1EQQ8ZzGD

margin, buyers seek substitutes, or choose to do less, do
it themselves, hire more in-house staff, outsource laborintensive
work to India, etc. Well, not necessarily; in an
inflationary period, you might need to increase nominal
billing rates to keep the real cost of things constant. But
2000-2010 wasn't exactly a boom period overall, with inflation
hovering around 3%.
In any event, why didn't things just implode at big law firms
after 2000?
• Things sucked for a couple years, but another bubble
came along. The dot-coms died a grisly death, but the
housing bubble was ready to take investors for a similar
ride; we all know how that turned out. During those years,
there was plenty of corporate work for the big firms to do,
especially in new York, securitizing mortgages, creating
all kinds of funky new derivatives, and so forth. In good
times, investment bankers basically pay whatever bill the
law firm throws their way, so in the mid-2000's housing
boom years, it was raining money in those areas. Bankruptcies
of the enron-WorldCom nature also kept large
numbers of lawyers busy in the early-mid-2000s, as well
as a boom in IP litigation corresponding with the rise of
the patent troll industry. only after the housing crash and
the related carnage on Wall Street did things really cool
off for big law firms. The deep freeze began around 2008.
• At large law firms, salaries and billing rates are the same
across departments. As a matter of morale, prestige, and
camaraderie, this makes sense. As a matter of economics,
it's nuts. Again, thinking of efficient markets, when
demand for something (e.g., securitization of sub-prime
mortgages) dries up, the price charged for that work
should drop. When demand for something soars (e.g., corporate
bankruptcy), rates for that work should rise. nope.
For the most part, a 4th-year associate in every practice
area bills out at the 4th-year associate rate, and so forth.
Again, why does this matter? Go back to the points about
sticky billing rates and sticky salaries. Both are likely to go
only one direction — up — as long as any major area of the
firm is doing well and can afford to raise rates along with
87