Demolition in Detroit

"Detroit Shrinks Itself, Historic Homes and All"
http://online.wsj.com/article/SB10001424052748703950804575242433435338728.html

in a nutshell Detroit will be demolishing 10,000 vacant homes including historic homes like the boyhood house of Mitt Romney. The reason is that they have become "eyesores" and are "bad for the neighborhoods" and so forth. Federal stimulus money will pay for much of the demolition work.

This strikes me as wasteful and profligate. Paying money to destroy assets. These homes could not be fixed up? They could not be given away in return for pledges to fix them up?

I'm sure that the big homebuilders lobbied Michigan, Detroit and Washington to do this - spend federal money on demolishing existing housing stock. Guys like Pulte, KB and the National Association of Homebuilders. Existing homes demolished will mean new homes are needed. Don't be fooled by the "green space" wool (as in over your eyes). This is about reducing supply so when the economy turns there will be a need to build NEW homes.

Afghan Payola

http://online.wsj.com/article/SB10001424052748704250104575238442531337592.html?mod=WSJ_hp_editorsPicks

Synopsis of the facts:
- Afghan farmers are being paid (by U.S. taxpayers) to plant crops, spray pesticides, harvest crops etc.
- The effort is part of an attempt to undermine the Taliban.

What is implied in the article:
- The U.S. is trying to help the economy and the Taliban is trying to destroy it. IE "we are the good guys."
- The effort is working, it's catching on.
- The really important aspect of the current efforts in Afghanistan is the military activity, this economic effort is just an adjunct to that effort.

Lets focus on this last point a bit. The primacy of the military. Note the following sentence: "Kandahar and Helmand, the southern provinces where the bulk of this money is spent, are the focus of this year's U.S. military surge that seeks to roll back Taliban advances." See the key word in there? It's not just a surge, it's a military surge. We saw the same focus on the military aspect of the surge in Iraq in 2007.

Military aspects were barely touched upon in the article yet the effort was described as a "military" surge.

My opinion is that our nation has become tragically hooked on war and military solutions. I think this dates back to WWII. Ironically the "good" war may have set us up for being seduced by the "glorious" aspects of war and it's benefits to the winning side. More recently the Soviet Union collapsed and we have a very successful war in Iraq in 1991. We don't really fear war any more. Without something like the Soviet Union to contend with war is again tempting. War against much weaker opponents who we don't much like anyway and have something that we want.

Think Iran.

Of course the long term costs of war and occupation are an issue but notice how -even now- just throwing in the word "military" tends to insulate against critical examinations of cost. Imagine the howls of protest if $360 million dollars was spent on generic foreign aid in some similar context. But throw in the word "military" and cost containment goes out the window.

What is going on in Afghanistan is really "payola". Locals are being paid to do what we want and not join or aid the Taliban. That is the backbone of this "military" surge and that was the backbone of the Iraqi surge in 2007.

Everything will be fine as long as we continue to pay them roughly what they ask for.

Sex offenders can be kept in prison, justices rule

A new Supreme Court ruling allows federal officials to indefinitely hold inmates considered "sexually dangerous" after their prison terms are complete.

See this article for a full description:
http://www.msnbc.msn.com/id/37190594/ns/us_news-crime_and_courts

It strikes me that this is a very dangerous kind of power to give to federal officials. The problem is that the question of whether someone is "sexually dangerous" or not is subjective and hence this opens the door to arbitrary usage of this.

It would seem to me that this ruling could seriously undermine our whole system of criminal justice, our system of jury trials where the holding (or not) of a person is determined by a judge and jury - not "federal officials."

If someone can be held for being "sexually dangerous" that what about holding someone based on some other kind of "dangerousness".

How about if federal officials deem someone "violent and dangerous" and hold him on that basis. What's so special about "sexually dangerous", it seems "violent and dangerous" is just as bad. What about dangerous in other ways. What about a known gang member.

The problem is that the government is being given arbitrary power here. "Federal officials" somewhere determine the outcome not a judge and jury.

We are seeing some basic tenets of our criminal justice system come under assault from both sides really. Bush essentially repealed Habeas Corpus in cases of "terrorism" meaning someone can be held with no charges, and now the supreme court has ruled someone can continue to be held if they are deemed "sexually dangerous."

I don't think it's an exaggeration to say that the importance and centrality of the jury trial is being chipped away and in it's place comes arbitrary decisions by "federal officials".

Particularly disturbing is Elena Kagan's role in this ruling as well as her reasoning:
"Solicitor General Elena Kagan successfully argued the government's case in front of the Supreme Court. Kagan has now been nominated to replace the retiring Justice John Paul Stevens.

