Other People’s Money
A friend recalled this scene from decades ago: The president of a small Orthodox synagogue in New York had apparently absconded with about $2 million from the congregation, a huge sum in those days. But since he had not yet been formally charged or arrested, he was free to attend Shabbat services. Which he did.
Seeing the alleged scoundrel, another man — a Holocaust survivor — rose and faced his fellow congregants, banged on the bimah table and demanded a judgment from the rabbi before the Torah portion was chanted. “In America, if you are willing to work hard, you can earn a living,” the man said angrily. “You don’t have to steal!”
And with that, the synagogue president was escorted out of the building, a prayer shawl draped over his head.
This sort of public shaming ceremony would be repugnant to American Jews today, who honor due process and the rights of the accused. But there is a gnawing temptation to subject Bernard Madoff to such a ceremony, to publicly point the finger on behalf of the family members, friends, rabbis, business partners, communal leaders and untold numbers of ordinary folk whose lives and good causes have been permanently disrupted by his audacious, unfathomable deceit and say: You didn’t have to steal! You didn’t have to steal from us, your people!
By now, the contours of this story are well-known, even as the ramifications won’t be fully comprehended for some time, so deeply will this epic scam affect the financial and philanthropic world. How one man can perpetrate a $50 billion fraud that apparently fooled scores of otherwise shrewd investors, evade an obviously clueless government regulatory system, and damage the people and communities closest to him — members of his tribe — is for others to explain, if rational explanation is even possible.
Our task is to decide how to deal with the aftermath. Schools, universities, hospitals, museums, social services and other institutions in the Jewish world and beyond will pay an enormous price for this scandal. What happens to them? The individuals who entrusted Madoff with some or all of their savings were not just millionaire golfing buddies at risk of forfeiting a home in Palm Beach; they were also less well off people who may now face financial woes that they saved a lifetime to avoid. What happens to them?
American Jews are notably philanthropic. Though now less than 2% of the population — the latest survey puts the number at 1.7% — we contribute 16% of charitable donations made in the United States of a million dollars or more, most to secular organizations and causes. Madoff and many of the people who invested in his funds are among these mega-donors, and their generosity cannot be overlooked in this sordid tale.
But philanthropy at that level pays dividends, buying social status and trust, and Madoff used that to lull investors into believing his promise of steady returns, unrealistic though it was. Let’s remember: Many saw through this hoax, or at least sensed that something was not right and had procedures in place to prevent fiduciary irresponsibility. UJA-Federation of New York, for instance, released a statement detailing how its financial decisions are governed by procedures that would have made investments with Madoff impossible.
It’s one thing to be sloppy with one’s own money, quite another to shirk due diligence with other people’s cash. Jewish institutions large and small have to dramatically increase their oversight of investment procedures, strategies and returns. (Included here is the Forward Association, which lost a very small share of its invested assets through indirect exposure to Madoff funds.) And those institutions need to be much more careful to avoid the conflicts of interest that make it easy to drop healthy skepticism and suspend belief. Sad to say, but a certain degree of trust will be lost. That’s what happens in the wake of expansive deceit.
Madoff put his hand in the tzedakah *box and pulled out the money for himself. Jewish law teaches that the people charged with guarding that *tzedakah fund had an obligation to protect it.
Jewish law also expects legal authorities to ensure that people don’t cheat in the marketplace. Any doubt that the proper regulatory function of the federal government was stripped bare and impotent during the Bush administration should now be laid to rest. Even the chairman of the Securities Exchange Commission had to acknowledge that his agency was shamefully asleep at the wheel. Congress, too, must work swiftly to undo the mess it helped create on its sprint to deregulate too many sectors of the economy that clearly cannot be left to guard their own henhouses.
The Madoff scandal didn’t occur in a vacuum, but in the midst of a massive financial meltdown that, by itself, was shrinking funding for Jewish communal life. These dire circumstances cry out for thoughtful response, and the willingness to tackle uncomfortable questions. Should every Jewish institution remain? Have some outlived their usefulness? Should others merge?
Truth is, the American Jewish community spends most of its money on core activities — synagogues, schools, community centers, social services — and not on the more discretionary efforts that often attract mega-donors and headlines. These core activities must be sustained and strengthened, especially at a time of increased food scarcity and unemployment. The winnowing process, painful though it is, ought not to be subject to a random Darwinian exercise. There should be creative ways to keep alive the most precious and necessary enterprises.
All this calls for a return to basic codes of ethics, decency and compassion. There are Jewish villains, and also Jewish heroes. Madoff’s corrosive example must be offset by a focus on behavior not blinded by wealth and status, not incubated in a clubby, gated community or the intoxicating halls of political power, but in an environment which takes seriously the directive to be our brother’s keeper.
Yeshiva University, where Madoff served on the board and as chair of the Sy Syms School of Business, was especially hurt by this scandal, losing an estimated $110 million dollars and incurring the stain of a shameful association. But Yeshiva can also point to another association — a Massachusetts businessman who spent millions of dollars to keep 3,000 employees on the payroll after his textile factory burned down in 1995.
Aaron Feuerstein, an Orthodox Jew, said at the time that his noble course of action was dictated by lessons from the Talmud. Feuerstein is now an honorary member of the Y.U. board, his alma mater. Let his example be the one we follow.