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Debts that can’t be repaid won’t be

[ 94 ] August 6, 2013 |

The Consumer Financial Protection Bureau has done a breakdown of the repayment status of the one trillion dollars of outstanding federal student loan debt (this figure doesn’t include private student loans), held collectively by nearly 51 million Americans.

Here are the numbers:

Total federal student loan debt: $999.7 billion

In repayment: $493.7 billion

In school: $146 billion

In grace period (these are people who graduated recently): $47 billion

In deferment: $122.1 billion

In forbearance: $91.1 billion

In default: $89.3 billion

Other: $9.5 billion

So only 49% of federal student loans are currently getting paid back. Another 19% aren’t being paid back because the people who owe the money are either currently in school or graduated recently. That leaves nearly one-third of federal student loans either in deferment, forbearance, or default. (A commenter notes that some and perhaps most of the loans in deferment are held by people who are doubling down on more degrees).

Matt Leichter:

I’d love to see a comparison to credit cards, but aside from class concerns, I think it’d tell us that the federal loan program has been a spectacular, embarrassing failure.

Basically, contemporary America has moved from a model of higher education in which a lot of people could afford to go to college, to one in which most people can’t. And we’re putting off the social upheaval this shift might cause by loaning people money they can’t repay.

The difference between this and a Ponzi scheme is that a Ponzi scheme is illegal.

Would you pay $250 million for a newspaper in 2013?

[ 100 ] August 5, 2013 |

And “affiliated publications.”

This is pretty much walking around money for Jeff Bezos, so maybe it can be modeled as consumption, as the dismal scientists say.

. . . interesting nugget from below the fold:

[Bezos] founded Amazon at 30 with a $300,000 loan from his parents, working out of the garage in his rented home in Bellevue, Wash. He called his creation Amazon in part to convey the breadth of its offerings; early promotions called the site “Earth’s Biggest Bookstore.”

These bootstraps are made for walking.

Society as pyramid scheme

[ 162 ] August 5, 2013 |

running on empty

One of my brothers is a musician who runs a recording studio, and recently he told me that a friend of his recorded an album (is that still the right term?) at a well-known studio in Los Angeles. His friend doesn’t have a record deal or anything — he just rented the studio time to cut the record.

Here’s the interesting part: the guy’s backing band consisted of Jim Keltner, Leland Sklar, and a couple of other guys who names I didn’t recognize but who my brother assured me are similarly big time. OK, that’s not really the interesting part: the interesting part is that, according to my brother’s friend, you can currently hire superstar session men like Keltner and Sklar for $500 per day to make your self-financed record. In other words, you can basically get Eric Clapton’s or Jackson Browne’s former backing band to be your backing band on your record for around $2000, total, if you’re willing to do it in a day.

According to my brother, what’s happened in the music business is that it’s moved from a model where a lot of supremely talented people were making very good livings to one where a handful of people at the very top (performers and production moguls) are making literally hundreds of millions of dollars, while 99.9% of the people who actually make the wheels go round are left fighting for scraps. ($500 for ten hours of session work is far from starvation wages, of course, but the point is that if these guys are working for $50 an hour, how is an as average or, God forbid, aspiring studio musician going to get any work, let alone get paid for it?).

It’s true the people at the very top have always gotten huge rewards, but what seems to be changing is that those rewards have increased exponentially, while everybody else is left with a an increasingly tiny sliver of the overall pie.

And needless to say, this isn’t just happening in the music business.

How the other 1% lives

[ 140 ] August 4, 2013 |

josh mcfarland

Actual first graph of a Reuters story featured in today’s edition of The Paper of Record:

NEW YORK — When Josh McFarland graduated from Stanford he owed $40,000 in student loans and couldn’t fathom a way he’d ever pay it off and have a future for himself – not unusual for the typical young adult these days. Then he went to work for Google.

It gets a lot worse from there.

This kind of thing brings to mind a passage from Homage to Catalonia:

Some of the English visitors who flitted briefly through Spain, from hotel to hotel, seem not to have noticed that there was anything wrong with the general atmosphere. The Duchess of Atholl writes, I notice (Sunday Express, 17 October 1937):

I was in Valencia, Madrid, and Barcelona . . . perfect order prevailed in
all three towns without any display of force. All the hotels in which I stayed
were not only ‘normal’ and ‘decent’, but extremely comfortable, in spite of
the shortage of butter and coffee.

It is a peculiarity of English travellers that they do not really believe in the existence of anything outside the smart hotels. I hope they found some butter for the Duchess of Atholl.

