ANALYSIS / Lessons of Madoff scam: invest with more wisdom

There's no point really even struggling to make some sense out of the Bernie Madoff scandal. Fifty billion Dollars! Nobody in their right minds would ever entrust me with a millionth of that sum; I can't work out my paycheck, how could I ever work out a way to lose so much money?

Many over the last week have expressed fears that this latest story of Jewish financial malfeasance will further stoke anti-Semitic feelings, perhaps, in some quarters. Personally, I think that many of the economically-challenged, like me, share a hidden admiration for a man who managed to get his hands on such a ginourmous pile of dough and then - BANG - make it all disappear. So with no possible method to begin to comprehend a swindle on this scale, and at a stage when it's still too early to assess the full damage and implications for the Jewish establishment and charity sector, there remains one aspect of this breathtaking fraud that is worth considering, and that is the matter of trust.

As the hours pass and the list of venerable institutions and respected family foundations that have been wiped out grows longer, you start to realize that it is not just the sheer size of the fortunes lost, but the fact that so many tycoons and charity managers were willing to put all their capital and endowment funds in Madoff's hands. Surely, you ask yourselves, with all those billions comes also a degree of prudence and aversion to risk.

Why did none of them think that perhaps there might be something a bit fishy with such a singular run of financial success? Even if good old Bernie seemed beyond reproach, did no one think that a rainy day might come along and it would make sound financial sense to spread the investments a little wider?

However, we have to understand how hard it is to be a mega-rich Jew. Try and remember the one day in life when you were most popular, your bar mitzvah, wedding, that time you got promoted to a senior position, received an unexpected windfall or won a prestigious award; those few moments when everyone wanted to be your friend, to sit close to you and also ask quietly for some kind of favor.

Now imagine what its like to have that kind of attention for every waking moment. You've made it on to the Forbes Rich List, you control almost imaginary funds, but you don't want to cut yourself off from your roots and maybe you even want to give something back.

But wherever you go people just want a piece of you, coming up with their crazy schemes for startups and investments, bleeding hearts lining up to fleece you for a thousand deserving causes. The inevitable result: the ultra-rich retreat into their own comfort zone, their country clubs and mega-yachts, surrounded by their own kind, men and women with enough money of their own, with no demands from them.

And that is where they also found Bernard Madoff. He wasn't just another investment guru, he was one of them. Rich like them, Jewish like them. Hamish and exclusive at the same time. And that's why the mega-rich put their trust and money with Madoff, and the also slightly less rich, but millionaires nevertheless, followed their example. That's also why they entrusted him not only with their business investments but also with the endowment funds of their own non-profit foundations and the funds of the Jewish organizations where they served as trustees. The ties of friendship and social cliques overrode financial prudence. In a philanthropic landscape, dominated by considerations of vanity and prestige, Madoff was the perfect agent to fulfill their charitable ambitions. They rose together, now Madoff's downfall threatens to take them down together.

Jewish philanthropy will spend the next decade picking up the pieces of the worst financial crisis in living memory. Even without Madoff, these were going to be extremely challenging times. Those charities and organizations that still have their capital intact will have to make tough decisions; whether to scale back, develop their own core activities or dig deep in their investment accounts to come up with the funds that can save other charities.

In the good years, too many foundations and institutes were set up, every nouveau riche arriviste had to have his own pet projects serving sexy causes, no matter how much duplication with other organizations was involved.

No one wants to give up the nice building with a cherished parent's name on the wall or the satisfying feeling of "making a change to the world." Now they may not have any choice. The days of clubby exclusiveness seem to be drawing to a close.

This crisis will pass eventually, and Jews of every social and financial strata will continue giving. Maybe the memory of Madoff will serve to help them give a little more wisely.