The other Merkin speaks out on Madoff
Except for an entirely missable reference in the first sentence, it's possible to read Daphne Merkin's take on the Madoff affair without realizing that it was her brother, J. Ezra, who was the principal conduit between moneyed Orthodox Manhattanites and the giant Ponzi scheme Madoff was running out of his Midtown digs. Which on some level is understandable, given that her whole point is that women are virtually absent from the world of high finance, relegated to elegant set pieces that enhance the status of the men to whom they're attached and lubricate the social machinery needed for their advancement.
She writes:
Money, it goes without saying, is still a men's club of the most secretive kind. The fact that until very recently men have been the sole breadwinners is not enough to explain this profound separation of the sexes when it comes to lucre, whether shining or filthy. It goes back, I think, to that basic conflict we have about what sort of valuation to put on money in a society besotted with the rewards it brings -- the ever more recherché permutations of luxury and connoisseurship, life lived at an ever more padded remove from the daily grind. Are the deals and negotiations that swirl around it too dirty for the gentler sex -- or too potentially empowering? Then, too, there is a reflexive enfeebling of women, an equation with children that takes place at an almost organic level -- both being seen as emotionally unreliable and ill-equipped to handle the brute facts of life.
I have also been thinking about Michael Gold's book, Jews Without Money, and the world of Jewish immigrants -- "greenhorns," as they were derisively called. It conjured up, the ragamuffinish dark-eyed children scampering around the crowded streets of the Lower East Side, the women bent over sewing machines in sweat shops, the men peddling goods or fixing watches. Many of them were engaged in gainful labor with merchandise, or s’choira, as my grandfather called it -- something you could actually see and feel as opposed to something that lent itself to numerical crunching. We are long past such concrete equations, long past the notion that goods and services can hold their own against the making of money off money, endless piles of paper, derivatives, credit default swaps, puts, off-shore accounts and funds of funds.
Though this is, to my knowledge, the first public comment from any Merkin since the Madoff scheme imploded, those seeking some insight into the family psychology, some clue as to how J. Ezra could have led all those Jewish investors astray, will be disappointed. For that, Daphne's infamous essay on spanking might provide more scintilating reading.
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Loose change: More on Madoff, shortfall in Denver, scholarships at day schools
There is still plenty of Bernie Madoff news to report, but the Jewish papers have started to shift back to coverage of the effects of the general financial crisis -- and specifically to a growing need for scholarships at Jewish day schools. The story out of Denver is a must-read:
- The Allied Jewish Federation in Denver, which by the end of December usually has collected 88 percent of the money it has been pledged during the course of the year, estimates that this year it may collect only 75 percent to 80 percent, causing a significant shortfall, according to the Intermountain Jewish News. The federation is expecting to lay off staff, and its CEO has taken a voluntary cut in pay.
- Shock at the Madoff scheme has turned to anger, as donors lash out at nonprofit board members, according to the L.A. Jewish Journal.
- Some philanthropy observers are calling for the Jewish nonprofit community to wean itself from heavy reliance on mega-donors in the post-Madoff era, according to the Forward.
- The United Jewish Endowment Fund in Washington has established two committees to review organization-wide investment policies and examine how the fund came to invest with Bernard Madoff, according to the Washington Jewish Week.
- Though some of their donors may have been hurt, Jewish agencies in north-central New Jersey feel that they dodged the Madoff bullet with good governance and proper due diligence, reports the New Jersey Jewish News.
- Yossi Prager, the executive director of the Avi Chai Foundation, talks to the New Jersey Jewish Standard about giving during the recession. The Jewish community in northern New Jersey is holding a monthlong learning program to discuss charity.
- The Helen Bader Foundation in Milwaukee will give $1.5 million over the next three years to help lower- and middle-income families afford Jewish day schools, according to the Wisconsin Jewish Chronicle.
- The UJA-Federation of New York allocated $1 million in scholarships to day schools and yeshivas in New York, according to the N.Y. Jewish Week.
