Lawyers Are Back, Or May Soon Be

For John, BLUF:  Lawyers, working with finance companies, are going to make things worse.  Nothing to see here; just move along.

The TaxProf, Lawyer Paul Caron, quotes this extract from an article in The Huffington Post:

The deterioration of the legal jobs market and the crisis in legal education have dominated recent headlines.  Some conclude that the current weak market reflects the new normal in legal education and the profession, and they fill the ether with their tales of doom and gloom.  I remember hearing the term "new normal" just prior to the Dotcom Bust in the early 2000s, so such references signal to me a radical change is coming.  The growth of third-party litigation financing (TPLF) may be the catalyst that ushers in a reversal of the legal market and an unprecedented resurgence of the legal profession.

Despite its critics and shortcomings, TPLF has significant legal and professional support and is gaining significant traction.  The concept is simple: finance companies fund the cost of litigation in exchange for a share of a plaintiff's potential recovery.  The hundreds of millions (and perhaps billions) of dollars of TPLF undoubtedly will drive up the demand for litigation attorneys, but its ripple effects will also increase the demand for transactional and regulatory attorneys.  In short, TPLF will transform the legal profession....

The demand for legal services will inevitably turn to favor attorneys.  When that happens, the lack of attorneys in the pipeline will create a substantial shortage of qualified attorneys. For law firms to meet the new demand for legal services, they will have to aggressively recruit the top law graduates.  To entice them to join their firms, law firms will have to raise starting salaries to unprecedented heights, creating a market reversal of epic proportions.  In fact, the legal services market, which has been a buyer's market for the last several years, will quickly become a seller's market.  Those who invest in the legal profession stand to gain handsomely from the reversal.

This just means that John Q Public and his sister are going to be gouged.  It is as simple as that.  If finance companies are going to be allowed to go law suit farming then it means they are expecting big law suit payouts, so they can earn their share of that payout, to reclaim the capital and a reasonable (unreasonable) interest.  The rest of the money will go to the people who brought the suit.  But, it isn't free money.  It is money that was raised by taxes in the cases where local governments are sued and money that was raised by increased prices in the cases of corporations being sued.  Who provides that money?  We do.

We need a new "Glass Steagall Act", one making it illegal for banks and other lending institutions to loan money for the purposes of filing law suits.  Let the lawyers finance that themselves.  The lawyers already have that right.  We don't need piling on.

UPDATE:  Spelling update.

Hat tip to The InstaPundit.

Regards  —  Cliff