Madoff: The Atomic Bomb for Jewish Charities

Atomic bomb. Epicenter. Disastrous.

The adjectives can’t get much worse. But that’s exactly what people in philanthropy are saying about the effects of Bernard L. Madoff’s demise on their world.

Madoff was a social and financial nexus mainly for Jewish charities, whose foundations and benefactors were either direct or passive Madoff investors.

Deal Journal caught up Monday with Gary Tobin, who is President of the Institute for Jewish & Community Research in San Francisco. Dr. Tobin studies Jewish charities in depth, and publishes a frequent survey on Jewish-related giving.

Deal Journal: So what are the direct effects of the Madoff scandal?
GT: There are three effects. The first is that at least hundreds of millions of dollars in foundation assets have disappeared. Major Jewish foundations have lost 50% to 100% of their assets, which means tens of millions of dollars on an annual basis won’t be given away.

No. 2, Madoff is at the epicenter of Jewish philanthropic life in New York and Palm Beach, and people who invested–though clearly that is the wrong word–people taken in by him have lost billions of dollars. And those donors over a period of 10 years from now won’t be giving away huge amounts of money to Jewish or secular causes.

A $250 million foundation that disappears, if it gives away $12 million over 20 years is an incalculable loss.

There’s one other aspect. You’ve already got this climate of fear and uncertainty. We’ve lost trillions of dollars in housing assets, and trillions in equities and other investments. People are already remarkably cautious about giving the money away. And now the message is you can’t trust where you’ve invested your money.

DJ: Why was there so much concentration in the Madoff funds?
GT: Specifically, Jewish philanthropy is built on social and personal networks. High-end solicitations are person to person and built in the social culture of philanthropy.

It’s like finding out your brother is a murderer, it’s really bad for the family, it’s bad for the family of Jewish philanthropy. I think the ripples will go beyond the Jewish community. Many other organizations invested with him that were involved in the philanthropic and nonprofit world.

DJ: How does the overall stock market play into this?
GT: We know that there are tens of billions of dollars in Jewish foundations, philanthropic foundations, but that was before the stock market crash. Those are all down by 20% to 40%. Everybody is already talking about the declines and the cuts.

If you have invested your portfolio, and it’s down 30% to 40%, you don’t want to sell what they consider to be discounted assets to give them away. So when organizations need money the most, is when people are most reluctant to sell off assets.