Kagan in January compared the government's power to commit sexual predators to its power to quarantine federal inmates whose sentences have expired but have a highly contagious and deadly disease.

"Would anybody say that the federal government would not have Article I power to effect that kind of public safety measure? And the exact same thing is true here. This is exactly what Congress is doing here," she said. "

So the justification is "public safety?" "Public safety" voids a key element of the the sentence (it's end!) and renders moot a presumption of innocence? If you are going to base the reasoning on "public safety" then it opens the door for application of this to all sorts of things. How about someone with a history of drunken driving accidents.

Elements in our government that really really want to hold someone (for whatever reason) would seem to have picked up some pretty big trump cards over the past couple of years.

"Getting even" can serve a purpose

Why This Traveler's Outrage Feels So Right
by Charles Wheelan, Ph.D.
Monday, May 10, 2010

United and Continental are merging to create the world's biggest airline. Congratulations. Now give me my $25 back.

I just filed what may be the world's smallest lawsuit against what will soon be the world's biggest airline.

At the beginning of May, I sued United Airlines (soon to absorb Continental) in New Hampshire district court for $25. (Yes, it cost me $72 to file the suit, but I'll get to the logic of that in a moment.)

The grounds for my lawsuit are, I believe, airtight. In March of this year, I checked a bag on a United flight from Toronto to Manchester, N.H. To do so, I paid $25. My understanding was that both the bag and I would arrive in Manchester later that evening.

I arrived. The bag did not. Gone. Nearly six weeks later, it's still missing. Which is why I want my $25 back.

True, the bag had a lot of valuable stuff in it -- clothes, shoes, even an olive oil and vinegar decanter that I was bringing back as a gift. Obviously I want that stuff back, too, or compensation for the lost possessions. But I'm willing to wait on that, as United claims to be still looking for the bag. If it never turns up, we'll have to haggle over the value of the contents. Fine.

But in the meantime, one thing is absolutely, positively clear: I didn't pay $25 to have the bag disposed of. I paid $25 to have the bag delivered to its ultimate destination. That didn't happen. Come on Glenn Tilton (who as United CEO is the named party in the lawsuit), these bag fees are irksome when the bag does go where it's supposed to go. They're really hard to justify when it doesn't!

When I try to explain this to the United baggage claim representatives, I just end up deeper in call center hell. After yelling at about the ninth person (people who admittedly bear no responsibility whatsoever for my lost bag), I opted to seek justice the American way: in small claims court. The Web site explaining the New Hampshire small claims process actually says: "The 'People's Court' television show is a very good example of how most courts handle small claims cases."

My only disappointment is that I won't be eligible for a jury trial, since the claim is less than $1,500.

Remarkably, there are some important economic concepts lurking within my otherwise silly $25 lawsuit. The first is the explanation for why the major airlines (with the notable exception of Southwest) increasingly treat passengers like inmates in a medium security prison (though presumably there are fewer added fees in prison). Because they can.

The airline industry is not a perfectly competitive market. If it were, then each one of us who has had a bad customer service experience would simply choose a different airline next time. But that's usually not possible. Both regulations and gate availability constrain the number of carriers that serve most markets.

If I found a dead rat floating in my soup at a restaurant, I could credibly claim that I was never coming back. There are plenty of restaurants to choose from, even in a small town. Airlines are different. I can't credibly claim that I'll never fly United again, as it's often the only option to some of the places I need to go, at the times I need to fly. The sad reality is that I've had to book two new United flights just since my bag was lost.

Firms that don't face meaningful competition tend to take their customers for granted. Of course, the industry will become even less competitive once the United-Continental merger is consummated -- a fact that regulators are now scrutinizing.

The second relevant economic point is that recent research has demonstrated that there is nothing particularly stupid about paying $72 to file a $25 lawsuit. In fact, it explains an important aspect of human evolution.

Until recently, economists assumed that no rational person would do anything that makes them worse off -- such as filing a lawsuit that can't possibly be worth the cost of my time, even if I win. But economists should have been reading more Shakespeare. It turns out that vengeance, or harming oneself in order to inflict harm on someone else, is both explainable and important.

Scientists can now literally watch our brains as we go about different activities. Getting even with someone who has done you harm stimulates the same pleasure centers in the brain as other enjoyable activities. When participants are put in experimental games in which they are treated unfairly by a fellow player, the victims are perfectly willing to give up their own resources in order to inflict harm on the wrongdoer -- because it makes them feel good.

Evolutionary biologists believe this warm, fuzzy feeling related to vengeance plays a crucial role in human development. Our economic and social advancement depend on cooperation among groups of people; some of those people cheat, shirk or provide unpleasant customer service. Vengeance ensures that we will punish these perceived wrongdoers, even if it exacts a personal toll on us in the short run.

