Bracket, rankings, and money oh my!

So the NCAA 2017 Division One Men's Basketball Tournament began this week. As computer-based workers stop doing their jobs and start watching basketball, it seems like a good time to look at another famous ranking that came out this month. I refer to the US News and World Report's annual ranking of Best Law Schools.  

Some things never die.

Although the current heat wave in Minnesota is evidence to the contrary, summer is turning to fall. Among other things, this means a return to politics as usual in Washington. One of the first things we can expect is another batch of stories about the need to raise the debt ceiling. Matthew Ygelsias at Slate has a preview here.

Penny Pritzker is Rich Beyond Your Wildest Dreams

President Obama has nominated Penny Pritzker to be Secretary of Commerce. She has a reported net worth of $1.85 billions dollars. That's billion, with a B. Her wealth is mainly inherited, as she is a member of the famous Pritzkers of Chicago, who made their fortunes in the hotel industry—specifically Hyatt Hotels.

But Ms. Pritzker is not merely an heiress. She makes tons of money on her own. In fact, she makes so much money that, in filings with Congress, she accidentally understated her income over the last decade by 80,000,000 dollars. To be clear, she didn't understate her net worth; she understated her income. The mistake was chalked up to "a clerical error," and she has corrected it.

So, how did Ms. Pritzker make all this money? Basically, it looks like she got paid a fortune for managing the fortune:

Documents released last week show Pritzker received $32.2 million for a decade’s worth of consulting on the restructuring of domestic trusts. The filings released yesterday show she earned at least $80 million for that work, according to Bloomberg’s compilation of the data. The revised total is in addition to the amount reported last week, according to Anderson.

Pritzker, whose family founded Hyatt Hotels Corp, ... disclosed last week that she earned $54 million in consulting fees last year for a similar restructuring of trusts based in the Bahamas, also over 10 years. The Bahamas’ income wasn’t changed in the amended disclosure document.

* * * 

“Ms. Pritzker was engaged by the U.S. trustee of trusts for the extended Pritzker family for advice on restructuring trust investments for the purpose of dividing assets along individual family lines,” Anderson said. They included investments in Hyatt, Marmon Holdings Inc., Union Tank Car Co. and non-hotel real estate investments including the Hyatt Center office tower in Chicago, she said.

So, if I'm reading this right, Pritzker has "earned" about $165,000,000 over the past decade for "managing various trusts." [CENSORED.]

About the only controversy regarding Ms. Pritzker's nomination is that her family owned bank failed back in 2001. She testified that "ya know, I feel very badly about that." But she asserts she had no management role in the bank so bears no responsibility. Honestly, what could she have done? She was too busy earning $31 per second (every second of every day of every year for a decade) managing those pesky trusts.

Judge Schiltz on Lawyers

I randomly stumbled across a very interesting and readable old (1999) article written by Judge Patrick Shiltz entitled, "On Being a Happy, Healthy, and Ethical Member of an Unhappy, Unhealthy, and Unethical Profession."

It's long, and somewhat outdated in its particulars, but it holds up rather well. It touches on some themes I've discussed here, but Judge Schiltz has perhaps a better explanation than I do for the apparently irrational profit-maximizing behavior of lawyers:

Why do you suppose sixty year old lawyers with millions of dollars in the bank still bill 2200 hours per year? Why do you suppose lawyers whose children have everything money can buy but who need the time and attention of their parents continue to spend most nights and weekends at the office--while continuing to write out checks to the best child psychologists in town? Why do you suppose one big firm partner I know flew into a rage after learning that his year-end bonus would be only--only--$ 400,000, while the bonus of one of his rivals in the firm would be $ 425,000? Why do you suppose that another lawyer I know (a lawyer making $ 1 million a year) came within a whisker of quitting his firm after losing a bitter dispute with one of his partners (a lawyer making over $ 2 million a year) over a $ 10,000 payment?

It is not because these lawyers need the money. Any of these lawyers could lose every penny of his savings and see his annual income reduced by two-thirds and still live much more comfortably than the vast majority of Americans. What's driving these lawyers is the desire to win the game. These lawyers have spent their entire lives competing against others and measuring their worth by how well they do in the competitions. And now that they are working in a law firm, money is the way they keep score. Money is what tells them if they're more successful than the lawyer in the next office--or in the next office building--or in the next town. If a lawyer's life is dominated by the game--and if his success in the game is measured by money--then his life is dominated by money. For many, many lawyers, it's that simple.

The whole thing is worth a read.

--Bart Torvik

"A clever little scheme having only the color of legality..."

"...cannot be upheld." 

Anyone who thinks the "platinum coin" solution to the Debt Ceiling is obviously legal needs to read Bloomington Nat'l Bank v. Telfer, 916 F.2d 1305 (7th Cir. 1990), in which a court bench-slapped the Comptroller of the Currency for abusing his discretion under the National Banking Act. Chevron deference goes only so far.

The Platinum Coin is a Terrible Idea

Now that we've averted the Fiscal Cliff, the country's next looming catastrophe is the "Debt Ceiling." This is the law that limits the amount the federal government can borrow. In about two months, we will hit the ceiling unless Congress acts to raise it, in which case the President will have to stop paying people the government owes money to. This would be calamitous. Republicans says they will demand spending cuts in exchange for any rise in the Debt Ceiling; Obama says he won't negotiate on this issue, because Congress needs simply to grant him the ministerial authority to create the debt necessary to pay for the spending that Congress has already appropriated.

One clever idea that's been going around is that the President can short-circuit this whole crisis by having the Secretary of the Treasury order the minting a platinum coin with a $1 trillion face value. That coin could then be deposited with the Federal Reserve, which would credit the Treasury's account with the $1 trillion, which the President could use to pay the country's creditors.

This method of using coinage to raise revenue is called coin seigniorage. The Treasury's ability to mint coins is generally circumscribed by the fact that only certain denominations and types of coin are allowed. Specifically, 31 U.S.C. 5112 states:

In a Cashless Society, There Would Still Be Crime

A very interesting article by Miles Kimball advocates for replacing paper dollars with electronic dollars as the "unit of account" in the United States. Mr. Kimball's motivation for advancing this cause is that this electronic-dollar regime would allow the Federal Reserve to charge negative interest rates, which would allow it to fulfill its full-employment function without having to resort to exotic (and controversial) activities such as "quantitative easing."

I don't generally blog about monetary policy, of course, but another reason for moving from cash to electronic dollars is that it makes crime much more difficult and less worthwhile. In a cashless society, economic exchanges always create a paper trail—so illicit exchanges become much more difficult to pull off without getting caught. And much other crime, such as robberies and bank heists, become far less lucrative. There's no point in robbing a bank if that's where the money isn't. Would-be bank robbers are presumably smart enough to figure that out, eventually.

Mr. Kimball's proposal, in which paper money would still exist, just not as the "unit of account," reduces these anti-crime benefits significantly. But presumably cash would still become less and less useful, and less and less common (as it already has become, frankly).

Anyhow, I thought of this anti-crime benefit of electronic money today when I read that, for the second straight day, masked men in Evanston had robbed a pizza delivery man at gunpoint. Of course, they stole the driver's cash and wallets, etc., so you might think that this is the kind of crime that abolishing paper money would eliminate. But, in each case, they also stole the pizzas. The lesson may be that even in a cashless society there will be crime—as long as there is pizza.