- The Jewish Community Endowment Fund in San Francisco gave $50,000 to help give scholarships to day school students.
- The Jewish community in Baltimore is bracing for escalation of the war in Gaza, reports the Baltimore Jewish Times.
- The St. Louis Jewish community is adopting the Harold Greenspoon foundation’s Bnai Tzedek project, which teaches youth philanthropy by giving bar mitzvah aged children matching grants for their philanthropic endeavors, according to the St. Louis Jewish Light.
- A historic synagogue in Philadelphia received an $80,000 matching grant for restoration, according to the Philadelphia Jewish Exponent.
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The Jewish federation in Tornoto lost $500,000 in Madoff scheme
The Jewish Federation of Greater Toronto lost about $500,000 from its $200 million endowment, in Bernard Madoff's Ponzi scheme, according to the Associated Press.
The federation sent the following letter to its donors Wednesday, explaining the details of the loss:
You may have seen or heard news reports today about a connection between the Bernard Madoff situation and UJA Federation. We are writing to provide you with the facts involved.
The alleged Madoff fraud has no impact whatsoever on the Annual Campaign, on money donated to the Annual Campaign or on the use of United Jewish Appeal Annual Campaign funds to meet community needs.
The Madoff affair has had a small impact on the Jewish Foundation of Greater Toronto, which houses approximately $200 million in endowment funds. Unfortunately, through one of our fund of fund managers, the Foundation experienced a small exposure to the alleged Bernard Madoff fraud, representing 0.26% or $486,000 of the total Foundation assets. Any other figures that have appeared in media reports are mistaken and inaccurate.
We regard any loss, no matter how small a proportion of assets it represents, as regrettable. We take these circumstances very seriously and we will be even more rigorous in practicing prudent investment strategies, through our experienced fund managers who strategically invest Foundation assets to diversify risk and maximize returns.
The Jewish Foundation Investment Committee and Board of Trustees – all lay people – who oversee Foundation operations - include some of the most respected investment specialists in the country. They insist on the highest standards of diligence and integrity.
If you have any questions, please contact Howard English at .
Wishing you the best in 2009,
Ted Sokolsky, President & CEO
UJA Federation of Greater Toronto
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Steinhardt lost $2 million in Madoff scandal
After initially telling the Fundermentalist that he had no money invested with Bernard Madoff, philanthropist Michael Steinhardt told Bloomberg Wednesday that he actually lost $2 million that he had invested with J. Ezra Merkin's Ascot Partners. Ascot, Merkin's hedge fund, lost its entire $1.8 billion in assets with Madoff.
From Bloomberg:
“He never told me he was investing with Madoff, and he probably didn’t tell most of his clients, and I understand why,” Steinhardt said today in a phone interview. “Madoff, according to Ezra, was engaged in an analogous type of arbitrage so it was logical for Ezra to focus on Madoff.”
Steinhardt, 68, wound down his business in the 1990s with a fortune that Forbes magazine estimated at $500 million. Madoff, 70, is confined to his home on Manhattan’s Upper East Side after being accused of defrauding multiple investors of $50 billion. Merkin, the chairman of GMAC LLC, is liquidating one of his hedge funds after losses from investing with Madoff. He is a long-time acquaintance of Steinhardt, Steinhardt said.
“Ezra knew Madoff through his father as a respectable person,” Steinhardt said. “If he gave some of my money to Madoff and earned fees for doing so, it was not inconsistent with his agreement to manage my money in the best way he could.”
Steinhardt, who focused on collecting art and charities after retiring from managing other people’s money, is chairman of New York University’s investment committee.
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What were the real losses?
While it has been repeatedly reported that Yeshiva University lost $110 million in the Madoff scheme, the school told Bloomberg News yesterday that its actual investment was only $14.5 million.