In the long run, this willingness to punish cheaters and shirkers makes for fewer of them, which in turn promotes cooperative endeavors. Vengeance also appears to be uniquely human. New research shows that when monkeys play laboratory games involving food, they will not sacrifice their own consumption in order to punish another monkey who has acted "unfairly."

So, if nothing else, my lawsuit proves that I'm smarter than a monkey. And win or lose, it makes me feel good.

Something interesting from Harvard in the 19th century

Th following is from
http://en.wikipedia.org/wiki/Charles_William_Eliot

Eliot's opposition to football and other sports

During his tenure, Eliot opposed football and tried unsuccessfully to abolish the game at Harvard. In 1905, The New York Times reported that he called it "a fight whose strategy and ethics are those of war", that violation of rules cannot be prevented, that "the weaker man is considered the legitimate prey of the stronger" and that "no sport is wholesome in which ungenerous or mean acts which easily escape detection contribute to victory."[2]

He also made public objections to baseball, basketball, and hockey. He was quoted as saying that Rowing and Tennis were the only clean sports.[3]

Eliot once said, "Well, this year I'm told the team did well because one pitcher had a fine curve ball. I understand that a curve ball is thrown with a deliberate attempt to deceive. Surely this is not an ability we should want to foster at Harvard."[citation needed]

Infinite wealth creation

We do not need to maximize wealth creation in every sector. More wealth is indeed created in the transport sector with an auto centric, suburb to suburb commuting model than would be created with a mass transit centric model.

Our wealth maximizing auto based transport system is a bad bad thing.

1) The system trashes the planet. oil spills, CO2, wars for scarce oil, huge wasting of space, pollution from drilling, smog. And on and on and on.

2) Wealth creation possibilities overall are unlimited hence there is no reason to maximize wealth in any given sector. I think a case could even be made that *minimizing* wealth per sector should be a goal: that means humanity has the resources to undertake the maximum number of tasks. Lets say the number of persons employed in transportation is decreased from 25 million to .5 million. Some would say this would be a disaster. But what if the 24.5 million who "lost their jobs" in the transport sector are doing other things that are not being done by *anyone* at the present time - like implementing a nanotechnology cure for cancer and hundreds of other tasks - and lets say the .5 million people still employed in the transport sector are able to move people as fast and with as much convenience as now. Lets say the new transport sector is massively more efficient and uses a fraction of the energy that it does now. This would be a very good thing!

Moving from the current auto/oil/steel based transport system to a much more efficient transport system is not likely to happen with our current socio-political-economic system barring some sort of a great depression 2 type disruption.

Decreasing the size as I have suggested above means decreasing power, clout, influence. Decreased CEO paychecks for the top guys. Fewer jobs *in the sector*. That just isn't going to happen without a fight or disruption. People are to greedy and short sighted.

Fees flourish in bankruptcy cases

Perhaps as societies get richer it's inevitable that there will be more and more incentive to spend time, money and energy on taking wealth from someone else vs. creating it. Perhaps this is a key cause of stagnation and decline. Read on.


Fees flourish in bankruptcy cases
Professionals reap millions as cases get more complex; debtors, creditors and judges seem resigned to the trend

By Michael Oneal, Tribune reporter

March 28, 2010

Kevin Carey isn't likely to win any awards for reining in runaway bankruptcy fees. But at least he took a stab at it.

Carey was the U.S. bankruptcy judge in Delaware who last year warned lawyers in the Tribune Co. case that they had better think twice about charging more than $1,000 an hour.

Chicago's Sidley Austin, the lead debtor's attorney, filed a top rate of $925. New York's Chadbourne & Parke, which represents unsecured creditors, charged $955.

Both firms have managed to do pretty well anyway.

In the 15 months since Chicago-based Tribune Co. filed for bankruptcy, law firms and other professionals have billed the media conglomerate $138 million, or about one-quarter of the company's cash flow last year, an analysis of court documents shows.

Sidley's take alone is pushing $25 million, and the case is far from over.

As big as those numbers are, experts agree, the spending is hardly unusual.

Major cases in recent years — Enron ($793 million), United Airlines ($296 million), Delphi (just under $400 million) — have been colossally expensive. And the monstrous Lehman Brothers case, now under way in New York, will dwarf all of those. After just 17 months it has generated fees of $457 million, and that jumps to more than $700 million if you include management fees earned by restructuring specialist Alvarez & Marsal.

