Thursday, March 20, 2014

Chipping away at Goliath

I took a long break from following economic news and in depth analysis as the cardiac arrest the country went through was dealt with by the powers that be. All I followed were the key numbers: unemployment data, the S&P 500, the price of crude oil, gold, and most importantly interest rates. Ah yes, those devilish rates that have remained slammed near zero for the oligarchs at the top of the food chain. As far as I know my loans are stuck at 8.5% interest with no ability to refinance. Credit card rates are still at 16% for the majority of the population. And then one wonders why wealth and income inequality continues to soar. 

The federal reserve, whose balance sheet has soared to $4.2 trillion, recently announced the most recent round of "tapering" reducing its monthly purchases of Treasury bonds and mortgage paper to $55 billion per month from $65 billion. For a time the Fed was purchasing $85 billion per month. A one third reduction since January. For now the markets are content with this turn in events. As we speak the S&P is bubbling up to 1880, near recent record highs. With the top 1 percent of the nation owning up to 40% of stocks and bonds, no wonder a record number of new homes are purchased by rich investors. In fact, over 70% of investor purchases are all cash purchases. On the other hand, young Americans are left out of the home owner class as student loan debt hampers savings and income. But that's fine, we'll just rent and live on the cheap. 

On a macro level the economy has recovered from the lows of 2008 and 2009. Auto sales are back to 15 million units annualized. Existing homes sales have somewhat recovered to 1998 levels (adjusting for population should be 15 percent higher). New home sales remain in the gutter but multi-family homes (condos and townhomes) are on the rise. Even the federal deficit has shrunk as the CBO projects 2014 deficit at $514 billion (GAO has an estimate closer to $700 billion). A dramatic improvement from the massive $1.5 trillion deficits we had a few years ago. Projections call for $500 billion deficits for the next few years then a slow rise as the population ages and spending outpaces revenues. Of course, the CBO does not take into account a recession or another banking crisis. We will see what the future brings.

On the energy front the country has been on a shale and natural gas bonanza as hydraulic fracking has exploded in the nation’s hinterland. In fact, US oil production in 2013 reached its highest level since 1989! The gains were concentrated in Texas and North Dakota, which together accounted for 83% of U.S. production growth. The downside of this is the cost of production is not only high but only damaging to the environment. Time will tell what the verdict is on hydraulic fracking but research indicates that there is contamination of underground water sources. Average cost per barrel is $80 from these shale oil plays. In addition, the wells release up to 70% of their production in the first two years, then rapidly decline. In the short term, however, this increase in oil production has reduced our trade deficit and helped the balance of payments. It has also created jobs and spurred investment.

The beloved law schools, on the other hand, are not enjoying the current boom as applications have collapsed and enrollment at many of these esteemed institutions is in the gutter. Third tier reality has covered this story intensively. For example in 2000 there were 100,000 applicants to law schools while this year's estimate is 54,000. Great news for current attorneys as the glut is finally being remedied. As I predicted a few years ago I fully expect a number of these law schools to shut down. A recent New York Times article quotes a professor that said "Students are voting with their feet. There are going to be massive layoffs in law schools in the fall. We won't have the bodies we need to meet the payroll." Yea, man. You won’t have "bodies" aka cannon fodder to lever up to fund your salaries anymore. Enough damage has been caused it is about time that the correction arrives. For those fools that still decide to go to law school in this era, paying sticker price for an overpriced education, they can only blame themselves. The news is out for any prospective student especially in this online era. 

So now we stand at what I believe is the top of the current economic cycle. The average expansion lasts anywhere between 5 to 7 years. We would be “due” a recession sometime in the next few years but given how much interference there is in the real economy I’m not sure those metrics apply anymore. We have had rates slammed to zero since the end of 2008. The federal reserve balance sheet will have expanded to $5 trillion by the time this current round of quantitative easing is complete. All this juice, all this stimulus, and all they can muster is sluggish economic growth. In a healthy economy all these measures would have precipitated a massive boom. But this is the consequence of excess debt and a dysfunctional economy where the mega corps are rewarded while the middle class withers away piece by piece. I’m curious to see what a 3 percent rise in interest rates will do to the machine. How will the federal government deal with such an interest expense? What will happen to the housing market when rates go back to 6 or even 7 percent? We are all in, ladies and gentlemen.

