The following article was written last year; however, it is applicable now. In my opinion, Jerry Reiss has a brilliant mind and a complete grasp of economics.
JERRY REISS, A.S.A.
ENROLLED ACTUARY
230 N. Orange Avenue, Ste 1112
Orlando, FL 33801
Phone: 321) 251-8205
Fax: (407) 871-7774
jerryreissasa@aol.com
Vol. 10 No. 3
July 21, 2010
Re: Defining the future Family Law Practice
By JERRY REISS, A.S.A.
Dear Family Law Attorney:
With Alimony Guidelines now a reality and our economy in shambles it may be a good idea to visit how we arrived here. With this information we can determine what we can do to protect our incomes in the future; and, in the process, maybe redefine the role of the family law practitioner. Our fathers may have learned an important lesson from the great depression. As it was so long ago and we didn’t suffer then, perhaps we too easily believed the promise made that it could never happen again. But history usually repeats itself because lessons learned are soon forgotten. We want to believe that everyone can win and that a rising tide lifts everyone; but we tend to forget that many people drown afterwards.
I remember reflecting the night that Barack Obama won the presidency that while it was a major feat, that by winning, he accepted an impossible job for an impossible time and that he would lack the support he needed to fix things. The fix would take a long time to work and many who voted for him expected a much quicker fix than was possible. While others who did not would oppose the painful solution because they had not yet been the victim of the inevitable downward slide. FDR had more support because he took over after the damage had been maximized. And even though the country blamed George Bush for the problems in 2008, he was not the sole person to blame.
While cutting taxes can spur a sluggish economy, it works only when the fundamentals of our economy are strong and it just needs a little push. When they are frail such as now cutting taxes actually makes things worse. It removes the funding needed in order to provide a big push. It also removes the ability to prop up the decaying bottom before everything falls through. Our economy works from the bottom up much like the food chain works. When the people who lost their jobs run out of money the people who had jobs from the goods and services they bought will lose those jobs also. When the bottom collapses we either support the bottom or everyone else falls through. Furthermore, every firebug knows that it takes an accelerant to get a healthy fire going quickly. Yet that great fire can also burn down a city like Chicago if it is not managed properly.To put things into perspective the accelerant here is spending money. In order to stimulate the economy the country must accumulate more debt. It is just that simple and avoiding doing this because of fears of inflation will cause us to sink further into depression. It is the only way to support that bottom. Once employment recovers and enough jobs are created to replace the ones lost only then paying off the debt is the number one concern. An increasing tax base is generated by creating more jobs. As such it also creates more revenues. This is when government needs to accelerate paying down the debt by cutting expenses.
The Columbia Encyclopedia defines and distinguished depression from recession as follows:
Depression, in economics, period of economic crisis in commerce, finance, and industry, characterized by falling prices, restriction of credit, low output and investment, numerous bankruptcies, and a high level of unemployment. A less severe crisis is usually known as a recession, a more common occurance generally thought to be a normal part of the business cycle; it is traditionally defined as two consecutive quarterly declines in the gross national product. Recessions mark a downward swing in the curve of the business cycle and are caused by a disequilibrium between the quantity of goods produced and the consumers' ability to purchase. If a recession continues long enough, it can turn into a depression. Neither term has ever been distinctly defined by a set of criteria, however, so it is difficult to say at what point the two merge, but some statistics regarded by economists as indicative of a depression include a 10% decrease in per-capita gross domestic product and consumption and 10% unemployment that persists for at least 24 months. A short period in which fear takes hold of companies and investors is more properly called a panic and does not necessarily occur in every depression, but lack of confidence in business is always present in an economic downturn.
A depression develops when overproduction, decreased demand, or a combination of both factors forces curtailment of production, dismissal of employees, and wage cuts. Unemployment and lowered wages further decrease purchasing power, causing the crisis to spread and become more acute. Recovery is generally slow, the return of business confidence being dependent on the development of new markets, exhaustion of the existing stock of goods, or, in some cases, remedial action by governments. Depressions and recessions today tend to become worldwide in scope because of the international nature of trade and credit.
