by Carmi Wisemon:

The Madoff financial scandal is shocking in more ways than one. We can fathom but not condone the fact that people and organizations did not necessarily follow the required due diligence to verify that Bernard Madoff’s hedge fund was legitimate, because trust is intrinsic to human nature. Though not always deserved, trust is the basis for the functioning of any economy. The breakdown in the trust we place in the financial markets is the key to today’s spiraling financial meltdown.

The Hafetz Haim, spiritual leader of 20th-century European Jewry, wrote that the Great Depression of 1929 came about because of that generation’s lack of trust in God, which eventually led to a lack of trust between people. Though the period leading up to it was a time of great prosperity, the lack of confidence and trust between people ultimately caused credit sources to fail. This, in his words, “caused the central artery for the flow of economic life to become clogged by animosities.”

We can use the same analogy for today’s economic meltdown. Here too, our woes were preceded by a boom period, which started to fall apart because of the unregulated and greedy practice of subprime mortgages, based on the giving of loans to people who most likely would not be able to pay them back. Such loans are unethical and may violate the biblical prohibition of “do not place a stumbling block before a blind man.”

The economic crises over the past months did not involve the direct theft of assets, but they shook the foundation of trust that the American people had in the financial markets. The Madoff scandal is so horrendous an act of theft that it can potentially clog the arteries of society to the level of a full-blown heart attack.

Fifty billion dollars is an almost unimaginable figure, even when quantified in smaller enormous sums. It is shocking to read of a university that lost $100 million but will survive because its endowment is still $1.3 billion, of a foundation with hundreds of millions of dollars in assets forced into closure overnight.

For the average person, regaled by the media over the past week with the monumental losses of banks, universities, hospitals and foundations, many of them serving the Jewish community, there has dawned a true realization of the tremendous amount of wealth earmarked for charitable purposes. Yet we have become used to hearing that there is simply not enough money to fill the growing needs of the community.

Our shock has been heightened by the knowledge that a sizable portion of the vast wealth accumulated by prominent Jewish institutions and foundations was passed on to a select few who neither used these funds to help people or run programs but instead perpetually reinvested the money to create ever larger endowments of their own.

Small but worthy grassroots initiatives with high impact and minimal overheads rarely receive funding from closed philanthropies, some of which appear to have spent significant funds to expand the size of endowments of large Jewish institutions. Just imagine how the gigantic sums of money sucked into the Madoff black hole could have enriched the Jewish world if they had been used for the benefit of those for whom the money was supposedly earmarked. Instead, these foundations sat on the money like nesting hens, ineffectively passing large shares of it to large institutions which themselves reserved the right not to use the funds, but rather reinvest them (and ultimately lose them).

Foundations and institutions have the right to distribute their funds and services as they see fit. Yet it is no secret that in the years leading up to today’s economic crisis, many people, both donors and recipients, have lost faith in the mechanisms of Jewish philanthropy and institutional life.

As budgets are reduced, small grassroots initiatives will be hit the hardest and hear more than ever before, “Sorry, there is no money available to support your cause, noteworthy as it may be.” The message will be clear, “Please don’t bother us during such a time; can’t you see that we can barely keep ourselves afloat?” The public should take a hard look at the institutions it supports. Not only because of past misplaced trust, but because the bottom line is that many of the large Jewish institutions which have lost parts of their endowments state that they still have a hefty nest egg to rely on.

Now, despite their losses, is the time for foundations and institutions to stop hoarding their funds and use them to provide services needed by the Jewish community. Let them use some of their remaining investments to rekindle the community’s dampened trust in many of our most venerable organizations.

Carmi Wisemon is founding director of Sviva Israel.