Everyone’s looking for someone to blame for the economic mess.
It’s satisfying to point the finger at American small-town mortgage lenders who gave money to people they must have known could never pay it back. And what about those investment bankers who packaged subprime mortgages into collateralized mortgage obligations (CMOs) that were fatally flawed? And the bond-rating agencies that gave triple-A ratings to junk? And those whiz kids who invented credit default swaps (CDSs) that magnified immeasurably the risks of something going wrong? Gosh darn it (as Sarah Palin might say), these people have a lot to answer for.
But wait a minute: What about the lawyers who were sitting at the table every step of the way? There were lawyers present when those subprime mortgages were handed out; when CMOs were structured; when bond-rating agencies did their work; and when CDSs were invented. Lawyers were particularly active at the upper end of the financial food chain. Clever and highly paid attorneys on Wall Street (and Bay Street) had a big hand in inventing the fancy pieces of paper that got the world into so much trouble. (Full disclosure: In the early 1980s, I was one of several lawyers representing a New York investment bank that put together what I believe was the first mortgage-backed security issued in Canada.)
What were the ethical responsibilities of these lawyers? Should they have considered the broad economic consequences of their work? Should they have blown the whistle? Should they have said, “This is a bad idea, no good can come of it, and I don’t want to be involved?”
Of course they shouldn’t have. That, at least, is the traditional response. Lawyers, it goes, are not policemen, or self-appointed regulators, or priests. It’s not the job of a lawyer to judge the economic impact, or the morality, of a transaction he’s paid to facilitate. We all know, for example, that despicable criminals are entitled to vigorous legal representation. It’s perfectly fine to help tax avoiders, even though aggressive tax avoidance harms the public fisc, leads to unacceptable disparities of wealth, and impedes great national policies that benefit the citizenry. And, so it goes, it’s entirely ethical to lend a lawyerly hand with financial schemes, even though you suspect those schemes may imperil the economy and ruin millions of lives.
You can sum up the traditional view of legal professionalism this way: A lawyer is like a taxi driver. If a taxi driver picks up a passenger at the train station, and the passenger asks to go to the local whorehouse, the job of the taxi driver is to take him there safely. It’s not his responsibility to try and convince the passenger that a trip to the art museum would be more edifying, and turn down the fare if he is unsuccessful in his exhortations.
I think this traditional view has had its day. For one thing, it has done a lot of damage to the standing of the legal profession. The public long ago noticed that many lawyers are not much more than amoral guns-for-hire, and is not appreciative of the fact. More than that, lawyers themselves seem increasingly discomfited about how they have drifted away from the social values embodied in the laws they work with. Moral neutrality and technical competence no longer seem enough, not even to most lawyers.
Do “cause lawyers” show the way? A cause lawyer is someone who commits himself and his legal skills to furthering a vision of the good society. This is all explained in The Cultural Lives of Cause Lawyers, a recent book edited by Austin Sarat and Stuart Scheingold.
In the introduction, Sarat and Scheingold write, “by reconnecting lawyering with morality, cause lawyers make tangible the idea that lawyering is a ‘public profession’ and that its contribution to society goes beyond the aggregation, assembling, and deployment of technical skills.” Cause lawyering, they write, “raises the political question of whose interests are served by the dominant understanding of legal professionalism.”
I can hear the howls of protest. Does anyone seriously propose that a lawyer, before opening a file, should apply some kind of community-based moral test to see whether it’s okay for him to take on the assignment? How on earth would that work? The suggestion seems even more preposterous if it implies, for example, that a securities lawyer should make some kind of complex economic judgment about the possible public effects of a proposed transaction.
Quite apart from anything else, very few practising lawyers are competent to make such evaluations. Getting back to that economic mess, hardly an economist or financial expert saw it coming or, even today, fully understands what it’s all about. What can you expect from a lawyer?
But these kinds of objections are only examples of the debating trick of reductio ad absurdum. (Merriam-Webster: “literally, reduction to the absurd . . . disproof of a proposition by showing an absurdity to which it leads when carried to its logical conclusion.”) They don’t damage the proposition that a lawyer, as a well-educated creature of his community, should take into account the values and well-being of that community when he does his work. Sometimes, notwithstanding the siren call of billable hours, he shouldn’t open a file.
And so, if a lawyer, sitting in a conference room with his banker client, thinks that a mortgage applicant will soon default if given what he’s asking for; or that a collateralized mortgage obligation is backed by loans that likely will collapse; or that a bond-rating agency hasn’t done its homework and is handing out ratings that will mislead investors; or that financial engineering is going on that could have incalculable adverse consequences; he should stand up, put his hat on, and walk out.
Let’s see if the legal profession has learnt its lesson.
Philip Slayton has been dean of a law school and senior partner of a major Canadian law firm. Visit him online at philipslayton.com