Bankruptcy fees have been rising at a rate of 8 percent to 10 percent annually over the past decade, far outpacing inflation, estimates Lynn LoPucki, a bankruptcy scholar at the University of California at Los Angeles law school. And the upward pressure is likely to build in the coming years as more companies try unsuccessfully to refinance a mountain of bubble-priced debt in a weak, reluctant market.

"It's very troubling," said Robert White, a retired bankruptcy specialist with O'Melveny & Myers in Los Angeles. "In the last 15 or 20 years it's gotten a lot worse."

Despite some grumbling, debtors, creditors and judges seem resigned to the trend.

With the exception of Carey's early flash of concern, neither he nor the U.S. Bankruptcy Trustee charged with overseeing fees in the Tribune Co. case have blinked at the millions of dollars flowing out of the estate each month. Stuart Maue, the St. Louis firm hired to examine fee applications, has challenged a tiny sliver of the billings so far, and its own $812,642 in fees are almost triple the $265,869 in savings it has found.

The only serious challenge to the Tribune Co. fees has come from junior bondholders. They are contesting an out-of-court agreement under which Tribune Co. paid $25 million to cover professional fees incurred in just the first 10 months of the case by the banks that provided the financing for the company's failed 2007 leveraged buyout. The move has generated lots of claims and counterclaims — and even more fees — but Carey has yet to rule.

For the law firms, attention tends to focus on those eye-popping top rates pulled down by a handful of partners like lead attorneys James Conlan of Sidley (who recently got a raise to $950) and Howard Seife of Chadbourne (now at $965). But the real cost stems from the army of professionals deployed. More than 160 people at Sidley have spent the equivalent of 4.6 years on the Tribune Co. case at an average rate of about $500 an hour.

Sidley's Conlan acknowledges that the costs are high but says they are market rate. The complexity of the case, he said, demands wide and diversified legal resources, and "it would be difficult to argue that Chapter 11 isn't the best way to preserve value."

Nevertheless, some costs are hard to fathom. Sidley has spent $110,000 making copies. The top four professional firms in the case have billed a total of $1.2 million to cover the cost of preparing those bills.

Don Liebentritt, chief legal officer at Tribune Co., which owns the Chicago Tribune, said he has little choice but to pay up.

"Would we like it to be less expensive?" Liebentritt asked. "Sure. But you need to retain the best people possible to do what you need to do. … What I have to pay is determined by the market."

Many bankruptcy experts connect the rising costs to the fact that cases have become infinitely more complex in the years since the federal Bankruptcy Reform Act of 1978 gave corporate managers the ability to design their own restructurings and negotiate solutions with creditors.

Early on, the process was relatively orderly. Debtors obtained a high degree of control over their fate. Unsecured creditors got a single voice in negotiations through a creditors committee paid for by the estate. The senior creditors were usually one or two big banks that presented a unified front. Lawyers tended to follow a regular set of strategies to forge a workable compromise.

But the increasing sophistication of financial markets and corporate financial structures has turned the system on its head, said Douglas Baird, a restructuring scholar at the University of Chicago Law School. There are more classes of debt underwritten in ever more intricate ways. Markets have developed to trade them all, with banks routinely splitting up loans to sell in pieces to other investors. Rules emerged allowing any holder of a claim in Chapter 11 to trade it freely, inviting hedge funds and distressed-debt investors to buy securities on the cheap, hoping to boost their value in bankruptcy court by exerting whatever influence they can over the restructuring plan.

The end result is an aggressive street fight — litigation on steroids, some practitioners call it — with a new breed of professional creditor matching wits against others to see who can carve out the most value from the estate. Each side has its own set of lawyers, investment bankers, consultants and accountants. With motivations and incentives splintered, the consensual restructuring that the Chapter 11 statute is supposed to encourage has become increasingly difficult and expensive to achieve. While the estate only pays for those employed by the debtor, the creditors committee and sometimes the senior group, the legal imbroglio drives up costs for everyone.

"Once you're in that kind of spiral it's very difficult to turn it around," said Jack Butler, co-leader of the restructuring practice in the Chicago office of Skadden, Arps, Slate, Meagher & Flom.

The cost of fighting in court can be seen plainly in Sidley's Tribune Co. billings. For the first eight months of the case, Sidley spent $1.3 million on litigation-related issues. But after the case began to focus on charges by junior bondholders that the 2007 LBO was improper, litigation fees jumped to $4.2 million over the next five months.

One byproduct of all these changes is that bankruptcy court became a magnet for the sort of highly paid gladiators who flocked to mergers during the 1980s. Big firms built major practices, creating scarcity value by offering capabilities smaller firms couldn't match.

In Chicago, that has paid dividends as firms like Sidley, Kirkland & Ellis and Skadden carved out major national franchises rivaling New York for big cases.

