Nevada: want in on the tech bubble 2.0? Get a better anti-SLAPP statute.

By J. DeVoy

Earlier this week, Facebook announced its $1B acquisition of hipster staple Instagram.  Everywhere you look, social media companies based on seemingly fragile social momentum are receiving gigantic valuations and making initial public offerings.  Zynga has $8.8 billion in market capitalization – it’s best known for FarmVille, brogrammers and abusing trademark law.  Groupon has lost more money than many firms will ever see, yet IPO’ed, reifying billions of dollars of wealth for shareholders.

Yet California does not have a monopoly on tech.  In fact, California is absurdly expensive.  Nevada, in contrast, is dirt cheap.  And, based on the success of firms like SirsiDynix and Adobe in Utah – seriously, Utah – it’s clear that Silicon Valley does not have a stranglehold on programming and tech manpower.  For all but the most elite developers, young workers will go where the work is – and even then, they will pursue the most challenging opportunities.

But this raises the question of why, exactly all of these wildly successful social media companies started in California.  What is it about California?  What is so profoundly different about the state that gives it a monopoly over these companies?

Maybe it’s one of the country’s best, oldest and most litigated anti-SLAPP statutes?

I know how much we like to wax poetic about the importance of 47 U.S.C. § 230 on this blog, and write about how liberating compliance with the DMCA is.  But the reality is that if some unethical shithead wants to try to grab some cash from your pocket, he/she can and will sue you on utterly frivolous grounds – and if it happens in a state without a good anti-SLAPP statute, and especially a hellhole like Florida or New York, you’re going to just have to grin and eat the costs of proving, for the eightieth time, that the Roommates.com case and its § 230-vitiating FHA violations are in fact an extreme outlier.

That is, unless you live in a state like California with a kick-ass anti-SLAPP statute.  Among others, I would include Washington, Oregon and Texas on the list of states with a good anti-SLAPP statute.  I think, too, that Nevada can and  should be one of these states.

There’s some really good stuff in Nevada’s anti-SLAPP statute.  In October 2011, I wrote about the following provision, which gives a slight testosterone injection to California’s fee-shifting regime:

 Reasonable attorneys’ fees are awarded independent of the Court’s discretion, and the prevailing anti-SLAPP movant has his own cause of action for compensatory damages, punitive damages, and attorney’s fees.  (source)

However, this is all meaningless if it applies only to expression made to a governmental entity.  If this statute is going to have teeth and apply to social networking services that are wrongly sued for third parties’ postings on them, the range of protected expression must be drawn more broadly.  California and Texas provide some good examples of how to define this.

While Zynga, Groupon, Facebook, Google and many others that have yet to publicly reveal their wealth are Delaware Corporations, they all do business in California – and are protected by Cal. Code of Civil Procedure 425.16.  Broad First Amendment protections.  Mandatory fee shifting for a successful motion.  Washington and Seattle-based Avvo Inc. are shaping up to be a similar success story, and a longer post about their recent anti-SLAPP victory is forthcoming.

An anti-SLAPP statute is not the cure-all for Nevada’s drive to diversify its economy, attract new businesses and encourage diversification.  California’s (and specifically the bay area’s) success in social media is attributable to numerous covariants including an entrenched, educated and highly skilled workforce, fed by CalTech, Stanford and UC Berkeley.  Silicon Valley is also host to a surfeit of venture capital and private equity firms; needless to say Las Vegas is not.  However, flying from Las Vegas to SFO is at most a proposition of $200 and… 90 minutes?  possibly less?  This is hardly a barrier to innovation and financing.

The cynic in anyone who understands markets is that the latest tech bubble (perhaps more accurately, the social bubble) is exactly that – an inflated payout for the investors in these services.  But good for them – they got paid, and you’re reading this blog.  Who’s the idiot now?  Regardless of how absurdly overvalued some of these services seem and doubtless are, billions of dollars in paper wealth are being created – and Nevada can capture some of it by making a small but important change to an existing law.  Making Nevada a hospitable place for social media ventures will create or attract jobs to Nevada, especially economically battered and casino-reliant Southern Nevada, and enrich those companies’ employees.  Like the Canadians in the South Park episode “Canada on Strike,” Nevadans must stand up and scream at their representatives: Give us Internet money!

As a tourism mecca, Las Vegas knows a lot about getting the world’s ultra-wealthy to leave a lot of their money here.  By providing sufficient protections to new media businesses, the same dynamic can play out with the rich investing in new businesses, rather than a blackjack table.

(I have nothing against blackjack.)

NYT on Law School Economics

By J. DeVoy

Just weeks before the bar exam, the New York Times craps all over the nonsensical economics of legal education.  Based on the Times’ research, US News rankings play a surprisingly large role – and one much larger than the relevance such rankings actually have in practice. (“Oh, you went to Vanderbilt instead of Boalt? I’m not even going to bother replying to your opposition. Guffaw!” /sarcasm.)

While the anti-law school undercurrent has been building for years (see Randazza’s post from 2009), this represents one of its deeper treatments.  Moreover, it’s one of the few inquiries into the law school market failure made by a news outlet of national predominance.

Why filming porn in Las Vegas should make sense (or: unsolicited response to Bobbi Starr)

In Nevada, prostitution – defined in NRS 201.295 – operates in a manner very similar to the California statute at issue in Freeman.  Overburdened though Nevada’s courts are, the state lacks an intermediate appeals court and could settle the question of porn production’s legality fairly quickly, with a fairly libertarian Nevada Supreme Court to render the final decision.  Then again, why tempt fate a second before it’s necessary?

