Ouch: Learning from the Amish

Another series of layoffs, this time close to home... my old firm, which has been cutting people since last summer {raises hand}, laid off 45 more people yesterday, despite it being the crunch time of busy season, including a really close friend, another friend and neighbor, and a lot of other Jews, especially Orthodox Jews (15 in total, which is really amazing when you think about it - and right before Pesach, which is smart on the company's part). They haven't even let anyone in tax go yet - this is just from their audit section. Two weeks from now will probably see a lot more cuts. When I told DGEsq the news, including who was let go, he screamed "NO!" - one of his friends and neighbors, with 3 kids, who'd just bought a house, was one of the casualties.

Certainly, the disappearance of large numbers of hedge funds played a role, but mostly, this was simply a measure of how poorly the firm itself was doing. Last busy season, I was arguing to my bosses why the way they were doing things (incredibly inefficient use of resources and people, poor attention to spreading good ideas to the firm as a whole, etc.) was bringing down the firm when it had an opportunity to challenge even the Big Four in some regards.

But in terms of the Jewish community, this is going to be very messy. Perhaps more than any other segment of American society, the Jewish community is very tightly connected with the financial services industry. A somewhat connected figure in the Jewish community related to me at a sheva brachos tonight that as much as 25% of the Jewish community in Passaic is unemployed right now. Even if he means 1 in 4 households, and even if the number is inflated... that's an incredibly large number. Queens is not faring much better at the moment. Those who still have jobs are watching people around them get sent home every couple of months. The rest are looking in vain.

As a community, we need to take a lot of steps back so we can start looking at the big picture. Even in the boom years, we were a community skating on the edge, relying on the boom to keep us ahead. Now that that bubble has burst, we need to reshape how we function as individuals, as families, and as a community when it comes to our finances.

I was CCed on an e-mail exchange earlier today, and one of the people commented only somewhat jokingly that it is difficult to change attitudes, as

They'll say that we survived for centuries in Europe under dire poverty, why can't we cut back on our luxuries today and live without a car, constant electricity, new clothes, etc.

I noted in response that housing in Europe was a lot cheaper than housing in Cleveland, let alone Brooklyn. They also caught their own fish, raised their own livestock, and skinned their own furs. I then noted that I saw a piece about Chassidim leading Amish around Crown Heights this week. While people like to criticize the Amish as living somewhat of a backwards life, they seem to be eons ahead of the Jewish community when it comes to communal economics. As a community, they keep costs low, they provide and create almost everything they consume, and they export at large profit (hand-crafted furniture) while importing almost nothing into the community. Meanwhile, the frum community imports far more than it exports, spends more than it produces, and as a community, drives prices up for one another, whether it be housing, tuition, food, or anything else.

Perhaps instead of hosting the Amish and teaching them about Jewish life in the city, we should visit them and learn about Amish life in the country.

Who Manages YU's Money?

Crain's reported today that YU restated its losses from $110 million to $14.5 million from the Madoff situation, citing incorrect information from Ezra Merkin of Ascot. Reading a bit further, however, shows that YU is still out all the money - merely that the rest of the $110m wasn't originally invested with Merkin/Madoff, but profits they thought they'd gained.

This raises even more questions, not less: Did YU believe it was earning some consistent outrageous percentage every single year, that a $14.5 million investment climbed to $110 million?! Unfortunately, the article doesn't say when the money was invested, but let's put it back as far as 10 years - for the money to have grown that much in that span of time, it would have had to average a 22+% gain every single year! It's hard enough to believe that people didn't catch Madoff's consistent 10%, but at least there he had "audited" financials and (fictional) data that backed up his returns.

If you're managing YU's endowments, and you have money invested through someone (Merkin, in this case), and he tells you that you're earning a huge percentage on your money every year, wouldn't you - even out of curiousity! - ask "Wow, that's amazing, how?!" Wouldn't you wonder if it was too good to be true at some point? Wouldn't you wonder how you're getting that percentage when even the fund it's invested in is only claiming 10-11% each year? And if you don't know that it's invested with Madoff, but think it's with Merkin, wouldn't you be taking a look at their financial statements and trying to figure out how they are up that percentage each year? Was Merkin's Ascot Partners even claiming to return those numbers each year?

Mind-boggling.

Madoff's Victims

The impact of Bernie Madoff's Ponzi scheme on the Jewish community is going to be huge. Collecting from a bunch of different sources... (Bloomberg's link has some of the numbers for the hedge funds who were invested with Madoff - insane.) And the New York Times has a piece from Palm Beach which is just sad.