"Bankruptcy has become an elite practice," Baird said. "There's a superstar phenomenon like in all professions."

One reason the fee issue is so difficult to solve, said Seton Hall law professor Stephen Lubben, is that the outcomes of Chapter 11 arguably justify the costs. Companies with billions in assets and thousands of employees emerge with unencumbered balance sheets and a new lease on life. Despite the chaos, creditors of all kinds can also get their day in court, or choose to sell into a liquid market.

The problem, critics argue, is that incentives to control costs may be getting lost. Theoretically, all sides are hurt if fees whittle away the value of the bankruptcy estate. So all should be prudent in launching new litigation and vigilant over a sprawling posse of attorneys and investment bankers working by the hour.

But in practice, it is more complicated. Motivations can become so fragmented in a complex case that relying on each party's self interest to protect the estate doesn't always work. Management may be more interested in survival than trimming lawyer fees. If a hedge fund buys a bond for 10 cents on the dollar, the goal may be to simply double its money by fighting for a recovery of 20 cents. The long-term fate of the company may not figure into the calculation at all.

"If somebody thinks they can get more of a recovery in a courtroom than in a conference room, that means complex litigation at a high cost," Butler said.

Adding to the problem is the industry's reluctance to police itself.

To hold down costs in the Lehman case, for instance, the court formed a fee committee composed of representatives from the debtor, the creditors, the U.S. Trustee and Kenneth Feinberg, President Barack Obama's pay czar.

Feinberg has issued more challenges than the average fee examiner. But he has been met with howls from high-profile firms like Weil, Gotshal & Manges and Jones Day, which have successfully pushed back. Filings show that the biggest battle has been waged over how to account for the hours spent preparing fee applications.



source:
http://www.chicagotribune.com/business/ct-biz-0328-fees--20100328,0,3790460.story

And from the NY Times:
More:

May 3, 2010, 3:02 am
Who Knew Bankruptcy Paid So Well?

More than $263,000 for photocopies in four months. Over $2,100 in limousine rides by one partner in one month. And $48 just to leave a message. Explanations for these charges? Priceless.

The lawyers, accountants and restructuring experts overseeing the remains of Lehman Brothers have already racked up more than $730 million in fees and expenses, with no end in sight, Nelson D. Schwartz and Julie Creswell report in The New York Times. Anyone wondering why total fees doled out in the Lehman bankruptcy alone could easily touch the $1 billion mark merely has to look at the bills buried among the blizzard of court documents filed in the case.

They’re a Baedeker to the continuing bankruptcy bonanza, a world where the meter is always running — sometimes literally: in the months after Lehman’s collapse in September 2008, the New York law firm Weil, Gotshal & Manges paid one car-service company alone more than $500 a day as limo drivers cooled their heels waiting for meetings to break (and this in a city overflowing with taxis).

While most of corporate America may be just emerging from the Great Recession, bankruptcy specialists have spent the last two years enjoying an unprecedented boom. Ten of the 20 largest corporate bankruptcies in recent decades have occurred over the last three years, according to BankruptcyData.com, with Lehman snaring honors as the biggest corporate belly-flop in American history.

These megacases — Lehman, General Motors, Chrysler and Washington Mutual, to name a few — are orders of magnitude larger than most bankruptcies in the past, and their size and complexity have created a feeding frenzy of sorts for those asked to sort them out. To date, Weil, the lead law firm representing Lehman, has billed the Lehman estate for more than $164 million.

Analysts, lawyers and others involved in the larger bankruptcy boom say that some fees are legitimate — and that others are, at a minimum, highly questionable.

“There’s clearly pressure on people to create more revenue,” says Robert White, a former bankruptcy partner at O’Melveny & Myers who retired in 2006 after practicing for 35 years. At one deposition he attended last year, each law firm sent two or three lawyers when one would have sufficed. “They were just sitting there on their BlackBerrys and talking to other people,” he said.

With first- and second-year associates charging more than $500 an hour in some of these bankruptcy cases, according to court records, that can amount to some pretty expensive downtime. At several firms, including Weil and Milbank, Tweed, Hadley & McCloy, partners now charge $1,000 an hour or more for their bankruptcy services.

But billable hours explain only part of the run-up in costs. In the seven months after the bankruptcy filing of G.M., which taxpayer dollars helped keep afloat, various law firms and other advisers received nearly $90 million. Lawyers from Weil, which has accounted for nearly $16 million of fees in that case, put in for $364.14 in dry cleaning as well as more than a week at the Sherry-Netherland hotel in Manhattan last summer, where one lawyer’s room cost $685 a night.