In many counties, Nevada has legalized – albeit fairly stringently regulated – prostitution.  The status of prostitution within the state is practically a precursor for porn.  If anything, porn production is the next logical step.  And though the regulations concerning prostitution may be wielded like an axe at porn, they are easily distinguishable, as discussed further on.

Escape from L.A. – and AHF, and CalOSHA.

First Amendment concerns are not the only threat facing the porn industry.  The Scylla and Charibdis of porn for the last many years have been CalOSHA and AHF, the latter organization being capable of hectoring producers nationwide.  As Starr notes:

Here’s the thing — the AHF plans to continue its unwanted crusade across the country. They’ve already made noises in Miami and if the industry moves to Vegas, I don’t see why they wouldn’t show up there as well. If you’re going to make a stand, LA is the place to do it.

As Starr observes in her post, stating that “the AIDS Healthcare Foundation is looking to grandstand and make points with their donors,” the inescapable conclusion is that this controversy boils down to money.  Specifically, AHF needs to do something to justify getting more of it from its backers.  In my opinion, it would be a rational proposition to pit AHF against a bigger, badder entity that needs and wants money even more than AHF does: The city of Las Vegas and state of Nevada.  Is it even a “fight” if only one side shows up to do battle?  The city of Las Vegas isn’t going to care what some outsiders think of it – the area’s reputation for no-tell, debauched vacations is well established.  It’s not as if AHF is going to lower the city’s esteem as… what, a place to raise a family? A clean-livin’ town?  If anything, the chance to catch a glimpse of a favorite star is probably one more reason for a guy to visit Vegas.

At base, Las Vegas and Nevada need money, and now more than ever.  AHF will never win the hearts of minds of locals by trying to keep out reasonably lucrative businesses that need use of the services hardest hit in Las Vegas since the downturn.  Speaking of Las Vegas “locals,” the metro area is so transient that it’s not dissimilar from a 500,000 person city in its character, despite its population being around 2 million.  In some ways, Las Vegas might as well be Milwaukee.  And, yet, many locals rarely venture to the strip, or downtown; instead, they predominantly stay within their master-planned communities.  While some may call this a myopic and provincial way of living, this kind of bedroom community mindset is exactly what will lower any resistance people may have, even in the abstract, to porn companies coming to town.  If it’s not happening in their actual backyard, and they don’t see it, why would they care – assuming, in the first place, that they ever found out the porn industry was in town.

Because Nevada is Nevada and California is California, CalOSHA’s risks are mitigated.  If CalOSHA tries to regulate porn shoots occurring within Nevada because the companies they’re done for are based in California, the ensuing legal battle between Nevada and California will resemble a religious crusade.  Despite Californians having a huge presence in Las Vegas as transplants, tourists or otherwise, Nevada’s state character is steeped in making sure everyone knows that it is not California. (This was an overarching theme in BarBri when I studied for the Nevada bar exam.)  Nevada will not respond well to California encroaching its jurisdiction, especially if CalOSHA agents show up within Nevada’s physical territory.

Assuming CalOSHA won’t overstep its jurisdictional mandate, that leaves the porn industry to contend with Nevada OSHA (“NVOSHA”).  To get a sense of the disparity of resources at play here, compare the CalOSHA website with NVOSHA’s.  NVOSHA couldn’t keep six people from dying, most of them brutally, during the completion of America’s largest privately financed construction project.  Between that kind of feeble oversight, Nevada’s far more dangerous industries – such as mining – and the general lack of resources Nevada has relative to California, it’s reasonable to believe that NVOSHA has bigger concerns than whether two consenting, regularly tested adults are wrapping it up when making commercial motion pictures.

A potential slippery slope exists with respect to Nevada’s prostitution regulations, which have numerous onerous requirements, from monthly and weekly testing (depending on the disease) to mandatory condom use.  Prostitution, though, is a service open to the general public, while porn is a closed circle where those on camera are regularly tested and (theoretically) limiting their contact with unknown, untested interlopers.  Because of the inherent differences between porn companies and brothels, and the reduced public health concerns at play, the condom restrictions should not transfer over – but that will be left to the legislature.  If they’re getting all of this new growth because the porn industry wanted to escape the tyranny of condoms, will legislators foist them upon their newest constituents?  It’s possible, but seems unlikely.  Even if those provisions are put into effect, NVOSHA has to actually enforce them – something it may be ill-equipped to do.

Las Vegas Loves Porn… and Anything With Money, Really.

Another point raised by Starr is the suspicion that people don’t really love porn, despite the money it could bring to their local economy.  To some extent, I agree with this.  Some ultra-lib location like Manhattan would look down its collective nose at middle America for feeling uncomfortable about porn — but if production ever showed up below 125th Street with any substantial volume, it would quickly be zoned out as “harmful to property values,” and opposed under the color of PC rhetoric, such as how it’s “degrading” to women and normalizes male violence.  On the other hand, Las Vegas has a robust industry of escorts (despite prostitution being illegal within Clark County) and strip clubs that everyone accepts as part of the landscape.  Without making it sound like Detroit, as I am pretty fond of Las Vegas, I think people will embrace whatever revives the area.  Downtown Las Vegas, despite having a few cool bars and art studios I’m fond of, is underdeveloped for an urban core and fairly low-density.  Thus, it’s practically giving land away for development through tax credits.  They city doesn’t condition the credits on how the land will be used – as long as something’s being done, and people are being employed, Las Vegas is happy.