It is plain to see from the above that a depression more accurately defines the period that we are in. Unemployment is way over ten percent when you count everyone who cannot find work and those working in replacement jobs earning a fraction of their original pay. We do not get to reclassify unemployment simply by refusing to count people who exhausted their unemployment benefits or who stopped looking. Prices have been falling and many people’s wages have been falling, as well! This economy didn’t get broken during just the Bush 8 years. This country took a dangerous turn when it embraced supply side economics in its oversight policies and has continued down that dangerous path even with democratic presidents in office. The most important single fact demonstrating this wrong turn is that in 2008 the top 4% of people living in this country had achieved a percentage of this total county’s wealth only once achieved before and that only happened immediately before the stock market crash in 1929. The top 4% does not run the economic engine but the 96% below do. If the people at the top did they would deplete their wealth very rapidly and would remain at the top a very short time. Cutting taxes for the wealthy will no more stimulate the economy during a depression than taxing the poor will. It will only put more money in the pockets of the wealthy and cause the imbalance to get worse. That is why Obama campaigned on cutting taxes for the bottom 96% and increasing taxes on the top 4%.
This imbalance reached a critical level in 1929 with margin-buying. The super wealthy always manipulated the stock Market. They easily do this with the sheer volume of stock they buy. But selling off that stock once the price achieved a certain level would not produce the windfall, because the selling of that much stock would make the stock price fall just as rapidly as it rose. This problem (for the super wealthy) inherent in the supply and demand curve was solved with the introduction of margin-buying. Margin- buying allowed the middle class to buy ten times the amount of stock it otherwise could with only 10% down. The enormous amount of buying it facilitated skewed the demand to exceed the supply, resulting in stock prices rising even further as the super rich cashed in their enormous profits. Before Margin-buying was introduced to the middle class very few ventured into the marketplace. The middle class was marketed the concept then that they too could make money like the rich do because a rising tide lifts everyone. But for the rising tide theory to work the rise must be measured, occur slowly over time, and be based upon reasons that will keep the tide from rapidly receding. Otherwise, massive drowning will and does occur.
Eight years of tax cuts for the super wealthy was a dangerous precedent especially accompanied by the lack of oversight on Wall Street. Enron and other companies ran wild during the Clinton years. The near collapse of the LTCM Hedge fund in 1998 should have caused legislative or regulatory restraint, not encouragement, by lowering taxes and allowing the derivatives market to run wild. Hedge funds, as well as the entire driving principle behind ENRON, and the widespread use of derivatives stimulated buying in the market with absolutely nothing to back up real value as the stock price rose. When money is made this way how is that any different from when the rich made a windfall before the 1929 crash? Blaming the 2008 crash on the law enabling the poor to buy houses they could ill-afford is both insincere and downright dishonest.
The same problems that caused the near collapse of the LTCM Hedge fund, the misconduct of ENRON and the influence that the 595 trillion dollar derivatives industry had on the 2008 market crash was the very incentives that bankers had in looking the other way and loaning money to people who could not afford housing. The poor did not cause the depression. That is preposterous. It was the greedy investors who expected to make a windfall from flipping houses. It was also the bankers who underwrote mortgages for them. They sold these mortgages as investments and then seduced potential investors to buy the notes by insuring them with unfunded derivatives. These are the people who caused the bubble to form in the first place. The creation of the bubble wasn’t whether the poor could afford the housing, but the manipulation of the market that the super rich always use to seduce others into unwarranted buying. After all, the super rich have problems that you and I could never image and doesn’t this problem make you cry for them: Having acquired that much wealth where, and from whom do they find more?
