What was my favorite Wall Street Journal headline yesterday? 

“Top Lawyers’ Fees Have Skyrocketed. Be Prepared to Spend $3,400 per Hour.”

It reminds me of a cartoon I saw years ago, which I will now update: A man opens an envelope from his lawyer and looks at the invoice, which reads, “Saw you on the street, crossed to say ‘hello’, realized it wasn’t you, re-crossed the street. $1,700.00.”

When I stopped practicing law in 2012, I think I was charging $500 or $600 an hour. That seemed outrageously high to me. But then, in many cases, when you looked at what the clients would gain from the transaction or from a positive end to a dispute, you realized that, compared to the client’s gain, your fee was small potatoes.

Many of my clients were developers and managers of government subsidized housing projects. The programs designed by Congress provided for several groups to benefit. One group of course were the residents, who were able to get good rental housing at rates they could afford. Three other groups were those who provided funding for the construction of the properties. One of these groups was comprised of the mortgage lenders, who made market interest rate loans without any real risk, because their loans were insured by the federal government. Then there were the investors who provided equity money in return for federal tax write-offs. And then there were the various middlemen, who received large, industry-standard fees for putting the deals together.

If you were one of these middlemen, collecting syndication fees, asset management fees and what-have-you, you could maybe do well if you did one deal, although that one deal would take some effort and risk because you were doing it for the first time. But if you then did a second deal, and a third, and maybe a thirtieth, the transactions would become easier and more routine, and you would become richer and richer.

After construction was finished, the biggest jobs were maintenance, renting and rent collection, and property management. Many subsidized properties were managed by companies affiliated with the developer through common ownership. Other properties, particularly those owned by non-profit entities, were managed by companies who specialized in these types of properties. Subsidized housing management can be a very difficult business, and takes a degree of dedication, as you might imagine, and this should not be ignored. But management of subsidized housing can be very, very lucrative.

The management fees for these properties are not negotiated (you can’t negotiate fees between affiliated owners and managers, anyway), but are set by government regulators. This means that, if you manage only one property, you will likely go broke. The cost of the equipment you need, the expertise to comply with all of the arcane government rules, and so forth, make management of these properties a specialized business.

But your management fee is not related to the number of properties you manage, so that once you have three or four under your belt, and the necessary personnel and skills to ensure complance, every penny you collect as a management fee is gravy. And there are companies with 100 or more subsidized properties under management. You can imagine how much the owners of these companies earn every year.

Of course, the governmental mortgage insurance for the lenders and the tax write-offs for the investors are not enough to keep these projects going, especially if they are designed to serve very low income (and sometimes, no income) residents. So you have to add monthly government rental subsidies, which normally equate to the difference between 30% of tenant income, and a rent approved by the government based on a set formula for fair market rents.

You see what this means. It means that for larger operators of government assisted housing, taxpayer dollars, often in excessive amounts, go directly into the pockets of increasingly wealthy developers and owners of subsidized housing.

Maybe, there is a better way, but no one has found it.

We started this post with excessive legal fees. And now we see it is not only the lawyers. And all of these people are members of the top 1%, or close to it. They are all beneficiaries of the system I described, as are the very low income residents of these properties. As to the largest segment of Americans, who are neither one bor the other and who work to develop and manage these properties, what about them? By and large, their salaries are not in the least reflective of what their bosses are making, and like many today, they struggle with the increasing cost of living.

So what else is new?