To those who claim that the tide will turn against porn when the economy improves, I have some good/bad news: Economically, things are never going to get better.  We’re at the dying, spasming end of American-style capitalism.  I hope you own a gun.  Consequently, capital holders can put a collar around places like Las Vegas, making governments and citizens alike do whatever the investors want.  Capitalists have the money, and capacity to bring more, that everyone else needs.  Those who can muster up $1M in liquid assets, and probably down to about $250,000, can basically write their deal’s terms.  The global economy’s collapse isn’t really any one person’s fault, anyway, so it shouldn’t impede making smart business moves in the here and now.  After all, if everyone lived in fear of the world ending tomorrow, nothing would get done, now would it?

A Sidebar About Miami.

Starr also notes the recent arrest of Kimberly Kupps on numerous obscenity counts as a reason to avoid Florida. (You can donate to Kupps’ defense fund here.)  This is a reasonable concern, but one that insiders within Florida’s adult community can dismiss with fairly strong assurances.  In addition to geographic distance, Miami and Polk County Florida are culturally very distant and distinct.  Polk County Sheriff, Grady Judd, has made it his life’s work to punish any kind of sexual expression occurring in his jurisdiction, and is a retrograde bully unmatched by any in Florida.  Miami doesn’t have the absolute safe harbor protection that Los Angeles does due to Freeman, but its resident businesses have done very well for themselves, mostly free from significant legal interference.  With that said, a Judd-like epidemic of arrests is unlikely to sweep Miami-Dade county.

Is “Going Underground” Still a Thing?

In this internet age, where everyone competes for Google rankings and traffic, and search engine optimization is a lucrative industry, rather than some annoying B-school buzzword, is it even possible to go underground?  Setting aside competition for internet traffic, since that’s where most of the money is now, going underground carries many possible tax consequences that can consume more than a company’s worth, or makes.  Back-owed interest and penalties are not your friends.

I’m ambivalent in the desirability of porn being mainstream v. underground debate.  There are pros and cons to each side, and I think the best approach depends on the company and its content.  Culturally, though, “porn” qua concept is mainstream, even if certain subsets and niches of it are less known.

One of the concerns raised by Starr is that “legitimate businessmen” would co-opt the industry if it were to go underground, and make it even more volatile than it currently is with CalOSHA and AHF breathing down its neck.  This, too, is a valid concern.  Any city with appreciable population, say over 200,000 people, has competing networks of organized crime.  Though the appearance has changed, from “families” with members wearing pointy-toed shoes and double breasted suits to gentlemen with baggy jeans and neck tattoos, these organizations still exist.  For the most part, their influence seems to have been confined to drug and prostitution trades.

I’m sure that there are intersections between organized crime and legitimate businesses throughout the country — assuming otherwise would be naive.  But, given Las Vegas’ modern origins as a gangster playground, the city and state are concerned about making sure that scenario never happens again.  Because of the efforts of people ranging from Howard Hughes to Steve Wynn, Las Vegas has come totally above ground and is very much a corporate town – all of the casinos on the strip and off are owned by a small handful of companies.  This isn’t to say there aren’t seedy elements of Las Vegas.  Seedy sells, after all.  But Las Vegas now is law-abiding in a way that it wasn’t at its 20th-century inception.

Because of this somewhat nefarious history, Las Vegas and Nevada are particularly sensitive to the presence of organized crime and its intersection with what appear to be legitimate businesses.  MS-13 will always be smuggling in drugs from Central America, no matter what local, state and federal authorities do.  To the extent organized racketeers can be prevented from co-opting businesses and disenfranchising their customers, though, Nevada and Clark County appear to take that threat much more seriously.  Theoretically, a mob takeover of business can happen anywhere.  In my observations, however, it’s less likely to occur in Las Vegas than other places.

Conclusion (a/k/a tl;dr, Summary)

Though Las Vegas is not a perfect location for relocation of the porn industry, it’s a good one – better than many alternatives.  While Miami is an option, it is a more expensive place to be than Las Vegas by most every metric.  Unlike Nevada, Florida still has a pesky capital gains tax.  Las Vegas is much closer to the San Fernando Valley, too, making it easier to get a critical mass of people to make the necessary jump across state lines.

Relocation may be easier and more profitable than digging one’s heels in the dirt and fighting a war nobody particularly wants to have, especially against deep-pocketed adversaries such as CalOSHA and AHF.  Las Vegas is as tolerant as it is willfully blind to the sex industry already here, and it is likely to welcome economic activity in any manner it can obtain it.

As in any business, there are risks involved in relocating – especially to Las Vegas.  But are they any costlier than the slow death of remaining so heavily in Los Angeles, where the thousand cuts of taxation, CalOSHA, AHF and other challenges bleed dry the remaining brick-and-mortar porn companies?  At this point, it hardly seems like it.

Free financial tip for law students

By J. DeVoy

Before I started law school, I considered getting my student loans in Yen.  Japan’s Yen, long a stable currency that reliably stayed around 110-120 Yen-per-US Dollar – however badly we devalued the dollar under the reigns of Bush (weak dollar policy to boost exports) and Obama (“quantitative easing”).  This use of the Yen and other stable, low-interest currencies to make other, high-gain investments –  which is a stretch when discussing higher education – is referred to as a “carry trade” in financial circles.