The school invested $14.5 million with Ascot Partners, a hedge fund owned by J. Ezra Merkin that put its money solely into Madoff's scheme, and while the value of YU's investment had risen to $110 million according to the statements the school received from Ascot, that increase was based on fictious profits.
From Bloomberg:
Yeshiva University said its previously reported profits in a fund tied to Bernard Madoff were ‘fictitious,’ underscoring how customers of the money manager may have been misled about the investment gains they had amassed.
The school said it had a net investment of $14.5 million tied to Madoff as of Dec. 11, the day he was arrested, according to an e-mail today from J. Michael Gower, the New York school’s vice president for business affairs and chief financial officer. Yeshiva said a financial statement from Ascot Partners, which fed to Madoff, valued the investment at $110 million as of Dec. 16.
Madoff was charged with operating a Ponzi scheme that may have bilked investors of $50 billion. Yeshiva’s endowment value fell to $1.2 billion, from $1.7 billion last Jan. 1, the school estimated five days after his arrest. Part of the decline was attributed to the collapse of Ascot. Yeshiva today said the Madoff-related loss assumed profits that weren’t real.
“Although the university has an estimated loss of approximately $110 million, it now appears that any ‘profits’ above the $14.5 million were fictitious,” Gower said in the statement.
The report again bears the question: What were the actual losses in Madoff?
The American Technion Society was the first organization to publicly separate out to the Fundermentalist what their actual losses were vs. their fictition loss -- a $29 million initial investment along with $43 million in "profits" which totalled a $72 million loss.
Hadassah initially announced that it had lost $90 million, and later explained that its investments with Madoff totaled $40 million.
Hadassah, Y.U. and Technion were three of the major losers in terms of Jewish organizations and institutions.
On paper, their total losses add up to $272 million. But their total investments were a combined $83.5 million -- a large sum for sure, but nowhere near the more than a quarter of a billion dollars initially reported. And if one would want to put as positive a spin on this as possible, it is fair to say that a good 15-30 percent of that $83.5 million would have been lost over the past year if these organizations had invvested it with legit money managers.
Of course, paper or real, the losses mean that organizations and institutions will be looking at smaller annual allocations from their endowments to boost operating budgets -- the hardest thing to raise money for -- and will have less cash in the bank to count on when mapping out future plans.
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No mention of Madoff losses in AJCongress and Y.U. fund-raising letters
You're an organization that just lost almost all of its endowment by investing it with Bernard Madoff. Or a prestegious institution of higher educatuion that is down $110 million -- or about 10% of its endowment -- for essentially the same reason.
Do you mention this negative turn in your end-of-the-year last-chance-for-a-tax-deduction fund-raising appeal? Well, if you're the American Jewish Congress or Yeshiva University, the answer is no.
Here's the e-mail from American Jewish Congress, signed by its president, Richard Gordon:
Dear Friends:
I am writing this to you at a very critical time, critical for our nation, critical for Israel, and critical for the American Jewish Congress.
Since we issued last year’s Annual Report, it seems that so much has changed. Our country has elected a new president and a new administration is taking shape, one that will bring change and a new direction to Washington on a number of issues on which the American Jewish Congress has been greatly involved. At the same time, Israel is preparing for elections of its own and the selection of a new Prime Minister, an election which may also bring a change to its national policies as well.
At the same time, not only our nation’s, but much of the world’s economy has taken a severe battering in the last few months. People are genuinely concerned about their economic futures, as we are as an organization.
With all of this change afoot, we at the American Jewish Congress are more committed than ever to fighting for the issues we care so deeply about. In the last year alone, we have been virtually the sole voice calling for legislation denying terrorists the opportunity to enforce libel terrorism judgments. We were the only Jewish organization chosen to fight for Israel’s increased participation in NATO. We succeeded in passing landmark energy legislation that was signed by the president, helping to create groundbreaking technology that could lead to energy independence. And we organized a coalition of Muslim, Christian, Bahai and secular groups to defend free speech from the campaign by Muslim states to ban speech 'defamatory of religion.'
