The Rule of Lawyers

One understands their chagrin. One sympathizes with anyone who is named in a contract.

No, not the kind of contract you study in law school. Not the kind of contract you negotiate with your boss.

I am referring, instead to the kind of contract a Mafioso puts out on you.

And that Shakespeare seems to have put out on lawyers.

In Henry VI, Part II, a character named Dick the Butcher said:

The first thing we do, let's kill all the lawyers.

Ever since, lawyers have been seriously discommoded. One feels their pain. Would you want to be named in a contract put out by the bard himself? It may not cost you your life, but it will certainly damage your professional reputation.

Obviously, the state of the legal profession in the time of Henry VI (fifteenth century) was not the same as it was in the time when Shakespeare wrote the play (sixteenth century). Neither was the same as today’s.

And yet, when today’s audiences watch the play, they often break out in applause when they hear Dick the Butcher put out a contract on lawyers.

Perhaps they are thinking that the legal profession is not subject to checks and balances, so… the best they can do is laugh at it.

Those who defend the good name of lawyers have been known to perform a  bit of critical exegesis on the bard’s words. They point out that Dick the Butcher wants to kill the lawyers because he wants to jettison the rule of law… the better to establish a tyranny based on royal edicts, or, as they say today, executive orders.

And yet, a little bit of extra exegesis will tell us that there is a difference between the rule of law and the rule of lawyers. Playing fair and playing by the rules is one thing. Hobbling business with a mountain of regulations concocted by overzealous bureaucrats is quite another.

Everyone who runs a business knows how bad the regulatory burden has become during the Obama administration. It did not start with the current administration, but the Obama team has used the financial crisis to fulfill its wish to hobble business with regulations.

In many ways, it has succeeded.

But, it gets worse. When lawyers run wild they produce some serious negative effects on the economy.

We are grateful to The Economist for having pointed out the dangers that lie in the rule of lawyers.

Wrap your mind around this. This week the sober and often left-leaning publication ran an editorial and a major report denouncing the American legal profession as “an extortion racket.” Strong words those. It comes as something of a surprise, because no one that I know of, on the right, the left or the center, has offered such a vigorous denunciation.

Why do people hate lawyers? Read a few choice paragraphs from The Economist:

WHO runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.

The amounts are mind-boggling. So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds. BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations. And that is just the financial institutions. Add BP’s $13 billion in settlements since the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more.

In many cases, the companies deserved some form of punishment: BNP Paribas disgustingly abetted genocide, American banks fleeced customers with toxic investments and BP despoiled the Gulf of Mexico. But justice should not be based on extortion behind closed doors. The increasing criminalisation of corporate behaviour in America is bad for the rule of law and for capitalism.

You would almost think that the legal profession, or large parts of it, is an organized criminal enterprise. Being the law seems to have put it above the law.

Apparently, the rule of lawyers stifles capitalism. It stifles job creation. It stifles economic growth. If we are to believe The Economist the American legal system is a parasite, sucking the lifeblood from the American economy.

Obviously, it does not reflect capitalism:

This proliferation of cases is not a preordained consequence of America’s capitalist system. Instead, it reflects profound changes over the past century or so in thinking about the respective responsibilities of individuals and institutions and about the role of the state as an increasingly active participant in many areas of business. Collective responses to crises, notably war and depression, have also played a part, as has the embodiment in law of (often transient) economic theories.

The worst part is, it all feels completely extra-legal:

Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs. Nor is it clear how the regulatory booty is being carved up. Andrew Cuomo, the governor of New York, who is up for re-election, reportedly intervened to increase the state coffers’ share of BNP’s settlement by $1 billion, threatening to wield his powers to withdraw the French bank’s licence to operate on Wall Street. Why a state government should get any share at all of a French firm’s fine for defying the federal government’s foreign policy is not clear.

Of course, it does not just damage corporations. It is not merely a form of stealth socialism of businesses that are assumed to be guilty. It makes it far more difficult for people to respect lawyers and the rule of law.