Well it’s a damn good thing that I couldn’t make this work in 2007, or this would be a personal financial armageddon as well as an ecological one.  Becuase of massive repatriation of Yen, the US Dollar is only worth around 75 Yen.  Check out this pronounced decline.  If I a) had actually done this, b) was in finance, c) lived in 1930’s New York City, and d) had any sense of shame, I’d throw myself out a window for essentially increasing my debt 50% overnight.  At least if I did that through reckless spending, I’d have a fun car or sweet vacation or show for it.

So, law students, don’t think you’re smart with money just because you day trade or own a few shares of GOOG.  Not to impugn your intelligence, but this stuff can seriously ruin your life in ways you cannot foresee, protect against, or get out of on your own.  Right now, the smart move seems to be using GradPLUS and using IBR to push off payments until the whole system inevitably collapses – probably sooner than anyone thinks.

Rational Christmas Gift Appreciation

By J. DeVoy

H/T: D. Waite

The Dutch try to pare welfare rolls

By J. DeVoy

…by pairing needy women with rich men.  The catalyst?  A state-sponsored makeover to enhance their appearance.

The local social service departments are paying for the women to have a make-over in the hope they can hook up with a rich husband to support them, the paper says. If 70 women find a new husband, the council can save €400,000 on welfare payments.

The councils are putting €1,400 into each woman to have her hair done and get help with her image. They will also get their wardrobe updated and tips on social skills and presentation.

Once the transformation process has been completed, the women will be registered at a local marriage bureau Mens en Relatie in Oentsjerk, the paper says.

No mention of personal trainers, though maybe that would be unnecessary: The Netherlands ranks in the top 10 countries for beautiful women.

California Bar President pwns law schools in lengthy screed

By J. DeVoy

Howard B. Miller, President of the State Bar of California, had harsh words for California’s law schools in May 2010’s California Bar Journal.  Acknowledging the bleak outcomes for graduates in the classes of 2008, 2009 and 2010, Miller calls the economic cocktail of few jobs, high competition and massive debt “devastating.”

The exact numbers at the margins are not as clear as we would like, because so much involves small firms and personal circumstance, and many of the changes are too recent for complete accuracy. The average debt of law graduates now approaches or exceeds $100,000, and because of recent increases in tuition, especially at public institutions which historically have been more affordable, debt burdens will be even greater in a couple of years.

Based on outcomes alone, Miller’s commentary doesn’t seem addressed to Stanford, UC-Berkeley, USC or UCLA.  At least he acknowledges what has been common knowledge for many years, though: The picture is not as rosy at California’s 16 other ABA-accredited law schools.  The ABA-accredited distinction is important because there are 18 California-accredited and six unaccredited law schools within the state, the graduates of which may sit for the state bar exam.  There’s not much by way of economy, either:  The California-accredited San Francisco Law School charges $16,700/year, a number the school leaves potential students to discover on their own.  Bay Area neighbors UC-Hastings and Stanford are also pricey at $43,693 (non-resident) and $42,420 annually, respectively.  None of these numbers reflect living expenses, which can easily be 50% of tuition — especially in San Francisco, Palo Alto and surrounding areas.

There is notoriously unreliable self-reporting by law schools and their graduates of employment statistics. They are unreliable in only one direction, since the self-reporting by law schools of “employment” of graduates at graduation and then nine months after graduation are, together, a significant factor in the U.S. News rankings — which are obsessed over, despite denials, by law schools and their constituencies.

This is a valid sentiment, considering that events as low-rent and mundane as each number drawing of the New York Lotto are audited and monitored by Big 4 accounting firm KPMG.  Miller acutely notes the considerable value U.S. News rankings have for prospective law students and law schools, yet the the data reported to the magazine is unmonitored.  Nearly every year some school, however good, makes the untenable claim of 100% employment 9 months after graduation; past offenders include the University of Pennsylvania, UC-Berkeley and, most recently, Duke University.  Such a claim is almost laughable in this economy, especially considering how many students cling to their job offers with only the most tenuous of grips.  If anyone stood to lose from objectivism in this context, it would not be prospective students.

 A recent survey by the Kaplan organization showed that though 52 percent of pre-law students are “very confident” of finding a legal job after graduating from law school, only 16 percent of those students are “very confident” their classmates will have similar success.

A shocking revelation to lawyers and law students, but not surprising as a feature of human psychology.  As Richard Posner pointed out in A Failure of Capitalism, nobody listens to Cassandras.  In this age of participation trophies and good grades for merely showing up, prospective law students fancy themselves the scions of the legal field and shimmering guardians to the Eastern European refugees whose human rights they’ll never protect. LOL “international law”; moreover, LOL “human rights.”

Part of this distortion may be the source.  Within the law admissions community, Kaplan is regarded as inferior to TestMasters/Blueprint, and therefore attracts a less sophisticated student base.  This only considers people who pay for formal LSAT prep, too.  It’s unclear whether Kaplan students are more deluded than everyone else or actually representative of prospective law students, but there are problems with the sample Miller cites.

Miller then veers off onto a discussion of practical lawyering and its importance in bar admissions.  This idea has taken root some places, as the entire third year of law school at Washington & Lee is now an extensive clinical program.  The measure of practical ability is also measured by the National Conference of Bar Examiners’  Multistate Performance Test, which is included in the California bar exam.  There are merits to a practical apprenticeship-based approach versus traditional legal education, much like the differences between a D.O. and M.D. degree — either one confers the ability to practice medicine, but the D.O. develops an emphasis on holistic and preventative medicine while a M.D. places greater emphasis on diagnosis by symptoms and prescription of medication.

