Writing in the New York Times, Samuel G. Freedman has the best explanation I've yet seen for the success of Bernard L. Madoff's $50 billion ponzi scheme:
Trust and Exploitation in a Close-Knit World
By SAMUEL G. FREEDMAN
An observant Jewish man was driving from New Haven to Brooklyn two Fridays ago when traffic got snarled by a snowstorm. Knowing he could not travel after sundown and realizing he would never reach New York before the Sabbath, he pulled off the road in New Rochelle.
Somehow, the man already knew the name and location of the local Modern Orthodox synagogue, Young Israel of New Rochelle, and when he got there, he explained his plight. Within five minutes, one member of the congregation had invited the visitor to Sabbath dinner and another had offered to put him up for the night.
The man may have been a stranger, but he was not strange. He was part of the small and tightly knit community of Modern Orthodox Jews in America, perhaps 275,000 in number, and as such he was the beneficiary of reflexive trust. Which was why Samuel C. Heilman, an esteemed scholar of Orthodox Jewry who belongs to the Young Israel, recalled the incident in the course of discussing the Bernard L. Madoff scandal.
While Mr. Madoff is accused of defrauding clients from around the globe of $50 billion, the financial and emotional epicenter of his operation was the Modern Orthodox community.
Among the institutions that lost millions and tens of millions of dollars invested with him were those at the very heart of Modern Orthodoxy — Yeshiva University, the Kehilath Jeshurun synagogue, the Maimonides, Ramaz and SAR day schools. Individual members of another Modern Orthodox congregation, the Fifth Avenue Synagogue, collectively lost $2 billion, according to a report in The New York Post.
It is a mistake, though, even to think of these synagogues and schools as being separate entities. Their leaders and members overlap like a sequence of Venn diagrams. They are bound by religious praxis, social connection, philanthropic causes. Yet what may be the community’s greatest virtue — its thick mesh of personal relations, its abundance of social capital — appears to have been the very trait that Mr. Madoff exploited.
“There’s always been a feeling in the Modern Orthodox world that there are ‘our people’ who share many things in common — the same schools, the same diet, a way of life we feel at home in,” Professor Heilman, a distinguished professor of sociology and Jewish Studies at the City University of New York, said in a telephone interview. “It’s a network that can be used, like any network, for good or for evil.”
Tova Mirvis has set two acclaimed novels, “The Ladies’ Auxiliary” and “The Outside World,” in the Modern Orthodox community. If anything, her works have at times criticized and satirized the community for its almost claustrophobic closeness.
“One of the hallmark features of Modern Orthodoxy is the point of connection,” Ms. Mirvis said in a phone interview. “There’s one, maybe two, degrees of separation between people. I know a few who went to Tufts. I know hundreds who went to Ramaz. That’s why the scandal feels so close to home. These institutions are personal institutions. That sense of overlapping circles makes it so intense.”
Now the damage is certain to be intense among the Modern Orthodox. While a variety of Jewish charities and foundations suffered large losses with Mr. Madoff, and while the ripple effect of that vanished wealth will be felt throughout American Jewry, the conspicuous fact remains that no institutions explicitly, or even implicitly, affiliated with Reform, Conservative or Reconstructionist Judaism had investments with Mr. Madoff.
How exactly Mr. Madoff earned entree to the Modern Orthodox community, especially in Manhattan, remains unclear. By most accounts, he is not Orthodox himself. But one of his middlemen, J. Ezra Merkin of Ascot Partners, is a fixture of the community — descended from a prominent rabbinical lineage, the president of Fifth Avenue Synagogue, a board member at Ramaz and SAR, and, until his resignation last week, a trustee of Yeshiva University.
Mr. Merkin has not been charged with any crime, and Ascot reportedly lost $1.8 billion with Mr. Madoff. Regardless, the association with Mr. Merkin seems to have provided Mr. Madoff with priceless access, so much so that Mr. Madoff was appointed a trustee of Yeshiva.
“The currency is not so much trust; the currency is community,” said Jenna Weissman-Joselit, a professor at Princeton University and the author of “New York’s Jewish Jews,” a history of the Modern Orthodox during the interwar years. “Trust comes out of community.”
The present-day community, with its premium on shared values and personal honor, began taking root in the late 1800s, grew markedly in the interwar years and surged again in the last generation.
The founding members, Professor Weissman-Joselit said, pointedly termed themselves the “cultured Orthodox” or the “Jewish Jews.” The first term meant to differentiate them from the ultra-Orthodox, and the second to set themselves apart from less-observant Reform and Conservative Jews.
Modern Orthodox took as its central premise the concept of Torah Umadda, an equal commitment to religious and secular studies. The Maimonides day school, in Brookline, Mass., was founded in 1937 by Rabbi Joseph B. Soloveitchik, the pre-eminent theologian of Modern Orthodoxy. Ramaz was established by Kehilath Jeshurun’s rabbi, Joseph Lookstein, whose son Haskel later became both rabbi of the synagogue and principal of the day school.
The doctrine of Torah Umadda made it permissible, even laudable, for Modern Orthodox Jews to throw themselves into the professions, and their success in law, banking, medicine and other fields created a critical mass of wealth within a few ZIP codes. Legally or otherwise, Mr. Madoff and his associates zeroed in on it.
“We’re talking about the Orthodox power elite here,” said Chaim I. Waxman, an emeritus professor of sociology and Jewish studies at Rutgers University. Referring to the 10 men required for communal prayer, Professor Waxman added, “You could have a minyan at Fifth Avenue Synagogue from the people who got hurt big by Madoff.”
Among the Modern Orthodox, the only humor from this scandal is likely to be the gallows variety.
“If you wanted to write a novel about this, nobody would ever think it was plausible,” Ms. Mirvis put it. “It would feel unfathomable. For someone inside to do this to their own institutions? How? Why?”
Of course, you can add to this failed regulatory enforcement, especially under the Bush Administration. And other reasons may surface in the future.
But, for now, this is it – and increasingly, wittingly or not, that it seems to be named Merkin.
[Hat Tip: Dr. Rofeh-Filosof.]