In court documents, the firm responded that it could be tough to find hotel rooms in New York City for $400 or less and that dry-cleaning or laundry bills were appropriate for out-of-town lawyers required to stay in New York for 9 or 10 days.

Think the lawyers are expensive? Meet the consultants. Alvarez & Marsal, a turnaround firm that is essentially running what remains of Lehman, has billed more than $262.1 million.

No charges have been too big, or too small. The Huron Consulting Group, a management consultancy involved in Lehman, charged $2.54 for “gum in airport.” In the G.M. case, Brownfield Partners has billed $230,209.55, including an $18 fitness-club charge at a hotel.

A Brownfield partner said an employee didn’t realize that there was a separate charge to use the fitness club and didn’t notice it on the hotel bill. The firm agreed to remove the charge after the examiner brought it to the firm’s attention.

Analysts say that nickel-and-diming might be worth a laugh or two — if some of the larger fees weren’t snowballing so quickly as well. They say these bounteous fees reduce the money left for creditors in the bankruptcy cases. In the Lehman case, some unsecured creditors, including bondholders, banks and vendors, are likely to get just 14.7 cents on the dollar for their claims, according to Lehman’s proposed reorganization plan. Nor will they get their money quickly — some experts say they believe that the Lehman case could drag on for three to five more years.

Lawyers and restructuring pros who are picking up the pieces of companies swamped by the bankruptcy wave say that their fees are well deserved and that their services help make the bankruptcy process more efficient. And they say the pay is more than made up for by a tidier resolution of a financial debacle — or, as in G.M.’s case, the revivification of a wounded company.

“The legal skill we used to sell Lehman’s North American capital markets business to Barclays saved 10,000 jobs and preserved the business itself, capturing value that otherwise would have been lost,” said Harvey Miller, 77, a Weil partner who is considered the dean of the bankruptcy bar.

Many people in the industry agree that Lehman, in particular, is a huge case that tests even the most experienced lawyers. “Lehman is a sufficiently complicated company that it would be safe to assume that if it weren’t for equally sophisticated professionals running the Chapter 11 case, that the creditors would essentially receive nothing,” says Stephen J. Lubben, a professor at the Seton Hall University School of Law. “In those situations, it makes sense for sophisticated professionals to handle the case.”

Others, however, have a distinctly different perception about the fees that advisers are harvesting in bankruptcies.

“It violates any sense of proportion,” says Kenneth Feinberg, the Washington lawyer who serves as the “pay czar” for banks bailed out by the government and whom the court appointed last June to monitor fees associated with the Lehman bankruptcy. The court asked him to participate after concerns were raised in the news media about the soaring fees in the Lehman case.

“Unemployment is over 9 percent, and to be paying first-year associates $500 an hour angers the public,” he observes. “People read about all of this and say that lawyers and the legal system are one more example of Wall Street out of control.”

Despite the rise in bankruptcy fees over the years, there was little or no public criticism or pushback until recently. Lawyers were reluctant to challenge their peers, fearing retaliation. Analysts say watchdogs from the United States Trustee’s office, a part of the Justice Department that oversees bankruptcy cases and monitors billing practices and possible conflicts, were overworked and outgunned. Even as its workload has increased, the Trustee’s office has seen its staffing fall to 1,323 in 2010 from 1,468 in 2007.

Meanwhile, judges, many of whom used to work at the firms now benefiting from the bankruptcy boom, were also reluctant to challenge the status quo. All of this, analysts say, has fed a legal culture with few restraints on billing for bankruptcies.

“I don’t think professionals cheat the client, but in a number of ways they can talk themselves into doing things that they wouldn’t do for clients outside of bankruptcy,” says Nancy B. Rapoport, a former bankruptcy lawyer at Morrison & Foerster who teaches law at the University of Nevada, Las Vegas. “If you send eight people to a hearing because there is an outside chance they might have to speak at that hearing and you try that outside of bankruptcy the client will go ballistic.”

Now, however, a handful of fee examiners in several high-profile bankruptcies are taking a harder line on such charges, setting the stage for a confrontation with lawyers and consultants opposed to the moves. Both Mr. Feinberg and the examiner in the G.M. case, Brady C. Williamson, for instance, have suggested reductions in hourly fees charged by some firms.

That’s the kind of precedent that sets some of the bankruptcy industry leaders’ teeth on edge. “Mr. Feinberg doesn’t know what he’s talking about,” says Mr. Miller. “We don’t generally give discounts. Just because bankruptcy has been the hot legal area for the last 19 months doesn’t demand you cut fees.”

If Mr. Feinberg and others succeed in reining in certain fees and expenses, the outcome could reverberate through the bankruptcy universe.