We have done so much with so little. Now I am asking for your renewed support. As we enter our centennial decade, we continue to run a lean organization with an impact of accomplishment disproportionate to our size and budget. But we need your help to go on. In today’s difficult economic climate, your renewed contribution is more important than ever. Your generosity will enable us to remain a vital force in the Jewish community and in Jewish life. Without you, our ability to continue to be a strong and effective force, both in the United States and abroad, is in doubt.
Thank you again for your support in the past. I hope that I can count on you as we move forward. Please take the time to read the attached report of our achievements in 2008 (Click Here). It is a record that you should be extremely proud of. It is a record that we share together because it would not have been possible but for your generosity.
Sincerely,Richard S. Gordon
President
And here's a solicitation e-mail from the president of Y.U., Richard Joel:
Dear Friend:
This has certainly been both an extraordinary and unusual year. In spite of the economic turmoil, our university and yeshiva continue on their trajectory of exceptional growth and their advancement of humanity.
We are indeed proud of the profound impact that our students and faculty continue to make on hundreds of communities around the globe. During the past year alone, over one thousand of our student volunteers have participated in a wide array of leadership programs that enhance and broaden their classroom educational experience in an effort to mold them as our future lay and klei kodesh. Our Arbesfeld Kollel and Midreshet Yom Rishon continues to open its doors to hundreds of participants each week who wish to learn with our rabbinical students, rebbeim, and Torah scholars. With over twenty thousand shiurim in our virtual library, our Marcos and Adina Katz YU Torah website continues to provide unprecedented access to the Torah treasures of Yeshiva University and RIETS.
Yet our ability to go further along on this path, and to provide a serious and uncompromising education to all of our students, is challenged by the times. Please join me, in whatever way you can, with a gift to the Annual Fund. Your gift, large or small, matters now, perhaps more than ever before. This support enables YU to provide need-blind support to all of its students and to infuse communities around the country with the values of this great yeshiva and university.
To make your gift now, please visit http://www.yu.edu/onlinegiving. Of course, giving the traditional way of writing a check before December 31st - and receiving a tax deduction - will be most welcome.
Remember, we are part of something special-a rare institution committed to the integrated vision of Torah U'Madda. Our students carry our history and our destiny. It is up to us to ensure that they are fully equipped to lead and succeed. Wishing you and your family a Chanukah Sameach,
Sincerely,
President Richard M. Joel
P.S. To those who have already given to the Annual Fund, please accept our gratitude on behalf of the University.
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Kevin Bacon can’t avoid six degrees of separation from Bernie Madoff
Actor Kevin Bacon, who is now just as famous for the Six Degrees of Kevin Bacon game as he is for his prolific career, lost money in the Bernard Madoff scheme, according to New York magazine.
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Edwin Black: Why is the Fed giving Merkin $5 billion?
JTA contributor Edwin Black brings up a legitimate question on Cutting Edge News: Shouldn’t the Fed have some reservations about handing General Motors Acceptance Corp. $5 billion to turn itself into a bank, when its chairman just lost a couple of billion by recklessly investing his own hedge fund solely in Bernard Madoff’s Ponzi scheme?
The Fed, as part of its financial bail out of the auto industry gave GMAC that and another $1 billion from the Treasury department just before Christmas, despite that its chairman, J. Ezra Merkin lost some $1.8 billion after investing all of the assets of his Ascot Partners hedge fund in Madoff – and dragging down with him scores of Jewish philanthropists and Jewish nonprofits by getting them to invest their money with him.
His investors are not about to let Merkin off the hook, writes Black:
Lawsuits against Merkin for financial misconduct are mounting. New York Law School, which lost $3 million investing in the Ascot fund, was among the first to file a lawsuit against Merkin and its accountancy firm, BDO Seidman. The class action lawsuit filed in U.S. District Court in Manhattan said the defendants "recklessly or with gross negligence caused and permitted $1.8 billion, virtually the entire investment capital of Ascot" to be handed over to Madoff.
