Monthly Archives: August 2013

I Liked This Map

Every Country England Has Ever Invaded (all but 22 countries in the world).

via 40 Maps They Didn’t Teach You In School

Posted in UK | 2 Comments

Wolverine: A Film By Woody Allen

This is funny. What if Wolverine were a film by (the classic) Woody Allen:

Posted in Completely Different | Comments Off on Wolverine: A Film By Woody Allen

Democracy in Action (Missouri Edition)

ProPublica’s The Payday Playbook: How High Cost Lenders Fight to Stay Legal is a little different from what they teach in high school civics classes.

As the Rev. Susan McCann stood outside a public library in Springfield, Mo., last year, she did her best to persuade passers-by to sign an initiative to ban high-cost payday loans. But it was difficult to keep her composure, she remembers. A man was shouting in her face.

He and several others had been paid to try to prevent people from signing. “Every time I tried to speak to somebody,” she recalls, “they would scream, ‘Liar! Liar! Liar! Don’t listen to her!’”

Such confrontations, repeated across the state, exposed something that rarely comes into view so vividly: the high-cost lending industry’s ferocious effort to stay legal and stay in business.

The problem was the legislature. During the 2010 election cycle alone, payday lenders contributed $371,000 to lawmakers and political committees, according to a report by the nonpartisan and nonprofit Public Campaign, which focuses on campaign reform. The lenders hired high-profile lobbyists, and Still became accustomed to their visits. But they hardly needed to worry about the House Financial Institutions Committee, through which a reform bill would need to pass. One of the lawmakers leading the committee, Don Wells, owned a payday loan store, Kwik Kash. He could not be reached for comment.

Eventually, after two years of frustration, Still and others were ready to try another route. “Absolutely, it was going to have to take a vote of the people,” she said. “The legislature had been bought and paid for.”

A coalition of faith groups, community organizations and labor unions decided to put forward the ballot initiative to cap rates at 36 percent. The main hurdle was collecting the required total of a little more than 95,000 signatures.

Someone raised $2.8 million to fight the initiative. We don’t get know exactly who:

Missourians for Equal Credit Opportunity (MECO), appeared. Although it was devoted to defeating the payday measure, the group kept its backers secret. The sole donor was another organization, Missourians for Responsible Government, headed by a conservative consultant, Patrick Tuohey. Because Missourians for Responsible Government is organized under the 501(c)(4) section of the tax code, it does not have to report its donors.

They sent deceptive threatening lawyers letters to the pastors and others running the petition drive.

And as if that wasn’t enough, they created fake initiatives to confuse people:

A Republican lobbyist submitted what appears to have been a decoy initiative to the Missouri Secretary of State that, to the casual reader, closely resembled the original measure to cap loans at 36 percent. It proposed to cap loans at 14 percent, but stated that the limit would be void if the borrower signed a contract to pay a higher rate — in other words, it wouldn’t change anything. A second initiative submitted by the same lobbyist, Jewell Patek, would have made any measure to cap loan interest rates unlawful. Patek declined to comment.

MECO spent at least $800,000 pushing the rival initiatives with its own crew of signature gatherers, according to the group’s state filings. It was an effective tactic, said Gerth, of the St. Louis congregations group. People became confused about which was the “real” petition or assumed they had signed the 36 percent cap petition when they had not, he and others who worked on the effort said.

They hired people to physically block access to petition gatherers.

Here’s the really sad part: it worked. The petition’s supporters gathered
118,000 valid signatures, about 23,000 more than needed.

But the state’s rules required that they collect signatures from at least 5 percent of voters in six of the state’s nine congressional districts. They had met that threshold in five districts — but in the First District, which includes North St. Louis, they were 270 signatures short.

Democracy in action.

They’re going to try again next year.

Posted in Econ & Money, Politics: The Party of Sleaze | 2 Comments

Law School and Cash Crunches

In The Economic Value of a Law Degree: Correcting Misconceptions, Michael Simkovic responds to critics and commentaries. One of his (gentler) responses is directed here:

Michael Froomkin wonders if law degree holders will experience a cash crunch early in their careers when their incomes are lower and debt levels are higher. 

It is unlikely that a debt financed law degree would create a cash crunch.  Young bachelor’s degree holders also have lower incomes early in their careers.  The earnings premium associated with the law degree will typically exceed required debt service payments on law school debt, particularly in light of the availability of extended repayment, deferment, forbearance, and income based repayment plans.  Graduate degrees can readily be financed entirely with federal student loans.