“This is a very important test case; it’s bigger than just Lehman,” observes Mr. Feinberg. “The culture of bankruptcy is unique.”

So what, asks Bryan Marsal, co-founder of the restructuring firm Alvarez & Marsal. “I don’t care whether Feinberg or Moses comes into this case, you’re not going to get me to apologize,” he says. “If you look at this case in the context of the billions of dollars that has been recovered and the billions of dollars in claims that have been managed, just because the case was big doesn’t mean it was operated inefficiently.”

On the evening of Sunday, Sept. 14, 2008, Mr. Marsal was sitting in his study in Westchester County, N.Y., when the phone rang.

Calling was Mark Shapiro, who ran Lehman’s restructuring practice. He told him that Lehman’s lawyers were preparing a bankruptcy filing and that the board wanted Mr. Marsal’s firm to oversee the bankruptcy and eventual liquidation after Barclays and others bought pieces of the firm.

Since receiving that call, Mr. Marsal’s firm has been billing $13 million to $18 million a month in fees and expenses for its work on Lehman, a 160-year-old name on Wall Street.

Mr. Marsal says the firm will most likely bill at $13 million a month through October, just after the second anniversary of Lehman’s collapse. After that, rates will begin to decrease, although Alvarez & Marsal will also earn an incentive fee at the end of the case, which could total more than $50 million.

A jovial, self-deprecating man who points out a coffee stain on his shirt and, later, jokes that he wants to put on a blazer to hide a rotund midsection, Mr. Marsal is unapologetic about the fees that he and his staff are earning. Those fees pay for the salaries of the 150 people from Alvarez & Marsal now working inside Lehman (down from a peak of 185), including Mr. Marsal himself. He serves as Lehman’s C.E.O., while John Suckow, an Alvarez & Marsal managing director, is Lehman’s president and chief operating officer.

“The size of this case justifies the size of the fees,” says Mr. Marsal, shrugging as he sits in a conference room at Lehman’s headquarters in Midtown Manhattan. Mr. Marsal and Mr. Suckow estimate that they have increased the potential recovery value for Lehman creditors by $4 billion to $5 billion in the last year.

Indeed, deciding whether these firms and their sky-high fees are justified is difficult because the bankruptcy trade is in uncharted territory. Several of the companies that went bankrupt in the last two years were significantly bigger than Enron, in terms of assets, when it collapsed in late 2001.

As if the magnitude of the bankruptcies weren’t enough, there’s also the matter of the complex financial instruments that some of the companies held.

“There was commercial real estate, bank loans — all of that stuff is pretty well known to our team, but derivatives? We hadn’t had much experience in derivatives,” acknowledges Mr. Marsal, who added that his firm hired two subcontractors to work through Lehman’s derivatives book.

Mr. Miller adds that those derivatives, even today, are taking up a lot of time and energy. “We’re still in the process of unwinding them,” he says, “which raises all sorts of difficult and novel legal issues.”

In April, Lehman filed a plan with the court that would create an asset-management business, called Lamco, that would manage Lehman’s real estate and private-equity assets for five years.

By not selling some assets at fire-sale prices, the estate will be able to recoup much more money for creditors, notes Mr. Marsal.

“The money that’s going to the creditors is my money,” he says, pointing out that he’s aligned with the creditors’ goals. That’s because, at the end of the case, Mr. Marsal’s firm will receive an incentive fee that is based on a percentage of the money returned to creditors.

Mr. Marsal says critics should be careful about identifying where problems lurk in bankruptcy fees. He says the savings that result from making sure that no one is flying first class to Europe are “peanuts.”

“You should be much more worried about the two or three lawyers who are overbilling and whether they should even be in attendance at a meeting,” he says. “I think the fee committee and the fee examiner is a lot of hooey.”

IF anyone is a master of getting to yes, it’s Kenneth Feinberg. As a mediator, he brokered settlements in long-running product liability suits brought by those who said they were victimized by Agent Orange, asbestos and the Dalkon Shield. More recently, he managed to win praise on delicate assignments like determining how much the Sept. 11 Victim Compensation Fund should pay out — or what is an appropriate salary for an executive at a financial institution that the government propped up with taxpayer funds.

But he says that challenging bankruptcy lawyers is tougher in some ways. “In the 9/11 case, the country was behind me; as pay czar, there was a lot of support for what I was doing,” he says. “This is more problematic.”

In particular, Mr. Feinberg is perplexed by why fees keep rising in the Lehman case, even though it’s no longer the chaotic affair it was in the weeks and months after the bankruptcy filing. “Now the emergency is over; it is more like a traditional bankruptcy,” he says. “Yet the fees are higher than ever.”

