Sunday, December 21, 2008

Madoff and Memory ...

So far one good friend has lost virtually her entire net worth. Two active clients have been hit: one by the collapse of a billion dollar foundation that had been giving this charity a million dollars a year in unrestricted money. A second has likely sustained significant losses in donor gifts of as yet undetermined severity.

Flash back to Philadelphia,1995: I was representing three charities at the same time: the public library foundation and two museums when something too good to be true (and it was) came to the attention of first one board and then the other two. It was my first direct professional exposure to a Ponzi scheme. It was called the Foundation for New Era Philanthropy and was started by an area businessman with an interest in Christian causes. His name was John G. (Jack) Bennett Jr. The Wikipedia entry details his activities but on a smaller scale it worked the same way as the Madoff scam.

Bennett first created an aura of mystery by inviting ten "anonymous" business leaders to invest initially and of course the next round of investors paid off the first, and the third, the second and so on until much more money was going out than coming in and the whole thing imploded. When I heard about this "unbelievable man with a genius for investing" for the first time - from the VP for development and a trustee of one of the three institutions my bullshit detector immediately went off. By then I was an investor of sorts and I actually had some money. I was careful. I managed half my portfolio myself, had a financial advisor for the other half, invested only in mutual funds and then far and wide, and I kept about 75-80% in equity funds the rest in bonds. I was a moderate risk-taker.

I mention this only to say that I had some sense of investing; I certainly sensed that the "fabulous" returns Jack Bennett was delivering to the first round of business leaders "allowed in" would and could not last. I those I could that this guy came out of nowhere and had no track record with which anyone was familiar. Where was the due diligence and who had done it? In a nice way I was more or less told to stick to the consulting I was hired for and so I did.

When New Era sank the institutions involved lost some money from their reserves. The sophisticated early investors on the boards who pushed the institutions into investing with Bennett and New Era lost tons more. The idea that nobody knows anything - especially about the stock market and actually much else - has stayed with me ever since.

I think you will find Michael Lewis's (Liar's Poker) essay called "The End" brilliant. Check out Conde-Nast's, December 08. Enjoy.

Wednesday, December 10, 2008


How does President-elect Barack Obama view the role of private philanthropy in the civic life of the nation, especially now?

There is not much of a record and little is known of his giving proclivities. We know the plight of the economy is his first order of business as it must be and with government funds and energies diverted to bailouts and massive public spending there is and will be far less for all kinds of private charities. The prognosis for private giving in the near term - at least a year and maybe longer - is uniformly gloomy. We can expect President Obama to urge on private giving and we can expect him to encouurage all of us to donate to the charities of our choice. But is that enough?

Like FDR Obama understands the presidency is a bully pulpit and I hope he might use it to convene a “White House Summit Conference on Philanthropy” next year or the following at the latest. (The last one was held in 1975). I would bring the best and the brightest together. Here are just a few examples to get the dialog moving …

  • The gross product of American philanthropy has been stuck at around 2% of GDP for as long as giving trends have been measured. Why hasn’t the needle moved in a country of such wealth? Why aren’t more people giving more money to US and international charity? What can the government do through tax policy or otherwise to encourage greater public involvement?
  • Private foundations are sitting on almost a trillion dollars worth of assets. They claim the income that collective corpus generates makes possible their annual grant making. First, where is it written that private foundations should exist in perpetuity (aside from their charters)? Second, after a generation or two why shouldn’t they be required to transfer their assets to a community foundation or to spend them down and liquidate? Third, why isn’t there a sliding payout scale with the wealthiest having to spend far more than 5% a year on grant making (when most of them earn in the double digits on their portfolios) and maybe the smaller, newer ones be given say ten years of lower payouts maybe 3.5-4% of assets?
  • If the SEC’s oversight of Wall Street (which is let’s face it famously de minimus) was as lax as the IRS’ oversight of charities, anyone of the presidential candidates would likely be pounding a shoe (or a pump) on the table. Is there a reasonable regulatory standard possible at the federal level? And could it to some degree supersede the crazy quilt of state regulation that ranges from the ridiculous to the outmoded?
  • So-called “faith based” philanthropy – an extension of President Bush’s view of the cosmos – has been directed mostly at human service agencies. Yet this grouping has shown the greatest decline in private support of any category of charity (according to Giving USA Foundation data). And they have also suffered the deepest cuts in federal aid. Why?

The Giving Institute of which the Oram firm is a member is going to associate with others to develop the convening power necessary to bring this off. Our new chairman Nancy Raybin has asked me to take this on;I will do all I can to move the idea along. There is already considerable interest among charity leaders in helping the President create an agenda for phianthropy as the November 13th Special Report in the Chronicle of Philanthropy makes clear.

If you have ideas for the “Summit” let us know!