of) has many of the characteristics of a subprime borrower. First and foremost you have the element of FRAUD. The ABA permitting law schools to publish patently fraudulent data regarding their grads employment statistics is the primary reason why many chose to go to law school. Just like the people who purchased mortgages and were misled into buying homes they couldnt afford, so have many future and existing JD's also been misled. Of course, the deception with the ABA data is much worse then the subprime homeowner as this data is clear: 95% of grads supposedly find work. The option ARM contract and the negative amortization 5/1 year ARM contract were much more difficult to decipher. Just as they were lured into buying a home, we were lured into getting a JD. Subprime borrowers get to walk away from their negative equity homes while we are stuck with the 100k plus in student loan debt for life.

Moreover, just as subprime borrowers were caught up in a bubble, JD's also been lured in by a bubble. The great law school bubble is exploding higher and will continue growing until its blowoff top has taken place. Due to the economic depression, more BA's are attending law school in the hopes of securing their future. Similar to many subprime homeowners who purchased homes out of fear of being forever priced out of the market, many JD's are going to law school out of fear of not being able to find meaningful employment with their mostly worthless BA's. Its a fact that most JD's majored in history, liberal arts, political science, philosophy or art history in their undergraduate study. With very low chances of finding meaningful employment with these degrees, law school seemed like a obvious next step.

The JD is also similar to the subprime mortgage borrower as these student loans have been sliced and diced in the secondary capital markets. This blog will differ somewhat from the other fuck law school blogs as I will discuss many more financial market topics. Subprime loans were made to shit credit borrowers because the risk of loss was sold off to other parties. Surely most of you know of the notorious MBS (mortgage backed security) or CDO (collateralized debt obligation). If you dont, look them up on wikipedia and you will learn very quickly. For a juicy overview of the student loan CDO market, take a look at this site:
http://www.dbrs.com/research/231890/u-s-structured-finance-newsletter/student-loan-abs.pdf
From 2004-2008, more than $312 billion worth of student loans were securitized and sold off to the secondary market, with our JD being the collateral for repayment of the promissory note. Its obvious to many now that the JD is effectively worthless, especially for TTT grads like me. Just as the home was the collateral for the subprime mortgage borrower (whereby the asset posted as collateral lost over 50% of its value), our JD's and our beings were posted as collateral for this quite impressive CDO market. Now obviously, that $312 billion in issuance isnt solely law grad debt, but i wouldnt be surprised that a substantial amount of it is with law school costing so fucking much money.

So we have fraud, a emotional bubble, and the debt securitization markets that make the JD similar to the subprime mortgage borrower. And as a savvy investor im pretty fucking pissed that I got caught up in this bubble. I have a knack for seeing bubbles before they pop and happily make money shorting the hell out of them. Yes, I shorted the market before the big crash in Sept 2008 and it was the greatest trade ever. I knew the economy would fall apart in 2007 but i didnt realize that things were SOOOO bad for the T50000 JD grad. Surely it must have been my own cognitive dissonance at work. Well shit, when you have 1L year with 20% of the class being chopped off you dont really get to focus on too many other things. By year 2 I realized that i fucked myself but i decided to finish it up. Imagine this, on the 2nd day of the Cal Bar exam i was telling some indian chick that was studying during the lunch break that i didnt even care to be a lawyer. She literally ran away from me LOL. Well i passed on my first try but the euphoria sank away within days as i realized how horribly fucked the market was for a half mutant Tier 4 grad like me. I know a harvard boy that got laid off and was looking for work for 10 months before he got some inhouse gig. I figured to myself, if a BIGLAW Harvard boy was having trouble, then im really screwed. Thats when i realized that I was a subprime JD and that I got suckered by the wall street gang.

Even to this day people look at me in awe when i tell them that im a lawyer. Their eyes open wide and say "wow, thats amazing, good job, im so proud". Then i respond with the im unemployed and have been looking for work for 9 months then their enthusiasm goes away.

So the "perception" that attorneys have it made is fucking pervasive. It even conned me, the skeptic of skeptics. At the age of 27 i still have alot to learn. Shit!

Ill close it off with this: if the law schools were the "mortgage companies" that conned us into going into heaps of nondischargeable debt, then we can effectively short these companies. As many of you know, a large amount of these Tier 4 law schools are private. Also, many of them went into debt themselves by issuing bonds. Many of these bonds are rated BBB+ which is one grade above investment grade. Hopefully some wiseguy finance person can come up with some conduit where we can short (short meaning bet against) the hell out of these bonds. Because when the law school bubble pops and the bottom 30-50 law schools file for ch11 bankruptcy their bonds will go kaboom. Surely there must be some CDS on these bonds.

Until next time

Subprime

5 comments:

  1. Thanks nando! I hope you enjoy the posts.

    ReplyDelete
  2. I'm an author of one of those fuck law school blogs, and I appreciate your unique insight in the mix. There is no good financial reason to go to law school. Keep on writing! You'll probably attract trolls, industry apologists, and eager prelaws set out to prove you wrong, but that should be your motivation to keep fighting the fight.

    ReplyDelete
  3. Trolls, law school apologists and prelaw bashers do not concern me one bit. This blog is to educate those who know the truth, plant the seeds to possibly deter prelaw students from attending, and most importantly, to foster ideas and solutions to our current predicament.

    Im still trying to figure out how to customize my page!!!!

    ReplyDelete
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