Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Should We Save It? Why?

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There has been a preservationist battle over the Prentice Women’s Hospital, which looks like a strange concrete spaceship from a 1950’s sci-fi movie. Here is an article from a preservationist web site describing the building and its history. From the article

A concrete, cloverleaf-shaped icon, Prentice Women’s Hospital has added drama and interest to the Chicago skyline for nearly four decades.

One of the current issues is that it isn’t adding ANY interest to the Chicago skyline anymore. The reason for this is that myriad other, larger buildings have been added all around it – the only reason that I can see this at all (other than being on the street, facing it), is that I am atop a building that ACTUALLY is part of the skyline and looking down.

While I am all for preservation in various forms it seems odd to demand that a hospital retain an old facility like this. The facility is clearly a high maintenance item – just look at it – and can’t be very practical to refit for today’s technology and practices. And there is nothing else to do with this facility – it is in the middle of the hospital campus so you can’t just turn it into some “boom boom” nightclub like you could here in River North, or even into some sort of weird shopping mecca like Bloomingdales did with the old Shriner’s building (site of the circus).

I support the preservationists but this one seems like a lost cause because it would obviously be impractical and fiendishly expensive to do anything with it, and it isn’t in a good location for alternative uses. The building is also too tiny to be called part of the skyline anymore. And plus, it is damn ugly.

Cross posted at LITGM

Sony Blu-ray Disc Review BDP-BX58… and the future of Sony

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On the masthead of our blog at “Life in the Great Midwest” it used to read “We Shill for Nobody”. And that is still true. But if we find something that may be interesting to others we like to share it.

Recently I bought a Sony Blu-Ray Disc Player BDP-BX58. This replaces my existing Samsung DVD player (which worked fine). I bought it, after rebate, for about $100 at Costco.

I bought it to try out the internet through my television. It also allows you to stream other media (pictures from your PC, songs from your PC, etc…) through your TV which I wasn’t as interested in.

Although it is a DVD player, I only put a DVD in to make sure it worked and all the wires, sound, etc… were working correctly through my surround sound system. I remember reading an article about a focus group that tested a smart phone with a bunch of high school students – the researcher said in all the time he watched them text, stream, and run apps, he never saw them use the smart phone to MAKE A PHONE CALL. Like them, I was basically using this DVD player as a gateway to the internet not as a DVD playing device.

I went to You Tube and immediately started having fun. Recently I was at a friends’ condo and we were discussing music (for hours, since I know a lot of obscure stuff, but he dwarfs my knowledge on the topic). It was cool to just type in a band like “Mastodon” and all their videos come up, including all their appearances on late night shows like Letterman. Obviously there is a lot of stuff on You Tube and it is fun to watch it through your TV.

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Drunk Ecosystem

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I am an ethnologist embedded within Chicago for St Patrick’s day. I am building the ecosystem for drunks that are the “pillars” of the St Patrick’s day experience.

You need crowds of drunks in green and the ubiquitous taxi drivers. I talked to a cab driver recently and he said that St Patrick’s day is the biggest day of the year for cabbies – bigger even than New Year’s eve. This is probably due to the fact that it starts earlier – he said he is generally picking up smashed patrons at 10am – and it goes all day and all night long.

Other pillars are porta-johns and bagpipers. While bagpipers are needed for police and fire funerals this is likely the only day of the year when playing the bagpipe gets you action with the ladies.

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It Works Until It Doesn’t – Service Firm Pensions

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I spent many years in the consultancy / accounting industry, which has many similarities to the business model for legal firms. They are both 1) primarily based on hourly billing rates for their income 2) use a pyramid or partnership structure with the top members often receiving an equity or ownership stake 3) have partners who need to seek out business in order to keep the revenues flowing. If you are interested in this industry, I highly recommend reading “Managing the Professional Services Firm” by David Maister, a timeless book on the topic.

The Wall Street Journal had an article recently titled “Next Pension Clash: Law Firms” with the subtitle “Unfunded plans burden younger partners, but build loyalty among small group”.

At some of the country’s top firms, younger lawyers will foot the bill for deluxe pension plans that could drag down their own earnings for years to come… these pensions are largely unfunded. Partners at some elite firms are often entitled to between 20% and 30% of their peak pay after retirement – in many cases, for life… that could mean payments of $400,000 to $600,000 per retired lawyer.

One of my friends who is a partner in a professional services firm once told me that he’d never tell his son to go into a business where he was “selling his time”. While there are many other attributes (a senior person is selling his time AND his ability to manage and supervise staff), there is a lot of truth to this quote.

Thus the partner, who was well compensated while he was at the firm, is now going to collect a pension in the future, while he is no longer contributing to the ongoing revenues of the firm. It is true that the client relationships that the partner built up (and left behind) are valuable to the firm, along with any specialties that the partner built up (and trained staff on), but the bottom line is that most of that revenue stream is up for grabs soon after the partner is gone. Even if the clients are left in good shape and well transitioned, if the NEXT partner doesn’t do a good job, all that goodwill is drained very quickly.

Like all unfunded pension schemes – it is really a “bet” on the future, on an era of rising prosperity, and a bet that paid off for a generation of retired lawyers. For those coming up the ranks, however, the future of course looks more uncertain, with more vicious competition and increasing use of offshore resources for more mundane matters, which both can be a source of short term profits as well as a long term threat of cannibalization of higher margin revenues up the chain.

It seems like these sorts of burdens would turn off rising lawyers, who have the ability to “jump ship” quite easily since non-compete laws generally don’t apply to lawyers, from what I understand (it is interesting how those that write the laws that entangle everyone else managed to develop an escape hatch for themselves). These sorts of payouts, which come out of partner profits after all expenses have been allocated, can be significant in harder times.

Traditional pensions are also under intense pressure, especially since the “rate of return” assumptions are being reduced with the Fed’s extremely low interest rates. This article sums up how corporations are asking for relief:

The latest bid is spurred by the effects of the Federal Reserve’s low interest-rate policy, which has led to soaring pension liabilities.

While the companies are basically arguing that interest rates are artificially low and that their funding requirements shouldn’t surge as a result, the unstated point is that returns for EVERYONE have gone down, as well. Many models for investors in 401k plans used to assume 10% rates of return indefinitely; given market volatility and flat returns over the last DECADE, 10% / year seems ridiculous to investors of all stripes.

The pension firms in this article often have different challenges because they are often unfunded and totally dependent on future revenue streams; in this sense at least they are immune from the Fed’s zero interest rate policy distortions.

Cross posted at LITGM