The costs of delayed repayment (i.e., higher interest) are already taken into account in our present value calculation, because we discount back at the weighted average interest rate on law school debt.  We’re pretty conservative in this respect: we ignore the (likely) possibility that students will prepay their highest interest rate debts first.  Indeed, After the JD II found evidence of rapid pre-payment of law school debt.

Our results suggest that most young law degree holders most of the time likely have more positive cash flow—even after debt service payments—than they would likely have had with only a bachelor’s degree.

Because the economic value of a given level of education can generally be maximized by completing that level of education early—and thereby maximizing the number of years of subsequent work with the benefit of higher wages from the education earnings premium—delaying graduate school to try to time the market is a high-cost strategy. And timing the market three or four years in advance is difficult.

I think we are talking past each other here in two ways. First, Simkovic largely relies on aggregate data; I was talking about a specific sub-class: people with (1) high debt, (2) higher-than-average average interest rates, who find themselves (3) in low percentiles in relative earnings.

Second, I would include as problem cases many of those people who are forced to go into loan deferral. That will in the long run increase their interest expense; it means some predictions they made regarding debt service may turn out to be unduly optimistic.

It doesn’t really matter to me that the paper already took account of increased interest payment due to deferral in computing net present value because the paper’s calculation is a priori and my narrative is post hoc; we’re not talking about the same thing. The paper is asking whether a law degree tends to have a positive net present value at graduation, and finds it does even at the 25th percentile. I’m discussing the issue from the post hoc perspective of a subset of students. Thus, I am not disputing the claim that “[t]he earnings premium associated with the law degree will typically exceed required debt service payments on law school debt” (emphasis added) but rather pointing out that there may be a non-trivial number of so-called non-typical cases. This observation is not negated by Simkovic’s reply that, “most young law degree holders most of the time likely have more positive cash flow—even after debt service payments—than they would likely have had with only a bachelor’s degree” (emphasis added). On the contrary, the two claims seem to me to be entirely congruent: the JD has tended to be an economic win. But not for everyone.

Simkovic offers a chart in support of his assertion that cash flow is not much of an issue. Again, his assertion may work for the majority and may work at the median, but as this very chart shows, there’s a group – 10%? 15%? for whom things are not so great:

In terms of the over-all viability of the law school enterprise these indeed are fairly reassuring charts. But note that the left chart is for the median student. [UPDATE: Actually that chart is for the median student with debt, making it even more reassuring.] When discussing cash flow problems, I’m not primarily talking about the median student. I’m talking about the appreciable minority of people who are, assuming a normal distribution, about a standard deviation below the mean. This group likely substantially includes the 5+% with more than $100,000 still owning seven years post-graduation. They are not typical, but nor are they so rare that we should ignore their existence.

My point was, and remains, that even if we take on board the valuable insight from “The Economic Value of a Law Degree” — that most JDs have made economic sense for most recipients in recent history, and that there are credible grounds to believe this trend may continue — that doesn’t mean prospective students should not ask themselves hard questions about what their JD will be mean given their personal circumstances. For an appreciable minority — circa 10% even? — and especially those borrowing to pay full tuition at certain private T4 law schools on top of other debt, it is likely to be a bad bet.

I am tentatively persuaded that law school is a good lifetime economic bet for most students, barring a structural shift in service provision unique to lawyers. There is, to my eye, more evidence for the proposition that there is a shift than there is for the proposition that shift is unique to legal services. Thus, we might expect some sort of JD earnings premium to persist. If so, a JD at even a middle-ranked law school will be a good lifetime economic bet for most people, save for a small group disproportionately composed of those who carry the highest debt at graduation and who also enjoy (suffer) the least remunerative outcomes.

Note, however, how far we have gotten: a ‘good lifetime economic bet’ is a long way from the gravy train with giant starting salaries that too many students who matriculated only a few years ago routinely seemed to expect was practically their due. Even if the over-enthusiastic critiques of the value of a JD substantially corrected by ‘The Economic Value of a Law Degree’ may have been shown to reflect serious sampling bias, the entire debate reminds us how important it is to approach a legal career, or any career, with realistic expectations.

I invite Simkovic & McIntyre to include a 10th and a 5th percentile in their various tables if possible. It might help all this become clearer if we were working from more common ground.

[UPDATE: I should maybe also add that when I think of a ‘cash flow problem’ I don’t just mean the sort that drive people to bankruptcy, but the sort that put them back in their parents’ basements. Thus there can be people with severe cash flow problems in the sense I mean it while an economist would still find there is a positive cash flow since due to severe economies they are in fact earning more than enough to cover their debts.]

Posted in Law School | 9 Comments