The bankers failed to disclose risks to whomever sought their loans because, by so doing, it would have interfered with their posturing the bank’s investments in the market. The amount of money the banks and bankers made was obscene and it was all permanently lost when the bubble burst, which was inevitable. But the bonuses paid to the officers responsible for the bubble was not. The stock market crashed because the derivatives that backed these mortgages became worthless once the bubble burst. Yet the houses build for the poor, while unoccupied, represent real wealth that was not permanently lost and will be absorbed back into the economy once the housing market recovers. It is a neat trick how the rich always blame the people less fortunate for their misconduct and then how many middle class people actually believe that nonsense.
The investors of Wall Street made a ton of money before the stock crashed. They accumulated it during a time of massive tax cuts. The manipulators of the market kept the money they made while the institutions they made it with faced bankruptcy. The middle class who sold their houses, for the most part, either rolled it over into new houses or they spent it. Either way, they had nothing to show after the bubble burst. The rich who owned businesses pocketed the money made from the middle class house sales because it was mostly spent on goods and services they provided. Once more, manipulation of the market shifted more wealth from the middle class to the super wealthy, thereby causing the 1929 imbalance to once more emerge.
Armed with this knowledge what can the family law attorney do? Younger attorneys would be well advised to learn the law on cap and trade industries because new sources for energy are the likely new market discussed in the encyclopedic definition of recovery from a depression (furnished above). If you are too old, like me, then you need to explore what services you will offer. And if you historically earned in the top 1% of the family law profession you can probably get by without any of my suggestions.
The first thing that I would ask you look at is whether you make a living by helping people improve their lives or do you make a living in the destruction of them? Divorce is inevitable so we are not to blame for that. But people’s lives change drastically with divorce and have you helped them with those changes? If so, how do you help?
Helping people after the divorce, distinguished from through the divorce, makes us far more important to the client and it preserves the relationship afterwards. Divorce attorneys tend to see themselves in the more limited role of practicing family law instead of being the family lawyer. The second is a natural for you because you helped decide what assets they retain, which ones are sold and which ones are used to create an income. Many clients will need tax help and help with managing those assets later. Management is far more comprehensive than giving them investment advice, which is better suited for the specialist. Everyone will retire someday and have to make decisions on beneficiary elections, which benefits to elect and entitlement. Much of this has a legal overflow. There may be a problem that their health carrier refused to pay an expense[1]. Often the company employing them will offer a schedule of options to elect on health coverage as their employment continues. Routine problems over employment arise which you can take care of and when it gets more complicated you should be in the position of referring the matter over to an employment attorney, not leave them to their own resources.
Legal issues will develop with those assets later and many of those issues can be handled by us. There will be minor family legal problems that you, who know so much about the client, would be better suited to handle. A child might have a legal scuffle in the future or there may be a contract that someone needs your help with. While the more complicated estates and wills should be handled by an estate attorney[2], many who need help do not get any because they are left to their own devices. If you worked more in these capacities clients would seek you out more when they are thinking about remarrying. You could be advising your richer clients about concepts like protecting themselves with tbe “Tenants By their Entireties” property, with cash and stock portfolios and when warranted[3], send them to specialist attorneys who could help them with those needs. As Florida is a state with strong tbe protections, many middle class persons would benefit by this help. I’m sure this area is overlooked because the tbe protection ends with divorce. But many clients will remarry. By handling many more matters you increase your sphere of influence, handle the simpler matters that would likely fall through the cracks and help other clients identify needs and then refer out the business. And let’s face it: it provides you with many more income opportunities.
I would like to create a dialogue on these ideas so that together we can expand the topic of conversation.
Jerry Reiss
COPYRIGHT 2010 JERRY REISS, A.S.A. ALL RIGHTS RESERVED. This may not reproduced in whole or in part without the expressed written permission of the author.
t Jerry Reiss d/b/a Jerry Reiss, ASA, Enrolled Actuary
[1] I provided TPA services for retirement and welfare benefit plans from 1974 – 2001 and forensic services from 1993 through the current date. Best Lawyers® Recommended.
[2] I offer a variety of estate planning support services discussed at my website www.jerryreiss.com.
[3] I offer many valuation services, including help with Craft crammed down values discussed at my website: www.jerryreiss.com.