Eventually, Miller brings the piece back home:

Finally, we need to be transparent with potential lawyers about the cost and benefits of studying law. All law schools need to gather, verify and report, in consistent and specified ways, the employment record of their graduates, as well report on those who may have started, paid tuition, but never graduated. A good place to start is with our own California-accredited and registered law schools, over which the State Bar and the Committee of Bar Examiners have jurisdiction.

For a state with 44 law schools, that would be an excellent start.

Would mass suicide affect student loan practices?

By J. DeVoy

Earlier this week, 60 Minutes tackled the hard issue of strategic mortgage default.  In these situations, people capable of paying their mortgages despite being badly upside-down on their homes – owing far more than they’re worth – simply walk away from them.  While government loan modification programs are available to those who have lost jobs and suffered other economic hardship, creditors are refusing to offer interest or principal reductions to people who are capable of paying their mortgages.  So far, this latter group has been unable to cause any change in public or private policy on loan modifications, despite the group growing by the day.

In the 2005 Bankruptcy Code revisions, student loans were made non-dischargable in bankruptcy.  Now, as noted in a recent Frontline episode, the government administers all Federal student loans, which were previously available through private banks and lenders.  The episode further explains that Federal loans can be attached to wages and tax returns if not paid, and will follow the borrower everywhere… except into the grave.  Federal loans are discharged upon death.

For graduates returning home to live with their parents, jobless and adrift, one consequence may be depression and long-term psychological effects.  Given the above-average cognitive abilities and self-awareness of college graduates, it seems more likely than not that they would suffer these effects more than the average person.  In one particularly sad story last year, one attorney committed suicide upon learning of his layoff. 

Suicide is a serious matter that shatters families, ruining the lives of those left behind, and thus it is not invoked lightly.  With graduates from the classes of 2009 and 2010 now entering the worst job market anyone can remember, and competing with people a generation older for entry-level positions, the future clearly is bleak for them.  Coupled with a black swan environmental disaster that has profound implications for the long-term cost of oil and the growing sovereign debt default crisis, the makings of a double-dip recession are moving rapidly into place.

Even with the benefit of programs like Income-Based Repayment, the interest and principal of student loans will continue to grow for recent graduates.  Despite the program’s vaunted 10-year forgiveness feature for government and public interest employment, such jobs are extremely selective or nonexistent as state governments slash and burn various departments with layoffs, furloughs and forced attrition.  The social and egoistic cachet conferred by a college degree may also preclude graduates from seeking work in blue-collar or service fields; some may cite the desire to preserve themselves for a “career-track” position, while others’ pride may come in the way of taking a job that doesn’t make use of their credentials.  Even for those with the humility to seek whatever employment they can, employers may well reject these applicants for being flight risks destined to bolt for the first superior opportunity, or for lacking the requisite skills for the job.

If enough college graduates are pushed to the breaking point and decide life isn’t worth living, will anyone notice?  A governmental response assumes its knowledge, which is difficult if surviving family members refuse to talk about what happened and what they know.  For some families, this devastation may have already visited home for exactly the reason of crushing, inescapable student loan debt and crushed dreams.  But, like a tree falling in the woods, nobody can know a problem exists if it remains a hushed secret — however painful it is to keep.

Hopefully the state of education lending will never come to needing reform because of ended lives.  There are signs that this is already happening across the country, though, and the trend may only accelerate as economic malaise deepens, parental resources diminish, and opportunities for even the smartest among us become increasingly scarce.  Despite the emphasis to attend college from every angle, those who do and have done so are increasingly finding that the credentials they acquired at great expense aren’t as valuable as they were lead to believe.  This is the ultimate betrayal: People who are lionized for their accomplishment and knowledge are left to drop out of society in the most irreversible way possible.  More immediately, the discharge of these loans upon death affects the CDO-like securities stacked upon them; discharges above those actuarially anticipated when creating the instrument would lead to its unwinding, as well as the derivatives and options resting upon it.

As for what these reforms would be, making student loan debt dischargable in bankruptcy wouldn’t solve the whole problem.  It would, however, bring about several other realizations.  First, the cost of education in America has gotten out of control.  Second, the values of a generic college degree are oversold.  Additionally, not all institutions or degrees are created equally, and it is absurd that students from elite schools pay the same interest rate – to the extent undergraduates at elite schools have to take loans – as students from less rigorous institutions.  The same is true of major selection, as the value provided by a degree in biology or chemistry and the opportunities it provides is markedly different from one in communications, psychology or criminal justice.  These would be painful realizations, but ones that do not seem to be arising naturally.

However large or insignificant the problem of loan-induced helplessness is, it can’t be ascertained or addressed without ensuring it can be discussed.  Despite the shame and stigma people feel for not meeting their financial obligations, or the hurt a family may feel for the senseless loss of a loved one, hiding the experience under a bushel basket ensures that nobody can learn from it, potentially helping others and effecting real change.

Alternative paths really do await new law grads

By J. DeVoy

In the next two weeks, ABA-accredited law schools will spew forth graduate more than 40,000 newly minted J.D.’s from their doors.  While some are puzzled about how to pursue a legal career, others have realized they do not want one.  Still some, the most rational and mercenary of the bunch, are open to the right non-law opportunity.

