A parable that will lead me to the fall of Bernie Madoff:
My first newspaper job was in the old Jerusalem Post, back when the rag was union-owned, left-of-center, and still one-fourth worthy of being called a newspaper. I wanted to work with words and ideas and politics. I also believed – and still do – in the old fifth-grade civics-lesson mission of a free press. I wouldn’t have considered for a moment being a wordsmith for an ad agency, certainly not one hawking cigarettes, no matter how much more money I could have made. The Jerusalem Post ran front page ads. Some were for cigarettes.
So while I considered journalism a calling, worth more than a big paycheck, I too lived off the scraps from the tables of the tobacco shareholders. I didn’t like it. I could tell myself that were I the boss, I wouldn’t have taken those ads, and that if the cancermongers went broke the next day, the paper would still limp along. But I couldn’t get around the fact that I was a vegetarian living off his uncle the butcher.
Years later, one of my freelance gigs was writing for Child, an excellent parenting magazine in the States. It gave good advice to parents, on the pages between the glossy ads for designer clothes for toddlers. I would never have bought that stuff for my kids, and in fact taught them to look askance at ads trying to sell you stuff which has no purpose other than to be bought and look expensive and fill landfill. But I fed them on the money that came from the ads.
Most people in the non-profit sector live with a similar dissonance. They’ve chosen to do human-rights law or teach Talmud or help refugees. They put up with lower pay than they could get doing something else because they want a payoff that can’t be measured in currency. And they live on the donations from people who have made other choices, and who give some meaning to the wealth they’ve acquired by giving it away. Now and then, when I’ve met a rich man who has taken exuberant joy in giving, I’ve come halfway to accepting the value of having rich people.
But among the rich who like giving money away, one of the easiest to dislike is Sheldon Adelson. He made the money in casino gambling, a peculiarly organized con-game in which the winnings of the minority fool the majority into voluntarily giving up their money, with the state cooperating in return for a cut.
Adelson has given to Yad Vashem, and to establishing a Jewish high school in Vegas, and to Birthright. As Haim wrote last week, there’s no evidence that Adelson’s cash is the direct reason for the rightwing bias of some Birthright trips. At the same time, Adelson has directly and aggressively funded projects intended to promote his hard-right views in Israel and the United States. He backs the Shalem Center in Jerusalem, a thinktank devoted to bringing the joys of neoconservativism to this country. He’s the money behind Yisrael Hayom, the give-away Israeli daily apparently created in order to help win Bibi Netanyahu another chance to fail as prime minister.
I can’t quite keep track of how many zillions of dollars Adelson has lost lately. Besides the religious prohibition of taking joy in another’s downfall, I have practical reasons for trying to avoid schadenfreude. Adelson, reduced to his last few millions, will retain his health insurance, I’m sure. He may lose a home or six, but not the last one. That can’t be said for all the people he’ll lay off. Meanwhile, the Forward reports, he may leave Birthright $20 million short this year. That’s the livelihood of tour guides, lecturers, and hotel workers.
Which brings me to Bernie Madoff. In principle, Madoff’s con worked a lot like a casino. It sold the illusion that everyone could get richer with nothing being produced. Unlike a Macao casino, it was illegal. Unlike a Norwegian casino (known in Norway as “casino på nett“), it was not only online. A lot of people will go down with Madoff. Some were well off till last weekend. The New York Times describes one man, Richard Spring, who
invested with Mr. Madoff, over time putting more than $11 million into the firm, virtually every cent of his savings, he said. “I’m taking care of my sick mother-in-law. My wife has cancer. I just can’t deal with it,” Mr. Spring said, only barely choking back tears. “I’m cooked.”
That’s one face of Madoff’s allegedcrime. Another is all the philanthropies destroyed, either because they had their money with him, or because they depended on donations from him, or because they depended on donations from people who invested with him. So the Gift of Life Foundation, the bone-marrow registry, is in deep trouble. The news reports describe this as if it’s a matter of numbers in accounting books, rather than of cancer patients who will die, not to mention employees who will be unemployed. Those who live in the United States won’t have health insurance. Wherever they live, their kids will be less likely to go to college.
The Technion will take a hit. Later we’ll find out whether that means junior faculty losing jobs or students not getting scholarships. Ramaz, the prominent modern Orthodox day school in New York, will suffer from the crash of one of its donors – so JTA reports. Likely translation: families without scholarships, teachers without jobs. (Some of those teachers considered teaching a calling, preferable to any salary on Wall Street.)
Madoff’s scheme, as explained so far, worked simply: Instead of making money on the market, he reported false profits, attracted investors, and used new investments to pay off any requests for cash from old investors. It could work until everyone asked for cash at once.
Notice: people are all asking for cash for once because of crash that began with the housing market. The way the housing market worked, everyone assumed that the value of houses could just keeping going up quickly. When older investors wanted to get their cash out by selling property, they’d get it from newer investors. The entire finance economy was a Ponzi scheme, covered up by repackaged mortgage securities, tolerated by regulators. Madoff, if the reports are accurate, if the courts work properly, will do time. Other people, only slightly less culpable, will sell off their third and fourth houses. And those not at all culpable will lose jobs.
Why did Madoff do it? My guess is that the start he was making profits legally. People admired him for it, and wanted to belong to his country club. When he had a bad month, he got embarrassed, like a smart kid who doesn’t want to admit he got a bad report card. So he faked good results, figuring he’d cover the loss later and that he had enough money to cover any requests for cash. Eventually, faking became his full-time business. I’d feel sorry for him, if I wasn’t busy feeling sorry for the rest of us.