A second class action lawsuit charges that Merkin “facilitated” the Madoff scandal “recklessly or with gross negligence and/or in breach of fiduciary duties.” This suit was launched by Scott Berrie, a Gabriel investor. Berrie alleges, “Plaintiffs investment in Gabriel has been decimated as a direct result of defendant Merkin's abdication of his responsibilities and duties as General Partner and Manager of Gabriel and its investment funds.” The Berrie suit specifies that Merkin is chairman of GMAC.
A confidential 60-page, 2006 Ascot memorandum obtained by The Cutting Edge News states on page 23, “All decisions with respect to the management of the capital of the Partnership are made exclusively by J. Ezra Merkin. Consequently, the Partnership's success depends to a great degree on the skill and experience of Mr. Merkin.”
Wall Street financial analysts have been mystified by the manner in which GMAC engineered banking status. “We believe GMAC has been less than clear in detailing how it would achieve adequate capital levels,” CreditSights analyst Richard Hoffman recently declared. “But with the primary regulator on board, the capital raise machinations seem almost a moot point.”
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Comparing Jewish losses to non-Jewish losses in the Madoff scheme
Sometimes its good to put things into perspective.
The Jewish nonprofit world certainly lost money in the Madoff scheme, but we were not the only losers, and perhaps not even the biggest.
Bloomberg News put together a list of grants given out in 2007 by 10 foundations that lost significant assets in the Madoff scandal, nine of which are Jewish.
The news site provides a list of the grants doled out by the Bernard L. and Ruth Madoff Foundation, the JEHT Foundation, the Schlichter Foundation, the Betty and Norman F. Levy Foundation, the Carl and Ruth Shapiro Family Foundation, Spielberg’s Wunderkinder Foundation, the Wilpon Family Foundation, the Frank Lautenberg Foundation, Valerie And Jeffrey S Wilpon Foundation and the Picower Foundation.
A survey of the list shows that these foundations gave money to scores of Jewish causes. But while much has been made of the losses in the Jewish charity world, this list should help to put things in perspective -- the charity world in general is going to be affected at a more significant clip than Jewish charities.
These 10 foundations gave $7.3 million to Jewish causes in 2007 – a number that will certainly be missed. But, when you exclude a $3 million gift that the Shapiro Family foundation gave to Brandeis University, that number drops to $4 million. This is certainly a big number. But it is not an insurmountable number.
Compare that number to the $103,752,048 that these foundations gave out in general, and the $7.3 million certainly seems smaller.
The Jewish community has certainly taken a hit here, but it will most likely not be the end of Jewish charity or the Jewish nonprofit world. And the broader non-profit world is certainly suffering right along with us, if not to a greater extent.
