Legal Commentary

Recession And Law Firm Revenue

By Patrick J. Lamb

You have to love the headline writers at the New York Times and the fun they have with Fed-speak.  Fed-speak is the language the Fed Chairman must use since he can't utter the R-word.  So Bernanke says today, "It now appears likely that real gross domestic product, or G.D.P., will not grow much, if at all, over the first half of 2008 and could even contract slightly.  We expect economic activity to strengthen in the second half of the year, in part as the result of stimulative monetary and fiscal policies.”  The Times headline writers?  "Bernanke Nods At Possibility of Recession."

To quote my 13 year old son, "Ya think?" 

But to my mind, here was the more interest part of the report:

"While not endorsing any specific housing proposals, Mr. Bernanke made clear that the weakness in housing remained the single biggest drag on the prospects for an economic recovery and said that it was up to Congress to act."

These folks are missing the point.  Its not the foreclosures, at least not just the foreclosures.  Anyone who has tried to sell a house most anywhere in the country can tell you that prices are down 25-40% over a year ago.  (Anyone interested on a good deal in New Port Richey, Florida?)  Stopping foreclosures doesn't restore that lost wealth or borrowing base.  Yet Bernanke is predicting a mild recession and recovery in the second half of the year because of the President's stimulus package.  People get a few bucks and go to Walmart, which then ships the money to China.  Or they get their check and buy a tank of gas.  Wonder where that money goes?  All of this may temper the markets (how much wealth has everyone lost there?), but it won't alter the weakness of the dollar and it won't restore the lost wealth against which people have been borrowing to spend our way out of prior recessions.

I'm hoping I'm wrong here and to be sure there are tons people smarter than me on this and most other issues.  But this blog is directed at law firms, and one has to wonder when clients are going to feel comfortable enough to stop squeezing their law departments and outside counsel?  If it is a good long while (my bet), then the length of the recession is something people really need to worry about.  Because while BigLaw may expect to be able to offset lost deal revenue with increased litigation and bankruptcy work, there is a lot of anecdotal evidence that at least the litigation is not there this time.   And for all those who work at or run firms that don't measure their revenue in the hundreds of millions, the bankruptcy safety net may not be a safety net at all.

Full post as published by In Search of Perfect Client Service on April 03, 2008 (boomark / email).