Fewer intermediaries

At a fundraising dinner last week, a board member of the organization was relieved over the decent turnout and the evening's take--well down from last year, but in the black. "I couldn't help very much," he confided. "It's a rough time for lawyers, it's tough at my firm."
 
Law firms, particularly the White Shoe Wall Street partnerships, used to be considered pretty reliable, high credit tenants. Just 18 months ago, hourly billing rates for top attorneys in the best firms broke the $1,000 barrier. It sounded absolutely ridiculous and it was. Now my neighbor, who is a partner at one of these firms, deadpans "you can roll a bowling ball down the halls on some afternoons."
 
Lawyers like real estate brokers, accountants, investment bankers, mortgage brokers, and appraisers were all part of an intermediary feed fest that lived off Wall Street transaction mania. Deals, flips, buyouts, refinancings et al all required intermediaries to get done. The more deals the more each intermediary could take their piece of the action and the more they could make. And up until recently everyone was making a ton. The fix was in to do lots of deals, many just for the sake of doing them. And of course we know what happened.
 
The future is unsettled for the intermediary world, including lawyers and many of us in the real estate business. Transaction mania made a lot of money for a lot of people, but in the end didn't create much of anything and led to this horrible recession. That building that resold three times within 14 months in the end was just the same old building.  It's the same in the big Wall Street trading shops--I know what the spin is about how traders create liquidity--but are all these traders, doing all these trades really helping businesses grow and provide useful products for the world? Or are they just making money gaming a system, which they created? 
  
What the last 18 months has signaled is that our economy needs to shift from transactions and intermediary-based businesses to focus more on enterprises which actually create tangible products and services that people around the world will want to buy. The emphasis should be on people making their money running successful companies or developing and operating successful real estate projects, not on trading, hedging, and flipping. It's a choice between creating real value or just a value mirage.
 
If we tamp down transaction excess through regulation, as I expect, intermediary businesses will be a lot less robust in the next upcycle. Many of these jobs just won't come back and they shouldn't. We'll always need lawyers and brokers just not as many of them. When middlemen are making all the money, it's a sign of a broken system.