Best bonds: AIG? Greatest Fascist Dictator: Adolf Hitler? Best Law School: ?????

What is it with the human thirst for numerical rankings, for judging one thing better than another even when the comparisons are known to be completely arbitrary or, at best, based on judgments so subjective regarding criteria so limited as to render the rankings nothing more than crude subjective judgments disguised as hard data?

Woody Allen fittingly complained:

What’s with all these awards? They’re always giving out awards. Best Fascist Dictator: Adolf Hitler.

But it’s not just the thirst for the rankings.  It’s basing one’s actions on rankings as if they have profound meaning despite their lack of meaning.

As I wrote recently, US News and World Report’s rankings of law schools are determined largely by the LSAT scores and undergraduate grade point averages of the students each law school admits even though those scores and averages bear no correlation to success as a lawyer; rather, they correlate only to success in law school, which, again, bears no meaningful correlation to success as a lawyer (as would not surprise most lawyers but, I would guess, would surprise most non-lawyers, including law students and law professors who have not practiced extensively).

Yet an overwhelming number of law applicants rely on the US News rankings.  Even more depressingly, an overwhelming number of law faculties make their educational decisions to improve those rankings, not to improve the way they educate law students to be lawyers. (As I also pointed out, Detroit Mercy, where I am currently a visiting professor and where I will continue in that capacity next year while remaining on leave from Case Western Reserve, is a rare exception to this rule.)

And today, reading in the New York Times about Moody’s, I realized another reason the US News rankings are so useless and their importance so poisonous to legal education.  It is because the US News rankings are accepted, followed, and never questioned in a way meaningful enough to threaten their influence. There is therefore little incentive to make judgments on a law school’s quality based on judgments independent of those rankings.

Moody’s is one of the private companies that rate corporate bonds.  When a corporation sells bonds to raise money (simply put, they borrow money from the purchasers of the bonds and pay back the loan at the interest rate called for by the bond), Moody’s issues “grades” to the bonds that predict the likelihood the corporation will pay back the loan.  “Junk” bonds are so-called because they are bonds issued by companies that are at high risk of being unable to pay the purchaser of the bond when payment is due.  In other words, junk bonds are “sub-prime” bonds.  Why do people loan money to companies or homeowners despite the high risk the borrowers will default?  Because those borrowers have to pay a higher interest rate.  The high interest rate on the loans that are repaid makes up for the loans that aren’t paid back.

The unconscionable innacuracy of Moody’s rankings, however, has played a major role in our financial crisis.  As the Times points out:

Moody’s rated Lehman Brothers’ debt A2, putting it squarely in the investment-grade range, days before the company filed for bankruptcy. And Moody’s gave the senior unsecured debt of the American International Group, the insurance behemoth, an Aa3 rating – which is even stronger than A2 – the week before the government had to step in and take over the company in September as part of what has become a $170 billion bailout.

Moody’s and the other major ratings companies also “put their seals of approval on countless subprime mortgage-related securities now commonly described as toxic.”

There are numerous reasons to the ratings companies were bound to fail, but the Times article brought up an interesting one I had never considered before.  There is little incentive to question anyone who is paid to judge the the quality of something unless and until the accuracy of those judgments is put to the test. As Frank Psrtnoy, a law professor at the Universitiy of San Diego and a former derivatives trader, explains it:

Imagine if you had a rabbi and said, “All the laws of kosher depend on whether this rabbi decides if food is kosher or not.”  If the rules say “You have to use this rabbi,”  he could be totally wrong and it won’t affect the value of his franchise.

In other words, if you wanted kosher food, you’d buy food approved by that rabbi and never question his judgment unless and until the accuracy of his judgments was threatened in a meaningful way. US News is that rabbi.  It has become the principal judge of law school quality and it doesn’t matter whether its judgments are legitimate or not.  Students buy its rankings guides, law faculties and deans make decisions driven solely by the desire to meet the criteria US News employs, and applicants and legal academia continue to make their educational decisions based on the criteria employed by US News rather than on their own judgments.

It’s a terrible situation, and particularly ironic when it comes to legal education.  Lawyers every day, every moment, make judgments and decisions based on incomplete, subjective, and biased information.  You can only consider the circumstances under which those decisions are made inadequate, however, if you believe it is ever possible to have all the information you would want and if all that information could be stripped of the distortions inherent in the limitations of human perception.  Making decisions based on incomplete, subjective, and biased information is what life is about. That doesn’t mean there aren’t better and worse judgments; it merely means that one can never be certain, that there is always risk, that almost every important decision one makes in one’s life cannot be reduced to a choice between black and white, right and wrong, #1 and #2.  Lawyers make their living making such difficult decisions and judgments.  The legal situations where there are clear answers don’t require lawyers, and if lawyers become involved they certainly don’t make much of a living answering those questions.

Yet law school applicants and law professors act as if the judgment that one law school is better than another can be reduced to a comparison of hard numbers, and that, therefore, those numbers should be the determinant of their actions.  They’re being as stupid as the investors in Lehman Brothers and AIG were in relying on Moody’s.

And the Times article mentions one other fact that bears on this point.  Warren Buffett — the man “known as the Oracle of Omaha,” the daddy we turn to to guide us out of our financial pit, “the closest thing that the United States economy has to a life coach”  — owns 20% of Moody’s.  But you know what?  In making his investment decsions he doesn’t rely at all on Moody’s ratings.  He has his own research department.  He makes his own judgments.  I wish more college graduates did the same.  And it maddens me beyond measure that most law professors don’t.