By Lila Corwin Berman
Adapted from The American Jewish Philanthropic Complex: The History of a Multibillion-Dollar Institution, published by Princeton University Press.
On December 11, 2008, FBI agents entered Bernard (Bernie) Madoff’s Upper East Side apartment and arrested him on the charge of securities fraud. Although the Securities and Exchange Commission had investigated Madoff years earlier, his investment funds’ unusually consistent returns during the subprime crisis and market downturn in 2008 had raised new suspicion. Throughout that fall, federal investigators gathered evidence that the seventy-year-old, Jewish, Queens-born financier had been running a sham investment operation, capturing capital from investors, falsely reporting returns, and using investors’ money to pay those who wanted to cash in. In early December, aware that law enforcement was closing in on him, Madoff confessed to his sons, who turned him in to the authorities. Within days of his arrest, fund holders learned they had lost everything to Madoff’s $50 billion-plus Ponzi scheme.
Headlining newspapers and cable news for months, the Madoff story was as financially complex as it was pathos filled. Few reporters could resist chronicling one of the most poignant sides of the story: the flocks of philanthropic organizations crippled by Madoff’s swindle. Not only had Madoff wrecked individuals’ futures, and not only had he ruined corporate banks, he had also damaged the public good, deceiving those who stewarded it with the promise that he could safeguard and grow their endowments, all the while using their money for his personal gain and to repay other investors. For many years, his theft had paid off, as the endowments he invested, just like the personal and corporate fortunes he managed, reported healthy growth on paper. Philanthropic organizations were in many ways his perfect clients and accessories. Fiscal prudence kept most from dipping into their endowments, beyond a portion of their returns, so paper growth was all that mattered.
Madoff would be tried and sentenced to 150 years in prison, but his fraud had succeeded because, criminality aside, it looked awfully similar to late-twentieth-century capitalism. Contrary to the language Americans had been sold, the market was not free for all to access its goods equally. Instead, for every mortgage bundled together and sliced up for resale or every carried interest dollar treated not as income but rather as capital gains (taxed at a lower rate than income), or a whole array of other financial transactions, the American state meted out benefits, with those at the top receiving enrichment out of reach to others. Perhaps beneficiaries of state largesse would direct their privilege downward, through job creation, consumption, or philanthropy, but even these voluntary acts of redistribution accrued private financial benefit through state subsidy. This was a formula for capital growth through inequality.
When Madoff’s investment empire fell, it exposed, at least momentarily, the hollow prize of putting the public good in the trust of capitalism.
As news of the significant losses sustained by Jewish individuals and institutions gained coverage, some commentators suggested that in addition to his fraudulent financial behavior, Madoff was also guilty of “affinity fraud.” Articles listed the major Jewish donors, the Jewish family foundations, the federations and Jewish community foundations, and the Jewish nonprofits that Madoff had accessed through his personal networks and that now were ravaged by his arrest. Various reports tried to assign a dollar figure, ranging anywhere from $600 million to $2.5 billion depending how one took the sum of the future, to the losses endured by Jewish philanthropic organizations.
By the end of December, the Jewish animus directed toward Madoff reached a fever pitch, with rabbis and Jewish leaders consigning Madoff to “a special circle of hell” and spinning other Dantean fantasies. In addition to their fury, some Jews also felt fear. The Anti-Defamation League tracked an increase in online antisemitic comments, many of which used Madoff’s arrest to advance conspiracy theories that tied duplicitous financial behavior to Jews’ plots for global dominance.
Madoff was so quickly demonized that, far from serving as a bellwether of the pitfalls of putting the public good in the trust of putative market freedom, he was regarded as an outlier. Although some immediate reports speculated that donors and philanthropic organizations would feel compelled to reassess their financial practices, including their reliance on endowments and investment capital, in just a few months, these predictions proved shortsighted. Reportedly, representatives from about three dozen of the largest Jewish private foundations met less than two weeks after Madoff’s arrest to coordinate a plan to help organizations rebuild from their losses. Much like the American government that year, they would use bailouts – what one report called “bridge financing” – to help Jewish communal life return to normalcy, before the full extent of Madoff’s crimes had even been exposed.
What I have termed “the American Jewish philanthropic complex” emerged in full force in the early decades of the new millennium. A product of a century of American state policy, tax law, and Jewish institutional development, the complex made Jewish philanthropy inseparable from state subsidy and private capital growth. That Bernie Madoff’s crime, which in material and spiritual ways challenged American Jewish philanthropy, was so quickly absorbed by the complex is one indication of its durability. The complex echoed and affirmed guiding practices of late-twentieth-century American political economy, in its reliance on state-assisted market growth and private capital and power. And it wove that political economy into distinctly Jewish concerns rendered through the language of identity, survival, and continuity. The ability to warehouse and grow capital had become the central instrument for supporting Jewish identity and ensuring its survival.
By the turn of the millennium, glaring inequities in American life, emerging from decades of upwardly redistributive laws and policies, imprinted themselves on American Jewish philanthropy’s answers to existential Jewish questions. For all of the blame, anger, and distress precipitated by the Madoff crisis, American Jewish organizations and their leaders continued to believe, as they had been trained to think over the last three decades, that philanthropic growth and accumulation was the best and only guarantor of an American Jewish future.
Lila Corwin Berman is professor of history and the Murray Friedman Chair of American Jewish History at Temple University.
Excerpted from THE AMERICAN JEWISH PHILANTHROPIC COMPLEX: The History of a Multibillion-Dollar Institution by Lila Corwin Berman. Copyright © 2020 by Princeton University Press. Reprinted by permission.