Mr. Feinberg has managed to get under the skin of the lawyers in the case. And he is equally frustrated. His voice rising and Boston accent thickening (think “debt-ah” and “credit-ah”), he says that bankruptcy professionals “still haven’t gotten the message.”

The four-member Lehman fee committee, of which Mr. Feinberg is chairman, has disagreed about how to rein in fees, he says. But he declines to elaborate. Mr. Miller says it’s because creditors and debtors are willing to pay well so they can get “the best representation possible.”

On a rainy summer day last year, Mr. Feinberg journeyed to the plush offices of Mr. Miller in the General Motors building in Manhattan. His pitch was simple: Cut 10 percent to 15 percent right off the top of the fees being billed.

Mr. Miller and Dennis Dunne, a partner at Milbank who represents creditors, told him, “You don’t know how complicated this is; you don’t know how difficult it is,” Mr. Feinberg recalls.

Mr. Miller doesn’t dispute Mr. Feinberg’s account, and Mr. Dunne declined to comment for this article.

Despite these frictions, a deal was eventually struck.

Among the new fee rules being enforced are these: Air travel must be in coach class only. Ground transportation is limited to $100 a day, and only after 8 p.m. Hotel rooms are capped at $500 a night. Photocopy charges are limited to 10 cents a page. Late meals can’t be more than $20 each.

“If you continue to violate the very guidelines that are in place, 50 percent of the disputed amounts will be deducted,” says Mr. Feinberg. After that, the full amount will automatically be deducted, he added.

The lawyers reserve the right to challenge the fee committee’s decisions at the end of the case, but the ultimate call will be up to the bankruptcy judge, James Peck. He declined to comment.

Mr. Feinberg has so far challenged a very small percentage of the fees and expenses in the case. But he is intensifying his efforts. In March, the court increased his monthly budget to $250,000 from $75,000, giving Mr. Feinberg more accountants, examiners and others to pore over records and to zap overcharges. His firm and the fee committee have billed the Lehman estate $645,000 in fees for services through March.

Already, he’s called out Jones, Day, saying it charged $70,800 extra for photocopying and spent $2,856 too much on taxi rides last summer. According to court filings, a Jones, Day partner, William Hine, claimed more than $2,100 for late-night rides home in one month. Milbank, according to court filings, charged $148,426 just to compile its bills and time records — a move akin to a doctor charging a patient to prepare a bill after expensive, complex surgery.

“Lawyers don’t charge for invoice preparation except in bankruptcy,” Mr. Feinberg says. “I’ve prepared bills my entire professional life. You don’t charge a fee. Most people would argue that charging anything is inappropriate.”

Jones, Day and Milbank both declined to comment.

Like the restructuring executives, bankruptcy lawyers seem defiant and want to make sure precedents aren’t set that would make it easier to curb fees in the future.

“When people work late and they want to go home, we don’t like to send people in the subway at midnight or thereafter,” Mr. Miller says. “I don’t believe it’s appropriate to require people to fly coach for 15 hours and then go to a meeting.”

Nevertheless, Mr. Miller is going along with Mr. Feinberg’s guidelines.

“Those are the rules; we’re going to abide by the rules and pick up the difference,” Mr. Miller says.

FOR all his annoyance at Mr. Feinberg’s role in the Lehman case, Mr. Miller saves his real vitriol for Mr. Williamson, the fee examiner in the G.M. bankruptcy, which Weil also worked on. In the case’s first seven months, Weil accounted for $16.5 million of the $90 million in fees paid. Mr. Williamson objected to a small portion of the expenses. Weil, according to court documents, agreed to deduct $500 in expenses relating to the cancellation of a vacation, and said that any first-class travel charges were included “inadvertently” and reduced. It also agreed to pay for any meals in excess of $20.

Mr. Williamson also recommended that a 5 percent cut in Weil’s overall rates would be “appropriate,” especially given that several other large firms in the case already provided discounts.

“Williamson is way off base,” says Mr. Miller. “He perceives himself to be a sage, giving advice to the world, and that is not his role.”

Mr. Williamson wrote in an e-mail message: “Courts appoint independent examiners to help ensure transparency and accountability, most recently where tax dollars and significant economic issues are at stake. Not everyone, unfortunately, always appreciates either the role or the rules the examiner is bound to apply.”

Mr. Miller sees his own work as a battle between corporate life and death, with the money spent on photocopies and dry cleaning an insignificant detail.

“If you had cancer and you were going into an operation, while you were lying on the table, would you look at the surgeon and say, ‘I’d like a 10 percent discount,’ ” he explains. “This is not a public, charitable event.”

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