Here is an excerpt from the Bloomberg list. It contains only the grants that these foundations made to Jewish nonprofits, and I have added the side-by-side comaprison of the total dollar amount given to Jewish charities vs. the total dollar amount each foundation gave out:
Bernard L. and Ruth Madoff Foundation Assets - $19,125,499 Recipient FY Ending Amount ==================================================================== Kav Lachayim 2007 $15,000 New York, NY ==================================================================== Total to Jewish charities $15,000 Total giving $95,000 ==================================================================== The JEHT Foundation Assets - $7,503,918 Recipient FY Ending Amount ==================================================================== Brandeis University The Int’l Center for Ethics 2007 $220,000 ==================================================================== Total to Jewish charities $220,000 Total giving $24,208,994 ==================================================================== The Schlichter Foundation (Bernard Madoff, President) Assets - $1,626,925 Recipient FY Ending Amount ==================================================================== 92nd Street Y 2007 $5,000 Lower East Side Tenement Museum 2007 $20,000 North Shore L. I. Jewish Health 2007 $20,000 Old Westbury Hebrew Congregation 2007 $40,000 Solomon Schecter School 2007 $2,000 ==================================================================== Total to Jewish charities $87,000 Total giving $92,000 ==================================================================== Betty and Norman F. Levy Foundation Assets: $244,389,849 Recipient FY Ending Amount ==================================================================== American Committee Weitzmann Inst. 2007 $25,000 Gift of Life Bone Marrow Foundation 2007 $100,000 UJA Federation New York, NY 2007 $100,000 Museum of Jewish Heritage 2007 $5,000 ==================================================================== Total to Jewish charities $230,000 Total giving $31,280,050 ==================================================================== Carl and Ruth Shapiro Family Foundation Assets - $323,912,042 With Madoff - About $145,000,000 Recipient FY Ending Amount ==================================================================== Alpert Jewish Family & Children’s Services 2007 $25,000 Amer. Friends of The Israel Museum 2007 $10,000 American Committee For The Weizmann Institute 2007 $25,000 American Friends of The Hebrew Univ. 2007 $11,000 American Friends Of Israel Philharmonic Orch. 2007 $45,000 American Jewish Committee 2007 $15,000 American Society For Technion 2007 $25,000 Anti-Defamation League 2007 $150,000 Armdi 2007 $25,000 Brandeis University 2007 $3,022,000 Combined Jewish Philanthropies 2007 $356,500 Gift Of Life Bone Marrow Foundation 2007 $45,000 Hadassah 2007 $10,000 Hebrew Senior Life Boston, MA 2007 $25,000 Jewish Adoption And Foster Care 2007 $5,000 Jewish Big Brother And Big Sister 2007 $15,000 Jewish Family & Children’s Services 2007 $30,000 Jewish Federation Of Palm Beach Cty. 2007 $160,000 Jewish Guild For The Blind 2007 $10,000 Jewish Home For The Aged Of Palm Beach County 2007 $210,000 One Family Inc. 2007 $35,000 Simon Wiesenthal Center 2007 $25,000 U.S. Holocaust Memorial Museum 2007 $25,000 ==================================================================== Total to Jewish charities $4,304,500 Total giving $12,834,167 ==================================================================== Wunderkinder Foundation Assets - $73,280,226 Recipient FY Ending Amount ==================================================================== American Jewish Committee 2007 $8,333 American Museum Of Moving Image 2007 $7,534 Chabad’s Children Of Chernobyl 2007 $50,000 Museum of Jewish Heritage 2007 $25,000 Righteous Persons Foundation 2007 $620,000 Temple Beth Am Los Angeles, CA 2007 $10,000 Temple Emmanuel Bevely Hills, CA 2007 $190,000 U S Holocaust Memorial Museum 2007 $150,000 ==================================================================== Total to Jewish charities $1,065,867 Total giving $8,452,406 ==================================================================== Wilpon Family Foundation Assets - $109,120 Recipient FY Ending Amount ==================================================================== Jewish Home & Hospital 2007 $25,000 Jewish Institute 2007 $15,000 Suffolk Y Jewish Community 2007 $10,000 The Jewish Foundation 2007 $15,000 Touro Law School 2007 $10,000 ==================================================================== Total to Jewish charities $75,000 Total giving $2,983,250 ==================================================================== Frank Lautenberg Foundation Assets - $15,000,792 Recipient FY Ending Amount ==================================================================== Albert