Curiously, gold is trading at $1330 while the S&P 500 is at record highs. Gold may have more to fall in the near term as the markets continue their rally into the heavens. Maybe the S&P hits 2000, or even 2200 in this crack up boom. But the fact that gold has not collapsed is telling. Longer term things do not look very good for the nation’s finances and this is why I believe gold has maintained its current price. At 17.4 trillion dollars the national debt continues to rise. The current decimation of the middle class will have long lasting consequences on the federal balance sheet. Who will pay for the coming social security and medicare costs? Surely the rulers of this nation realize that we are at the mercy of interest rates. And God forbid the rates pop during a recession as it’s possible in such an environment to see gaping deficits in excess of $2 trillion. How high can the national debt rise to until we have our own bond market crisis? For some reason $25 trillion is the number that pops into my head. With real wages stagnant since 2000 but costs continuing to rise, how will this debt ever get paid off?

Yesterday I saw this headline that said roughly 36 percent of workers have less than $1,000.00 put away for retirement. This amount does not include home equity (we still have a major problem with underwater mortgages). A whopping 60 percent of workers have less than $25,000.00 for retirement. 25K should last a year, maybe two if you really stretched it out. So it’s apparent that Americans do not have sufficient savings to pay off this debt. Median household income at 50k, with the newest generation entering the workforce with unprecedented student loans. And yet the debt continues to grow unabated.

If I had to take a guess, the US Government will protect the Treasury Bond market first and foremost. The default will come to Social Security and Medicare recipients. If you think that wealth inequality is bad now the future is going to be a nightmare for many Americans. Already the US Gov is stiffing social security recipients as it understates inflation thereby reducing COLA in SS payouts (COLA is tied to CPI). Expect less quality care and benefits to medicare as the system continues to get flooded by broke beneficiaries. This is how the government will be able to “reduce” the unfunded liabilities it owes to its own citizens as it changes the definition and scope of “liability.” It is headlines like the one above that keep me from buying a new car. I will probably never purchase a new car ever again. Just buy 4 year old used ones for 50 percent discounts, putting 50 percent down paying them off in 2 years. Not live the life of payments like the previous generation did. Hopefully we can stash something away as millions of boomers are going to be in a terrible position. 

I keep upbeat on most days just grinding along doing my own thing. Focusing on this little practice of mine, trying to find ways to market myself. Nevertheless it pains me to watch this country continue to decline, knowing that our generation is dealing with the brunt of it. But there is no fighting it as we cannot stop gravity. What comes up must come down. And just like so many other empires before it the United States also has its date with destiny. Personally I place the blame on a serious lack of leadership in this country. Wall street CEOs and the executive class are more concerned about their multi-million dollar bonuses, stock options and buybacks, productivity and outsourcing instead of their own countrymen. Congress approval rating wallows at 13% as the most recent poll indicates. 13 fucking percent. The disconnect is also apparent in the wealth disparity between U.S. Senators and their constituents as the average senator is now worth nearly $3 million. Average US Household net worth is 68k. In other words 44 times more wealth then the average household. What in the hell does a U.S. Senator have in common with six pack Joe versus the big finance or big pharma lobbyist? The lobbyist will win every single time. And they do, for now. 

So what does this mean for all of us? One thing that I have learned is that we are only in control of our own lives. At the end of the day we have no control over what the rulers of this country will do. Sure we can write letters, post blogs, articles, facebook posts and raise awareness. But when power has been so consolidated at the top there are limits to the effects of our voices. The only thing we can do is control our own lives, our own finances, our own decisions, to the extent possible of course. America had a nice run from the 50s up until the early 80s. The game changed in the past twenty years and now we are in the Oligarchy America. We have to use the tools available to us. Goliath may be powerful but he has a weakness. 

