Financial Crisis: Revenge and recession

American Jews affected by the Madoff affair are still reeling and enraged, but the financial woes of their institutions don't end with the Ponzi scheme to which they fell prey.

By ALLISON HOFFMAN
January 29, 2009 21:59
4 minute read.
Financial Crisis: Revenge and recession

Bernard Madoff 248 88 . (photo credit: AP)

 
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Earlier this week, a couple of teenaged boys called The Palm Beach Post to brag that they had toilet-papered Bernard Madoff's Florida getaway, supposedly in retaliation for losing their trust funds in his alleged $50 billion swindle. It was the second prank at the house, where thieves swiped a $10,000 bronze statue last month, only to return it with a note reading, "Bernie the Swindler, Lesson: Return stolen property to rightful owners." In New York, where Madoff's punishment has so far consisted of spending the harsh winter sequestered in his warm $7 million Park Avenue apartment, the attacks have been verbal, and far more violent: "I'd love to put a hatchet in Bernie Madoff's head, and I know there are other Jews who feel that way," one lawyer told Bloomberg News recently, echoing the death threats that prompted the financier to wear a Kevlar vest to a recent court hearing. But how do you take a hatchet to a recession? That's the question President Barack Obama, aided by his Democratic Congress, is struggling with this week. The free fall and panic that accompanied the early stages of the economic collapse last fall have been replaced by grim acceptance - a national bracing for worse to come that has all but dissipated last week's fillip of hope. Jewish groups are - finally - asking the same question. FOR A month, Jews have been preoccupied with Madoff. The YIVO Institute went so far as to host a panel advertised as "A Jewish Reckoning" on the debacle; audience members suggested an eye for an eye, or a ritual stoning, as an appropriate Jewish punishment for his sins. The losses from Madoff's Ponzi scheme have disproportionately affected the Jewish investors he courted so aggressively, from Long Island to Palm Beach to Hollywood. Charities like the Chais Family Foundation and institutions like Yeshiva University knew immediately that they had lost hundreds of millions of dollars in endowment funds, but that ripple effect is still spreading to charities, both Jewish and secular, supported by Madoff's thousands of victims. Just this week, the American Civil Liberties Union laid off 10 percent of its staff, citing $9 million in lost funding after the Picower Foundation and the JEHT Foundation, both Jewish-backed organizations, were forced to close their doors because of losses to Madoff. But, as with Lehman Brothers before him, Madoff has begun slipping out of the frame as the economic picture continues to worsen, dampening dreams of a short, sharp contraction. Earlier this month, Hadassah said it was laying off a quarter of its US staff, and in turn slashing funding for the Young Judaea program in Israel because of the prospect of reduced donations this year, as well as because of losses with Madoff. With or without him, the organizations looking to navigate the recession are getting smaller returns from their existing investments in the bear market, forcing them to lay off staff and cut services just when they're most needed - adding just a bit more misery to the overall picture. "The key to fixing private philanthropy will be for us to get out of this recession and turn the stock market around. If I had a magic wand, I would declare this recession over, and reap all the dividends that flow from that," said William Daroff, director of the Washington office of United Jewish Communities. Critics have challenged charities to tap into their endowment funds - popularly perceived as "rainy day" savings - but few have been willing to violate the golden rule of fund-raising: Never spend your principal. "People are waiting to see how deep this recession is, whether it will be six months or 15 months," said Daroff. "If this turns out to be deep and devastating but quick, they'll be less inclined to dip into what really is the future of the Jewish community." THE NUMBERS in play in Washington dwarf anything Madoff ever dreamed of losing in his Manhattan office: $819 billion in tax cuts and spending increases designed to prod wary, and weary, businesses and consumers into spending, on top of more than $500 billion in securities the government has bought from mortgage lenders and the $700 billion bank bailout program. So far that money, real and promised, has done little to slow the downward spiral of the American economy. About 125,000 workers have been laid off just this month, on top of 2.6 million people whose jobs disappeared last year - approximately twice as many people as crowded the Washington Mall to watch Obama's inauguration. On Wall Street, bonuses dropped 44 percent - a swift contraction that prompted a series of frivolous howls in the press this week from girls whose free-spending boyfriends were suddenly cutting back on expenses, including fancy dates and shopping sprees. That, in turn, is generating real suffering in the city's vast network of service industries, and in the government's ability to deal with the stalled economy. New York state's unemployment insurance program has been insolvent since the first of the year, borrowing $90 million a week to meet claims - or about as much as Hadassah said it lost to Madoff, all told.

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