Einstein College of Medicine 2007 $5,000 American Friends of Israel Museum 2007 $5,000 American Jewish Committee 2007 $7,000 American Technion Society 2007 $5,000 Beth Hatefutsoth 2007 $5,000 Daughters Of Israel 2007 $5,000 Dr. Michail Shafir Fund 2007 $5,000 Gift of Life Foundation 2007 $7,000 Jewish Community Center 2007 $5,000 JSDD of Metrowest 2007 $5,000 Temple Sharey Telifo Israel 2007 $39,480 UJA Federation 2007 $11,000 UJA Metrowest 2007 $5,000 Washington Institute For Neareast Policy 2007 $10,000 Washington, DC ==================================================================== Total to Jewish charities $119,480 Total giving $281,280 ==================================================================== Valerie And Jeffrey S Wilpon Foundation Assets - $420,852 Recipient FY Ending Amount ==================================================================== Hebrew Wizzards 2007 $5,000 Mount Sinai Adolescent HC 2007 $5,000 US Holocaust Museum 2007 $10,000 ==================================================================== Total to Jewish charities $20,000 Total giving $284,800 ==================================================================== Picower Foundation Assets - $958,425,057 Recipient FY Ending Amount ==================================================================== American Friends of Herzog Hospital 2007 $100,000 American Friends of Tel Aviv Museum of Art 2007 $5,000 American Jewish World Service 2007 $75,000 AVODAH 2007 $75,000 Foundation for Jewish Camping 2007 $109,278 Hillel 2007 $50,000 InterfaithFamily com 2007 $25,000 Jewish Coalition for Service 2007 $40,000 Jewish Community Center in Manhattan 2007 $10,000 Jewish Family & Life 2007 $33,333 Jewish Outreach Institute 2007 $185,000 Jewish Television Network 2007 $50,000 Limmud NY 2007 $225,000 Lincoln Center Theater 2007 $50,000 Moving Traditions 2007 $75,000 UJA-Federation of New York 2007 $56,250 United States Holocaust Memorial Museum 2007 $10,000 USC Shoah Foundation 2007 $5,000 ==================================================================== Total to Jewish charities $1,178,861 Total giving $23,402,801
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Madoff
Is there a bit of Bernie in all of us?
Eugene Robinson writes in the Washington Post that, while 2008 was the year of Barack Obama, it was also the year of Bernard Madoff – because we all have a bit of Bernie in us:
In a sense, we're all Bernie Madoff. We've been running our economy in accordance with his accounting principles for a generation -- and now we face a most unpleasant reckoning.
As everyone knows by now, Madoff -- once one of the most respected financiers on Wall Street -- stands accused of being perhaps the biggest swindler in history. Before his arrest this month, he reportedly told his sons that he had defrauded investors of up to $50 billion. He allegedly followed the playbook written more than eight decades ago by the elegant grifter Charles Ponzi, who used money from new investors to pay juicy returns to old investors. That works fine for a while, but every Ponzi scheme eventually collapses in ruin.
He adds:
But not all of Madoff's investors could have been in the dark. Some must have realized how unlikely it was that he had found some sort of magical strategy or technique that would always make money, no matter what the financial markets were doing. Some investors, I would wager, must have calculated that they could get in, get their return and get out before the whole thing fell apart.
Which makes me wonder how many of us had our eyes open when housing prices were soaring in Ponzi-like leaps -- by 10 percent or more a year, in some parts of the country -- while middle-class incomes were largely stagnant. How many of us stopped to ask just who was supposed to be able to pay $1 million for a standard suburban split-level, even if it had an upgraded kitchen with a Sub-Zero fridge?The whole subprime mortgage industry was based on the idea that housing prices would always rise. Given that assumption, it was perfectly rational for first-time homebuyers to sign up for adjustable-rate mortgages that they couldn't really afford. From the moment they signed the loan papers, they would be building equity -- through appreciation -- that soon would make it easy, and lucrative, to refinance or sell.
In other words: Get in, get their return and get out before the whole thing fell apart.
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Recent Comments
- Marvin L Morgan on Is there a bit of Bernie in all of us?
- Diane Trachtenberg on 'All Jews' on trial over Madoff
- Dr. Michael Zidonov on Loose change: Local papers continue Madoff coverage (and a few non-Madoff tidbits)
- lawrence weinman on What were the real losses?
- Schneider on Rabbi: Kick Madoff out of the Jewish people