Bernard Madoff was nothing less than the chairman of the NASDAQ stock exchange. Widely respected throughout his decades on Wall Street, Madoff was able to attract investors from far and wide; wealthy investors who were willing to put up substantial sums of their wealth or the wealth in their trusts and foundations in his hands. He was presumed to be a phenomenal investor, one with a steady but golden touch.
It appears that Madoff was lying to them all along. In a classic ponzi scheme, he was paying his substantial dividends by using funds from new investors not from the prodigious profits he claimed his investing firm was earning.
Mr. Madoff is Jewish. The man has had a long and illustrious career as a philanthropist and among his many endeavors were Jewish causes, such as Yeshiva University where he sat on the Board. Yeshiva University’s endowment, conveniently enough, also parked a substantial amount of money with Madoff, maybe as much as $100 million. Other charities, Jewish and not Jewish, had given him their entire portfolios to manage. Hundreds of millions of dollars; billions of dollars. So did many families and individuals of substantial means like Mortimer Zuckerman and Steven Spielberg. Madoff moved around in prominent circles, particularly Palm Beach, FL, where there’s a nice concentration of well-to-do Jewish families.
Some of those families may be wiped out now. Some of their foundations may be wiped out. Those that aren’t wiped out have suffered heavy losses, some probably too great for their families to recover their lost wealth.
I have seen this happen before. A charismatic man meets with some success. Soon he has the trust of the community. He moves in the right circles, maybe a rabbi or two fete him after he contributes handsomely to their congregation, he sits on the right boards and gets invited to the right parties. People start giving him some funds to manage. Returns are good, very good, so they entrust him with more as they watch their portfolio blossom on paper. They tell their closest friends, in confidence, about this wonder-investor. They tell their family. Soon others come to meet the man and give him their money.
But nobody can beat the market forever. The investor finds it hard to go to his trusting investors to acknowledge he lost their money. Besides, the market will turn in his favor, it always does! So he moves some of the new investment cash into the dividend side of things and hopes that next year will be better. And once behind, it’s hard to catch up. Then the market has a sustained drop and the game is up.
It happened to Madoff when he turned 70, so it’s safe to say that he’s had a good, prosperous life full of the respect and admiration of others. All the while, he was apparently destroying them, their wealth and their dreams.
The preponderance of Jewish names among Madoff’s many victims is scary. The Jewish community has just lost, thanks to Mr. Madoff, hundreds of millions, perhaps billions of dollars. This will affect our community harshly, with less money to go around especially in light of the state of the economy.
Mr. Madoff’s alleged crime is so great that whether he’s punished or not is immaterial at this point. He has caused severe harm to his family, to his business, to his investors, to the broader financial markets, and to the Jewish community as well as the philanthropic community in general.
I guess that just as we take pride in Jewish Nobel prize winners, we have to include thieves like Madoff in our recognition that Jewish life is multifaceted. Along with our successes, we have failures, people who disappoint and also those who commit crimes. Those who got fleeced by Madoff also have to look at themselves and wonder whether greed drove them to ruin. A desire to outperform the market and grow substantial assets substantially more has ended in tragedy for these investors and their families.
This is maybe the first recession in decades where it’s the upper middle and upper classes (in economic terms) who are suffering the severe brunt of the state of the economy. Whether it’s enterprises like Madoff’s or having your money saved in a pension fund that invests in losing stocks or other financial instruments, assets are being eliminated across the United States. These funds are vanishing into thin air as company valuations tumble, the real estate markets continue their freefall and there is nowhere to hide in your portfolio. The Jewish community, well established and with many members among the upper middle class and the wealthy, has already been hard hit by the economy and this will be yet another blow.
Read about the crime and its effects in the NY Times and the Jerusalem Post which has so far accounted for $600 million in losses by Jewish organizations and perhaps as much as $1.5 billion when all is said and done.