Often, the transition from law school to a non-legal career is difficult.  Employers, who have a distorted view of lawyers’ financial upside, can’t believe anyone would forego the riches of law to work for them.  Rightly, others may view recent graduates as a flight risk waiting for a more desirable opportunity — especially in this economy.  There’s also the ultimate issue that a law degree doesn’t confer any definable skill, but is a rough measure of one’s critical thinking and cognitive ability.

Still, for those serious about the transition, there is hope.  One Legal Satyricon reader agreed to share his story by e-mail.  Graduating into the recession of the early 1990s, our humble reader graduated into circumstances not unlike those faced by recent grads, and without the benefit of Above The Law or another conduit for the legal zeitgeist.

His story began like so many graduating 3Ls’.  Eventually, it ended in directing and creating movies.

Following my second year of law school I was a summer associate at a firm I just loved — a decent-sized firm in a secondary legal market, which had other offices in the state.  The firm was well-regarded, but known for its humane atmosphere and treatment of associates.

However, the year that I interned with that firm became the very first year in that firm’s history that it hired none of its summer associates. So, I was out in the cold. Had they offered me a position, I would have jumped at it, and chances are I would have stayed in law. Because they didn’t, however, I was suddenly forced to re-evaluate certain things.

Fortunately, I had also been into writing since college. Eventually I was offered a recurring gig with a niche magazine, mostly writing about movies.  Since I had some friends in LA, I moved there after law school.

When you do enough reporting on movies, you get offered jobs in production — from PR to craft services to being a PA, etc. I took every job I could, and I can honestly say that I’ve done nearly every job there is to do on a set.  I also got into film distribution, where I learned what they were looking for and how much they’d pay.  From there, the logical progression was to begin producing. Then directing.

It’s an interesting path I took.  Some of my law school classmates are wildly successful. Others are in Federal prison.  (Whoops!)  Me, I’m doing exactly what I want.

Law students tend to quickly forget the merits of working one’s way up in an organization, even a law firm.  With humility, hard work, commitment and resourcefulness, anything is possible.  Before blowing up Bear Stearns’s hedge fund and getting charged with Federal Crimes, Matthew Tannin attended the University of San Francisco Law School.  What makes our reader’s story more compelling is that he, too, graduated into a down market with no revival in sight.  Yet, it paid off.

Still, some students would prefer to be lawyers.  After going to law school for three years and presumably beginning bar preparation shortly, it’s an entirely rational decision.  But if the goals of ego aggrandizement, financial security and, most importantly, self-satisfaction, are not wedded to the practice of law, the ways they can be fulfilled are endless.

SEC sues Goldman Sachs [alternative title- :( ]

By J. DeVoy

The Securities and Exchange Commission has filed a civil suit against Goldman Sachs and one of its employees, Fabrice Tourre, for securities fraud.  The complaint revolves around Goldman’s alleged misrepresentations about the quality of loans underlying a collateralized debt obligation (CDO).  Paragraph five summarizes the consequences neatly:

The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1.  By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% were on negative watch. By January 29, 2008, 99% of the portfolio had been downgraded.  As a result, investors in the ABACUS 2007-AC1 CDO lost over $1 billion.  Paulson’s opposite CDS positions yielded a profit of approximately $1 billion for Paulson. 

Despite this, though, Moody’s and Standard & Poors rated the class A-1 and A-2 notes for this deal near the top of the reliability spectrum.  This is described in paragraph 58.

ABACUS 2007-AC1 closed on or about April 26, 2007. IKB bought $50 million worth of Class A-1 notes at face value.  The Class A-1 Notes paid a variable interest rate equal to LIBOR plus 85 basis points and were rated Aaa by Moody’s Investors Services, Inc. (“Moody’s”) and AAA by Standard & Poor’s Ratings & Services (“S&P”).  IKB bought $100 million worth of Class A-2 Notes at face value.  The Class A-2 Notes paid a variable interest rate equal to LIBOR plus 110 basis points and were rated Aaa by Moody’s and AAA by S&P. 

Shortly thereafter, the notes became worthless.

Going back to the transaction that instigated this suit, Goldman created and marketed the CDO for $15 million.  A substantial sum of money to be sure, but something that could have easily been foregone by the banking titan.  In the halcyon days of the housing bubble, Goldman’s bonuses to top producers were factors of that sum.

It’s unlikely that Goldman Sachs would have walked into litigation where the SEC seeks disgorgement of profits, fines and an injunction over a relatively measly $15 million.  The sale of shares in the CDO could have resulted in greater upside for Goldman, but this is just one of dozens, if not hundreds, of similar deals being made on Wall Street at the time.

A number of reasons for this action come to mind.  First, collateral estoppel.  If the SEC can get favorable rulings or a fat settlement out of Goldman, it can use them as leverage in future suits against the bank and other financial entities.  The specter of a potential lawsuit will chasten other banks and potentially even bring them to the table to avoid future litigation, especially as this mornings news has already sunk Goldman’s stock price (ticker symbol GS) 10%.  For executives and employees with much of their compensation tied up in stock options, as was the case at Bear Stearns, the fallout from this event poses a significant risk.  There is the rage of populism, which spilled over at yesterday’s nationwide Tea Parties.  Though these people cannot quite articulate what Wall Street and, specifically, Goldman Sachs do, they’re mad as hell to see the financial sector enriched as the traditional economy crumbles.  Though the SEC has more independence than other agencies, the Commission’s actions are ultimately imputed back to the President, and it’s good press to go after The Great Satan of high finance.