. . . the story also cites some extremely improbable statistics, such as that “12 million Gen-Yers make more than $100,000 per year.” The story defines Generation Y as people born after 1980 (this is the most liberal definition of the category.). There are about 40 million Americans in that category who are 21 or older. So according to the story nearly 30% of these people have annual incomes of $100,000 or more. Given that in 2010 only 6.6% of American adults had incomes of $100,000 or more the the 30% figure for people in their 20s and early 30s must be wildly exaggerated.

Update: The source of the wrongheaded statistic appears to be this: the cited survey claims 59 million Americans (including children) live in households with incomes of $100,000 plus, and that 20% of “affluent consumers” are in the Gen Y cohort (this appears to mean that 20% of the adults who live in households with $100,000+ incomes are of this age). The story’s author then did some very bad math to generate the claim that “12 million Gen Y-ers make more than $100,000.” (A couple of commenters make the excellent point that, given the stats the story quotes about Gen Y-ers living or moving back in with their parents, a good portion of these “affluent” young adults’ supposed affluence is a product of their parents’ household income being attributed to their children!).

Practicing international law

[ 73 ] August 3, 2013 |

A gold-plated door

I hear from time to time from prospective law students who tell me they would like to practice something called “international law.” It’s difficult to advise them, because I’ve always been unclear about just what “international law” might be. Fortunately a commenter at Top Law Schools has provided this handy Day In the Life of An International Law Attorney:

0830: Wake up in stately 16th Century hotel in Zurich. Kiss beautiful Russian model you met last night goodbye.

0930: Breakfast at cafe overlooking the clear waters of Lake Zurich. Read the Financial Times and chuckle about their shoddy reporting on a deal you headlined last week.

1000: Take high-speed train to Paris, fielding conference calls from several CEOs and bankers.

1100: Negotiate $13 million merger between US company and European conglomerate. Everyone speaks English with a broken accent, of course, so you can understand all the documents and the negotiations.

1230: Lunch with other International Corporate Lawyers at International Corporate Lawyer Club, everyone, of course, speaking English with a broken accent.

1400: Fly to the Hague for some pro-bono work. By 1500, you’ve convicted a genocidal African dictator of every war crime imaginable. He curses you in broken English. A hundred survivors from the village he attacked gift your their ceremonial hunting horn. The chief’s beautiful, Oxford educated daughter, who you’ve been working closely with, flashes you a flirtatious smile.

1730: Return to London office of International Corporate Law Firm. Exchange witty banter with secretary. Get dressed down by your curmudgeonly boss.

1900: High-stakes Baccarat game at Monte Carlo with head of European finance ministry. After beating him, he agrees to relax certain disclosure requirements for IPOs. Also he pays for champagne (in broken English) and you party with Russian model and African chief’s daughter.

2300: Returning to hotel, concierge informs you of a call. Picking up, you hear “Mr. Corporate Lawyer, this is our fifth call. You’ve missed the last three payments on your student loans. If you’d like to discuss repayment options, you can contact me at 1-800-FANTASY.”

You wake up in a cold sweat, and realize you have less than 20 minutes to get dressed, shower, and get to your document review job in a warehouse in New Jersey. Think about going back to law school for the “International Law LLM.”

Eagles decide Riley Cooper needs therapy; Bob Filner says city needs to pay his legal bills because he didn’t get any

[ 84 ] August 1, 2013 |
“In meeting with Riley yesterday, we decided together that his next step will be to seek outside assistance to help him fully understand the impact of his words and actions. He needs to reflect. As an organization, we will provide the resources he needs to do so.”

Backstory here.

Meanwhile, it turns out Bob Filner only harasses women because the city of which he’s mayor failed to “train” him not to do so:

San Diego Mayor Bob Filner, accused by at least eight women of sexually harassing them, never received a mandated training course on sexual harassment from the city, according to his attorney.

Filner’s lawyer, Harvey Berger, says the city failed to meet its legal requirement and therefore should foot the mayor’s legal bills. Filner and the city of San Diego are being sued by the mayor’s former communications director, Irene McCormack Jackson.

The Associated Press reports that “Berger said the training was scheduled but the city trainer canceled and did not reschedule.” Berger laid out his arguments in a letter to City Attorney Jan Goldsmith, parts of which were made public Wednesday.

City council members have unanimously refused to fund Filner’s defense and are suing the mayor for any damages the city may incur dealing with McCormack’s lawsuit, according to the San Diego Union-Tribune.

“If Bob Filner is engaged in unlawful conduct and the city is held liable, he will have to reimburse us every penny the city pays and its attorney fees,” Goldsmith told the U-T.