Recent law school graduates indeed face a significant challenge as we have come to the realization that our degrees are not worth the price we paid in terms of money, debt and time. The winners are few while the financial losers abound. However this doesn’t mean you give up. You still have to fight. You still have to do something, anything you can, to make a difference in your life. As a personal example, one thing that I did was place my business cards in front of a register at a fast food restaurant. I’ve actually placed the cards at several establishments (friends and family). I get a call from a guy that was in a bad bad wreck. 7 months later I settled his injury case for 100k. It was a literal home run, having only spent a few hundred bucks getting hospital records, police files and writing a crafty demand letter. I could have sat at home moping my fate, being depressed about not having so many things. Not having a home of my own, not having a steady job.  Instead I chose to do something. I took some action. Little action. Every day I do something in furtherance of my practice. Am I scared? Fuck yes I am. But I just keep plowing forward. With limited capital I am forced to use my human capital as much as possible. I hope to succeed and wish to succeed.

Every day I learn something new and I educate myself. I want to be a specialist. I want to be the attorney that answers client questions with my specialized knowledge. Not like the mills that are so busy that they don’t know their client’s names.  I have worked for the mills and I HATE THE FUCKING MILLS. FUCK YOU MILLS!!! These bastards, these greedy monsters take in client after client after client. Sometimes the clients will have 3 to 4 different attorneys by the time the case is over.  These firms with their crafty retainers sucker clients in with their “investigators” that drive to sign up the clients within the hour. Sometimes the investigator fee can run as high as $300.00 if the investigator had to make an additional trip. These retainer agreements provide for 40% fees after 60 days. 60 days in a personal injury claim is equivalent to 1 hour. NO CASES SETTLE IN LESS THAN 60 DAYS UNLESS ANOTHER ATTORNEY GOT SUBBED OUT. Most of these mills don’t even have westlaw or lexis to properly serve their clients. If anything, this is what I would love to do. Spare clients the misery and misfortune of working with these mill firms that mishandle their cases and end up taking half the recovery in fees and “costs” yes some of these firms will charge a “one time administrative fee of $500.” No you fucking fucks you pay your administrative costs out of FEES EARNED.

So when it comes time to settle the bread and butter soft tissue case:
12,000.00 settlement
4800 fees (on 40%)
500 in fluff costs
200 in actual costs
300 for investigator
6,200.00 for client before medicals

Whereas a lawyer like me will charge 33.33% earning client 800 more
Won’t charge for an investigator for a sign up that’s 300
Wont charge an absurd $500.00 one time cost
Just these three items will net the client $1,600.00 more
Throw in an extra couple grand in settlement amount as I’ll actually work up the file

There, that’s my anti-mill rant.

Hopefully I’ll be successful in my endeavor. No matter what I do, the only thing I can do is do it right with 100 percent effort and nothing less. Hopefully a bunch of young guys and gals can chip away at the big mill model and actually provide quality service for clients. If there is any hope that I see it is this. The same applies in big-food, big-retailer, big-doc, big fitness. Bigger does not mean better.

That’s all for now. Peace 


  1. I just found your blog, and I loved reading this. Your writing style is mesmerizing.

  2. Subprime, you are a goddamned inspiration. The emotional charge induced by your posts is more effective than the highest legal dose of Adderall. I feel like starting 3 businesses right now.
    Your buddy from the coal mines.

  3. I thoroughly enjoyed your description of "the mills." I was under the impression that attorneys were not supposed to "ambulance chase," but It sounds like these "investigators" are doing just that--while not being attorneys, they're personally soliciting cases on behalf of attorneys, dodging the technicality but not the spirit of attorneys' ethical guidelines.

    Aren't bar associations supposed to prosecute such "investigators" as "engaging in the unauthorized practice of law"? It sounds like the ethical standards have gone out the window in order to shaft injured clients and lawyers, and protect insurance companies from paying real benefits to real people. Who bought out the bar associations?

  4. Thanks for posting this; was really inspirational. I have needed a pick-me-up so badly, for so long...thank you.

  5. WHY DO NOT YOU POAST MOAR???!!! Seriously, dude, get on it.

  6. Hi Dear

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  7. It's been a long time, what's your status now?

    I suspect you actually wound up paying down most of your student loans by now.

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