Beware the unintended consequences of bad incentives.

What do these stories have in common?  From the Wall Street Journal (written by Liz Rappaport and Michael Rapoport--distant relations at best), "Ernst Accused of Lehman Whitewash" (here); from the New York Times and David Streitfeld, "Homes at Risk, and No Help From Lawyers" (here); and from John Stossel, "Uncle Sam Will Help You Buy an Alpaca" (here).

Each of these stories has the same subtext:  people behave according to the incentives that reward them.

If it is true that Ernst facilitated the bad accounting at Lehman (let's wait and see, but I wouldn't be particularly surprised), my guess is that the facilitation was due to the twin incentives of (1) rewards for pleasing clients (remember Enron?) and (2) no rewards for calling shenanigans on accounting tricks that--at the very least--violate the spirit of accounting rules, if not the technical wording of those rules.  (For the basic advice to avoid all actions that can be explained by, "Well, technically, it's ok," see the paper that Colin Marks and I wrote for the Fordham Law Review, "The Corporate Lawyer's Role in a Contemporary Democracy," which you can download here.)

Want to prohibit fraudsters from preying on distressed homeowners?  California tried, by enacting a law that prohibits lawyers from being paid for doing loan modifications until the modifications are approved.  Good for California for trying to squeeze out those businesses that took the modification money and ran, before getting their clients the modifications.  But give California a big "oops" for not exempting legitimate lawyers who just can't afford to float the entire fees for a process that might take years to complete (and which could be discharged in bankruptcy if, after the modification, the client still needs to restructure debt).

And those alpaca subsidies?  Tax credits can be great ways to shape behavior but, well, they shape behavior.  All regulation shapes behavior--again, by providing incentives or disincentives.  Much of regulation is important:  criminal penalties, pollution standards, food and drug standards, etc.  But lawmakers need to understand that regulation can create unintended behavior as well and to think hard about what might go wrong with a poorly written or ill-conceived regulation.  For example, rage at the bizarrely high pay for poor-performing executives and the revolving door for inattentive board members has created a backlash of irritation at all high salaries.  (Well, maybe not the high salaries of athletes, but the high salaries of non-athlete businesspeople.)  Redistribution of wealth from all high-earners to more low-earners wouldn't be the correct response to that rage.  (I still remember enjoying Robert Nozick's Anarchy, State and Utopia, which is actually available--yay!--here.)  Again, cutting too wide a swath will create more off-target incentives.

People are hard-wired to behave in certain ways.  If we're going to create incentives for behavior--and we will always create some incentives--we need to try to think those incentives all the way through.

And, for you computer geeks out there, something my cousin Nathaniel found:

Here.

OK, I might be biased, but...

Here's my vote for the best university holiday card ever:  here.  Happy holidays to all, and GO, OWLS!

New bankruptcy blog in Nevada.

See the link here.  I know Brian, and I'm really impressed with his work.  This blog should be great.

And if you want some other good bankruptcy and bankruptcy related blogs, to round out your collection, see:

WSJ:  Bankruptcy Beat (here).
Credit Slips (here).
A Texas Bankruptcy Lawyer's Blog (here).
A Clean Slate: The Bankruptcy Law Blog (here).

Best lesson taken from Madoff fiasco.

See Michael Kubin's opinion piece in the New York Times (here).

Shout-out to Greg Duhl for some of his latest articles.

Greg Duhl gave me a heads-up about two of his latest articles, Divided Loyalties: The Attorney's Role in Bankruptcy Reaffirmations (available here) and Social Networking and Workers' Compensation: Law at the Crossroads (co-authored with Jaclyn Millner) (available here).

I've been enjoying both of them--although I haven't yet seen The Social Network, the ethics issues surrounding social networking have begun to catch my eye, and based on some pro bono work I've done, the ethics issues in consumer bankruptcy cases are huge.

Thanks, Greg!

Customer service warning for ballroom dancers: AVOID "www.dancerschoiceonline.com"

I ordered three pairs of shoes in mid-November.  On 11/18, the company informed me that one of the three pairs was out of stock, and that my refund would be "coming."  It's 12/4.  No refund yet.

One pair of shoes didn't fit.  It took six emails -- SIX -- to find out that returns went to the shoe manufacturer, not to Dancers' Choice.

The email response is spotty, painfully slow, and woefully incomplete.

No matter the temptation, stay away from this company.  It's got some of the worst customer service I've seen in a long time.