Orrick partner's take on Wall Street mess

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I tried to paraphase a bit, but this one is really worth reading in full here.

AmLaw Daily - Work, Jobs Drying Up for Firms in Wake of Wall Street Mess, Says Orrick Lawyer

Alan Pomerantz, partner in charge of the New York real estate practice group at Orrick, Herrington & Sutcliffe and a former chair of the global property and finance practice group at Weil, Gotshal & Manges talks about how law firms will be affected by the current economic crisis.

So, what are you hearing?

What I hear in the marketplace that's really disquieting is nobody says, "Well, we finally got the last piece scrapped out." You're not hearing that at law firms or in business. What they're all saying is, "Who do you think is next?" It's going to kill lawyers. It already has.

What's going on at large law firms right now?

Everyone is nervous. And it's not a good thing to be a lawyer and to be nervous.

How are firms planning to absorb new law school graduates they've just taken on?

It's going to accelerate a firm's decision-making [process] on people. It used to be, "Well, he or she is doing good work, so let's keep them around a bit longer," but now it's, "Let's get rid of them."

Any chance we'll see some sort of market recovery anytime soon?

Lehman's failure with such an extraordinary amount of debt indicates that type of structure doesn't work. Mark Twain once said "When a cat sits on a hot stove, not only won't he sit on the hot stove again, he won't sit on a cold stove either."
What we're seeing is that there is some pressure if a bank is going to securitize debt, they're going to have to keep a first-loss piece on their books, which is going to cut everything down. . . I think that what Lehman was, was that whenever you wanted to buy something in real estate or finance it, they were always at the table. . . And now the merry-go-round has stopped and they're running out of chairs.

Is this the worst you've ever seen it?

Not yet. I've been through some crunches. And what's different here is that nobody truly understands what's happening. No one truly understands how much leverage there is in the system. The issues of why one needs to save Bear Stearns and Lehman is not only the real estate investments that they made, but the risks and counterparty risks that they have on their books, which are quite significant. You can have swaps and synthetic credit risks on one asset that are ten times the value of that asset. I don't think the world--or the bankers for that matter--understand that.

Do you think we've reached the nadir today?

Right now you can't tell someone what their risk is! You just don't know. That's the problem. It's significantly different [from anything we've faced before]. When we did all the restructurings in the nineties, you could at least get your lenders in a room. Now you don't know who your lenders are. That's a material difference. My thinking is that you need to have a catastrophic event so that the buyers will say, "Okay, now things are at the bottom." But I don't think we're there yet.