Member station KPBS reports that when McCormack went public with her allegations earlier this month:

“She described Filner’s penchant for putting her into a headlock and pulling her about, while whispering sexually explicit comments in her ear. She said the mayor often told her he loved her, wanted to kiss her, told her he wanted to see her naked and that she should work without panties at City Hall; and that he wanted to ‘consummate their relationship.’ “

Thomas Cooley Law School: Don’t blame us if you believed our lies

[ 49 ] August 1, 2013 |

Shorter Sixth Circuit: It’s unreasonable for prospective law students to expect a law school’s representations about its employment statistics to be, you know, true:

Nor can the graduates establish a claim for fraudulent misrepresentation based
on the statistic for “average starting salary for all graduates” because their reliance
on it was unreasonable. The graduates alleged that Cooley committed fraudulent
misrepresentation by including the line in each year’s Employment Report and Salary
Survey stating the “average starting salary for all graduates.”
(my emphasis)

For example, the Employment Report for 2010 states that the “average starting
salary for all graduates” was $54,796. On its face, the phrase “all graduates” means just
that: all Cooley graduates—not just the ones who responded to the survey—made,
on average, $54,796. One could assume that, because there were 934 graduates, the
average starting salary for all 934 graduates was $54,796. The title of the document
containing this statement is “Employment Report and Salary Survey.” Therefore, it
cannot be that the average starting salary of all 2010 graduates was $54,796, because the
document, entitled “Employment Report and Salary Survey” (emphasis added) was not
based on the responses of all of the Cooley graduates in 2010; rather, the document
states that the number of 2010 graduates was 934, but the number of graduates with
employment status known was 780. So, the “[a]verage starting salary for all graduates”
would instead mean the average starting salary of graduates who responded to the survey
and chose to include their salary information—not the average salary of all Cooley
graduates in any given year.

We agree with the district court that this statistic is “objectively untrue,”
MacDonald, 880 F. Supp. 2d at 794, but that the graduates’ reliance upon it was “also
unreasonable,” id. at 796, which dooms their fraudulent misrepresentation claim.

Despite the statement’s untruth, the graduates cannot demonstrate that their
reliance on this statement was reasonable. Unreasonable reliance includes relying on an
alleged misrepresentation that was expressly contradicted in a written contract that a
plaintiff reviewed and signed. Novak, 599 N.W.2d at 553–54; Nieves, 517 N.W.2d at
237–38. A plaintiff unreasonably relies on one of the defendant’s statements if another
of the defendant’s statements contradicts it.

Here, the statement “average starting salary for all graduates” expressly
contradicted other statements in the very same report showing that the report itself was
based not on data for the entire class, but on data from those who completed the surveys.
The Cooley graduates’ reliance on the statement that the “[a]verage starting salary for
all graduates” was “$54,796” was unreasonable in light of both the statement that the
“[n]umber of graduates with employment status known” was less than the total number
of graduates and the very title of the report (a “Salary Survey”). Because their reliance
was unreasonable, their claim for fraudulent misrepresentation failed as a matter of law.
Therefore, the district court properly dismissed the claim.

Note: Per information Cooley posted on its web site while the suit was ongoing but has since taken down, the school had salary information for a total of 6.5% of the 2010 class. That was the school’s basis for its claim regarding the “average starting salary for all graduates.” (Emphasis added. LST posted the stats here before Cooley scrubbed its web site.)

In other words, if a law school publishes not merely misleading statistics but flat-out lies (“objectively untrue” statements), it won’t be liable for doing so as long as a close reading by sufficiently cynical and suspicious reader — for example, a lawyer! — would reveal that those statements are likely to be untrue, because they contradict other statements in the document (how readers are supposed to figure out which of the contradictory statements are actually true isn’t something the Sixth Circuit panel explains). Furthermore, if you tack the word “survey” to the title of a document whose text claims that it’s a comprehensive survey, that means the survey isn’t actually comprehensive, because also.

Even shorter Sixth Circuit: Suckers!

Due process, Bud Selig-style

[ 127 ] July 31, 2013 |

Alex Rodriguez to be banned for life?

I haven’t followed this very closely, but my understanding is that under the CBA the maximum punishment to which he’s supposed to be liable is a 50-game suspension. (Update: EF Goldman explains in comments that Selig can invoke the league’s anti-Soviet slander “conduct detrimental to the good of the game” clause).

Would it be irresponsible to speculate that letting the game’s most powerful franchise off the hook for about $100 million in future obligations might possibly have something to do with this?

. . . I missed Scott’s post on this yesterday. (FWIW a friend of mine has had professional dealings with Selig, and says he’d bet a lot of money that Selig wouldn’t hit three figures on an IQ test. He doesn’t say this in rancor — he claims to actually like and even somewhat admire the guy, but he swears he’s genuinely dumb).