Tax day arrives!

  

 

I HERD U LIEK TEH TOP MARGINAL RATE!

 

By J. DeVoy

Dear the top 10% of income earners:  Thank you!  Because of your toil as business owners, doctors, lawyers and financial service experts, you are able to subsidize the lifestyles and safety of people like me – somewhat literate, moderately intelligent lifetime students – by paying more than 70% of all Federal income taxes.  My dirty secret is that for all my striving, I’m woefully below average at something — being a taxpayer.  Despite scrupulously filing my taxes every year, I haven’t been able to break median or even come close to it.  I fall into the group that contributes less than 3% of all Federal income taxes.

This disparity arises as a function of our progressive taxation regime, where the highest earners pay the most and lowest earners pay the least.  Indeed, the well-off don’t object to redistributionist policies that keep the poors from trammeling their quality of life, as urchins tend to be more interested in wealthy people’s consumer goods than their liberalism.  When the have-nots have nothing, they get violent.  This extortion arises in part from the underclass’s cognitive limitations, and unfortunately is only one form of tribute required to placate them.  Others range from ceding entire sections of American cities as no man’s land to carrying an emergency $20 in the event of a mugging.

Despite these realities, the one-person, one-vote model persists.  Forty-seven percent of households have no tax burden this year, yet every non-felon adult citizen in them has the right to vote.  This is incomprehensible.  While enduring none of the costs of maintaining the republic, they receive all of the benefits — and likely a disproportionate share.  While haves purchase health insurance, have-nots rely on government assistance.  Haves live in well-off neighborhoods, sometimes gated, and own home security systems; have-nots rely almost exclusively on the police for monitoring their property.  The same can be said of family relationships, where haves will send their children and themselves to the best therapists they can afford, while have-nots will call the police to resolve their domestic disputes once they inevitably explode into violence.

Two potential alternatives to the current system exist, which are held out as being more fair.  The first is a flat tax, which taxes all income at a fixed rate, rather than progressively.  While this would have a regressive effect, as the set rate of taxation would have to be fairly high, it would assure that every citizen contributed an equal component of his or her earnings.  Another alternative is a national sales tax, akin to the United Kingdom’s 17.5% Value-Added Tax (VAT), which is tacked on to every purchase.  Due to the lopsided cycle of spending in America, distorted by winter holidays, a national sales tax may create revenue issues for the national treasury.

We have ignored the wisdom of the ancients and our founding fathers.  Both Plato and Alexis de Tocqueville disliked democracy, with the latter famously saying “[a] democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”  Thomas Jefferson described democracy as a form of “mob rule.”  While we live in a republic and not a democracy, we pander to the rubes and outwardly consider their positions and opinions, as if the half-thoughts they express in YouTube and Perez Hilton comments can be characterized as such, so that our elected officials can ensconce themselves deeply in their elected positions.  It is a distinction without a difference.

The forefathers were wrong about some things.  Today it is unthinkable that voting would be limited to white men.  They were, however, deadly accurate in limiting voting to landowners.  Restricting the franchise to those with something to lose leads to more prudent government, even if it does have a redistributionist bent.  Rationally, those with property after a lifetime spent acquiring it are less likely to squander it for nothing than those who never had such niceties, and thus cannot appreciate them.  When the bitterness of envy and class resentment is grafted onto this latter group’s ignorance – a seemingly natural consequence of the Dunning-Kruger and Downing effects – reckless decisions become spiteful ones; the destruction of wealth is not born from ignorance, but spawned of malice.

Thus, the choices for creating a legitimate tax model are clear: All must suffer equally, or those who suffer more must be accorded a greater voice.  Allowing the most productive members of society to be stripped of their wealth by sheer force of numbers, even if the fleeced would agree to the payment and its aims, is unjustifiable.  There is no endpoint where the masses can no longer expropriate wealth.  Just as in business and especially Venture Capital, the party bearing the greatest financial burden should be accorded the most say in how its finite resources are used.  After all, this is their property we’re talking about.  Beyond making economic sense, it is loyal to the most important rule of all, the Golden Rule: The one with the gold makes the rules.

Pwned by the mancession? Go east, young man!

By J. DeVoy

Gay porn is booming in Prague.  As out-of-work men look for a way to earn a living, more are turning to adult entertainment.  This is especially true for the Czech Republic, which has become one of the largest exporters of this commodity.

Apparently the E.U. is quite accepting of this arrangement:

In many European countries, especially the Czech Republic, the views on sex and sexuality tend to be more liberal than in the U.S.

Also, the majority of gay actors describe themselves as straight, many of whom have girlfriends and wives. They say they are “gay for pay” and do it solely for the money.

And there are market forces to consider.

According to a gender and sexuality expert, there is a big demand among American gay men to see straight men performing in gay porn.

That’s why producers in the Czech Republic prefer working with straight men, especially those who have never done porn or had sex with men before. Producers market their inexperience as an asset and say the feeling and expressions they capture are more real.

With an increasing portion of men out of work relative to women, could this be a trend in the United States?  Specifically, low-skill men who can’t create value without the benefit of someone else’s capital could benefit from going this route.   Based on recent experience, I’d say those people tend to be more attractive than law students during their respective prime porn-making years.  (This is, however, hard to reconcile with the contention that IQ and beauty are positively correlated.)  If this option becomes popular – and it may, as it’s inherently safer than the “oldest” profession – producers may be able to snap up fresh talent at a substantial discount.

Attention J.D. holders and soon-to-be grads: Expatriation information here!

By J. DeVoy

One of the things holding recent and soon-to-be law grads back from expatriation — other than the global dearth of jobs — is the constant fear that they’ll be pulled back to the United States and have their lives ruined.  This concern is reasonable, as the U.S. has a very broad global reach.  The IRS can tax your income as a U.S. citizen anywhere in the world.  The U.S. also bombs the shit out of people on the flimsiest of pretexts, so its power is not trifling.  It is not, however, unlimited.

Go for the grey!

This map, pictured above, shows all of the nations the U.S. (purple) has extradition treaties with in blue.  The grey nations have no formal extradition treaties with the U.S.  The full list of nations that have extradition treaties with the U.S. can be found at 18 U.S.C. § 3181.  For simplicity’s sake, Wikipedia has this awesome chart that appears accurate and up to date.

This map isn’t very inspiring.  Is it worth leaving America to live in a failing kleptocracy like Russia?  I’m relieved that our government had the foresight to sign such treaties with the fine, upstanding people of Nigeria, where everyone seems to have some claim to royalty.  Even Lesotho, the ridiculous land-locked country embraced entirely by South Africa (which Invictus shows to be a highly functional nation) is in on the action.

Extradition treaties don’t mean everything, though.  Where they do apply, the language of § 3181 is broad and sweeping, addressing mainly capital crimes, drugs, and parental kidnapping.  Even where they don’t exist, Federal Rule of Civil Procedure 4, allowing for international service of process, may ensnare a debtor on the run in its tendrils.  Whether this can result in garnishment of wages, attachment of property, or other action may depend on other treaties between a target state and the U.S., and will require particularized research too consuming for a blog post.

On balance, though, the risk of extradition is low for student loan evaders.  Whether or not one can be sent home for crimes has little bearing on whether Sallie Mae can chase after an errant grad through civil process, wielding her rolling pin of financial ruin.

To avoid civil penalties, there are other steps a potential ex-pat may take.  First, simply disappear without telling anyone.  When you arrive someplace new, claim to have amnesia.  Taken to unlikely but logical extremes, it can be really interesting.  In the alternative, fake your own death.  Leaving the life insurance implications aside, this plan has substantial literary precedent.  Even Krusty the Clown faked his own death — twice!  Truly, there is hope for us all.

Holiday hangover – all your rights are belong to INTERPOL

To the surprise of 20-somethings everywhere, INTERPOL is not just a band.

By J. DeVoy

In a little-publicized move just now being scrutinized over at The Spearhead, Barack Obama has granted the International Criminal Police Organization (INTERPOL) new immunities under US law.  On December 16, 2009, Obama signed an executive order amending Order 12425, signed by Ronald Reagan in 1983.  This new order removes language restricting the immunities enjoyed by INTERPOL under the International Organizations Immunities Act.  Most troubling to civil libertarians is the protection of § 2(c) now extended to INTERPOL, providing that:

Property and assets of international organizations, wherever located and by whomsoever held, shall be immune from search, unless such immunity be expressly waived, and from confiscation. The archives of international organizations shall be inviolable.

ThreatsWatch.org astutely notes that such protection immunizes INTERPOL property and assets held in the US or by US citizens from search and seizure.  This raises difficult questions about the creep of international influences on US sovereignty, as INTERPOL now receives greater protection than agencies subject to the freedom of information act (see the second clause of § 2(c)).  Additionally, INTERPOL’s property is now immune from search and confiscation without regard to how it’s acquired.

If INTERPOL takes individual property in any form and for any reason – say an investigation or other matter – it’s gone.  Kiss it goodbye, because you may no longer have the force of law to recover it.  Even if it was recoverable under Obama’s new order, those “inviolable” records and archives can’t be subpoenaed or otherwise investigated to find out where the property is or what happened to it.

On a mundane and daily level, this won’t affect many people.  However nefarious your web use, the INTERPOLice are unlikely to walk in the door, go full Chris Hansen, and confiscate your laptop; nor are they likely to take your car, furniture or other items.  Property is a broad term, though, and may be most likely applied in taking trade secrets, copyrights and patents that do relate to legitimate INTERPOL activities, such as the investigation of child pornography and human trafficking of children.  Truly, “think of the children” is the universal battle cry of personal liberty’s staunchest enemies.  This form of property is much more valuable than personal property and, due to the intangible nature of it, the danger of this property’s expropriation does not strike fear into the hearts of the uncreative classes, i.e. most people.

Not only can INTERPOL now take what it wants, it seems to be able to do so without compensation – a violation of the Fifth Amendment if done by a sovereign government.  Even skeptics of due process will take issue with this level of power being given to a foreign entity.  Considering the Supreme Court’s flirtation with international law while outwardly rejecting it, though, this erosion of sovereignty hardly is surprising.

The Recession Isn’t All Bad News

Quizlaw reports that the recession appears to be hurting the douchebaggery industry:

[Y]ou know what the best part of the recession is? Focus on the Family, the right-wing nutjob institute of religious zealotry that just spent $500,000 to defeat Prop 8 in California, is having to lay off 20 percent of its workforce! Yay for unemployed bigots! Want more: Oral Roberts, which spits out hate-and-fear mongering evangelist by the hundreds, is also laying off 10 percent of its staff! Yay for unemployed, academic bigots.

Ha ha!