Law school in America moves toward an open admissions policy

[ 94 ] July 31, 2013 |

Here is the percentage of law school applicants who were admitted, over the last decade, to at least one ABA-accredited law school to which they applied, by year:

2004: 55.6%
2005: 58.6%
2006: 63.1%
2007: 66.1%
2008: 66.5%
2009: 67.4%
2010: 68.7%
2011: 71.1%
2012: 74.5%
2013: 76.8%

Keep in mind that somewhere around 3% of all law school applicants have the kinds of background issues that create serious liability issues for any school that admitted them. Another 5% or so have entrance qualifications (bottom 5% LSAT scores combined with 2.1 GPAs from bad colleges) that indicate their inability to do even basic college level work, and thus make it almost certain they will not be able to pass a bar exam, not matter how much remediation they are subjected to during law school (low enough bar passage rates could affect a law school’s accreditation). In addition, the average applicant applies to eight schools (there are 202 ABA law schools at the moment), and some significant percentage of applicants will, prudently, not apply to any school below a fairly high rank.

This in effect means that over the course of the last decade, American law schools have moved from a moderately selective admissions model to a quasi-open enrollment policy. If you have a college degree, can get 35 out of 100 questions on the LSAT correct (you are likely to get 20 right by simply guessing, and each year some people rack up perfect scores — it is not, in other words, a very difficult test), and don’t seem likely to go on a shooting spree, you’ll be admitted to a genuine ABA-accredited law school.

The long-term effects of this fundamental shift on the status of the legal profession, and more important, the quality of legal services available to non-corporate people, remain to be seen.

Gordon Gee to be paid $1.16 million per year to be a law professor

[ 51 ] July 30, 2013 |

Urban

Pictured: Gee’s immediate academic supervisor

Not The Onion:

*Grant: For each year from July 1, 2013 through June 30, 2018, the university will provide Gee with an annual grant of $300,000 in connection with his research on 21st century education policy.

Back story here , here and here.

The problem with back in the day

[ 52 ] July 29, 2013 |

slim charles

I keep getting emails from people regarding the much-discussed Simkovic/McIntyre paper, so I thought it would be worth reiterating a few basic points:

Read more…

An American hero

[ 119 ] July 28, 2013 |

emmett till

Emmett Till in life and death

Willie Reed

Willie Reed

On an August morning in 1955, Willie Reed was an 18-year-old sharecropper living in the Mississippi delta. While walking to a store, he saw brand-new pickup truck drive past him and pull in front of a plantation barn. In the back, 14-year-old Emmett Till was about to be tortured and murdered, for the crime of allegedly whistling at the wife of one of the men.

Reed heard horrible screams coming from the barn. One of the killers then emerged from a barn with a pistol, and asked Reed if he had heard anything. “No sir, I didn’t,” he replied, knowing that any other answer would likely cause him to be murdered on the spot.

A few weeks later, in an act of indescribable courage, Reed testified against two of Till’s killers in a Mississippi courtroom, after walking through a gauntlet of Ku Klux Klan members. Till’s killers were acquitted in 67 minutes. One of the jurors remarked afterwards that the deliberations would have been shorter if the jurors had not paused for a soda pop break. For his own safety Reed was hidden away by a local African American doctor, until he testified again in November, before a grand jury hearing charges of kidnapping against the men who had been acquitted of murder. The grand jury refused to indict, despite the men’s own testimony that they had taken Till against his will and held him to “scare” him.

He was really the best eyewitness that they found,” David T. Beito, a historian at the University of Alabama who has written about the Till case, said Wednesday. “I don’t want to diminish the role played by the other witnesses, but his act in some sense was the bravest act of them all. He had nothing to gain: he had no family ties to Emmett Till; he didn’t know him. He was this 18-year-old kid who goes into this very hostile atmosphere.”

(With no criticism intended toward Prof. Beito, I suggest that under the circumstances “very hostile atmosphere” is a severe understatement regarding the situation the teenaged witness faced).

Reed, who by this point was running a significant risk of being lynched, was spirited away by civil rights leaders to Chicago, where he was kept under police protection for several months. He suffered a nervous breakdown, changed his name to Willie Louis, and got a job as a hospital orderly in 1959, which he kept until he retired in 2006. In 1976 he married, but his wife knew nothing about his role in the Till matter until a relative of his told her eight years later.

After viewing the severely disfigured corpse of her son, Till’s mother insisted on an open casket funeral. Photographs of the body galvanized outrage across the nation. Till’s murder and its aftermath played a key role in the gathering civil rights movement.

Willie Reed (Louis) died last week at the age of 76.