• Two charities have shut their doors:

  The Robert I. Lappin Foundation in Salem, Mass., announced Dec. 12 that it would close after losing $8 million -- all of its money -- through investments with Madoff. And the Chais Family Foundation, which gives out some $12.5 million each year to Jewish causes in Israel, the former Soviet Union and Eastern Europe, announced Dec. 14 that it had closed after losing all of its money through investments with Madoff.

• Yeshiva University has lost "tens of millions, if not more", which it had invested with Madoff - who was the Chairman at Sy Syms School of Business. Rumor has it that it's around $150 million, on top of the $400 million they'd announced they'd lost recently due to the market.
• Lots of individual Jews around the country were invested with him:

  The investor was close to a number of prominent Jewish donors, both on Wall Street and elsewhere. The Wall Street Journal reported that members of the Boca Rio Golf Club in Boca Raton and the Palm Beach Country Club in Palm Beach were heavily invested with Madoff's firm. Both clubs are heavily Jewish.

• During golf-course and cocktail-party banter, Mr. Madoff's name frequently surfaced as a money manager who could consistently deliver high returns. Older, Jewish investors called Mr. Madoff " 'the Jewish bond,' " says Ken Phillips, head of a Boulder, Colo., investment firm. "It paid 8% to 12%, every year, no matter what."

• Merkin, who last week told investors in his hedge fund, Ascot Partners, that all of their money had been defrauded by Madoff, is of particular interest to the Jewish community. He has philanthropic ties to a number of Jewish organizations and institutions, serving as an investment adviser for many of them, including Y.U. Among other causes that he is said to be connected to are the SAR Academy -- a Jewish day school in the Bronx -- as well as State of Israel Bonds, The Jewish Campus Life Fund, Elaine Kaufman Cultural Center, The Ramaz School, Congregation Kehilath Jeshurun and the Fifth Avenue Synagogue.

• North Shore - LIJ Health System lost $5 million.

• There is no evidence that either Mr. Shapiro, who is 95 and joined the club in 1974, or his son-in-law, Mr. Jaffe, who is 64 and joined in 1992, knew of the fraud. Both men, who give millions every year to countless charities, are also said to have been duped of hundreds of millions of their own money, according to friends of their families.

Oy.

Oh My Goodness ($50 Billion)

UPDATE: Madoff is also the chairman at YU's Sy Syms School of Business. I'd assume that will now be a was.

That's what Elianna would say if she understood securities fraud and Ponzi schemes... this could impact the Jewish community in a very big, bad way:

Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested by federal agents Thursday, a day after his sons turned him in for running what they said their father called "a giant Ponzi scheme."

The Securities and Exchange Commission, in a civil complaint, said it was an ongoing $50 billion swindle, and asked a judge to seize the firm and its assets. "Our complaint alleges a stunning fraud that appears to be of epic proportions," said Andrew M. Calamari, associate director of enforcement in the SEC's New York office.

Bernie Madoff was not only viewed as a very respected, trusted guy on Wall Street, but almost everybody was invested with him. CNBC has a good clip on this article explaining what happened and what Madoff is about. More importantly for the Jewish community, a very large number of Jewish people were invested with him. He was viewed as a guy who got steady positive returns, as the firm would announce profits of about 11% consistently each year for fifteen years, and that enticed large numbers of fund of funds (hedge funds which invest in other hedge funds) and high-net-worth individuals to invest with him.

Madoff apparently realized that it was going down recently, as large numbers of people withdrew funds due to the market, and called in his sons. They called the FBI, who came in. DealBreaker has an excerpt from the FBI memo about it, which is kind of sad... at least Madoff was honest about his dishonesty and expects to go to jail. CNBC and a commenter on DB both note that the supposed auditor was a small office in Monsey/Rockland County.

Just as an idea of how much of an effect we're talking about... a commenter noted that a family he knows had $50 million with Madoff. Families in New York and Florida had millions. The Mets' owner is rumored to have had a billion dollars with him. DB (which can be VERY sarcastic) lists the "victims", ending with JEWS. And the Post started its piece with "Suicide hotlines in Greenwich, Conn., could be lit up today as investors in the posh suburb begin to realize how much they've lost in the rip-off scheme perpetrated by Wall Street legend Bernard Madoff."

This is going from bad to OMG... really, really fast.

Helping Hands

As a general rule, I don't write about anything involving my work on this blog. This is the wisest, safest choice and avoids my ever running into a problem with work because of this blog. However, there's something I want to write about right now because I think it's important to get out, so bear with me please.

Many friends of ours have known for a while, and many other readers caught on from this post, that I am currently unemployed. (Managing a hedge fund? Call me! {wink}) While I happen to be enjoying unemployment immensely at the moment, with the extra time to read and write when Kayla takes a nap, and the ability to spend some time playing with her and Elianna, I understand (okay, Serach insists) that in the long run, I'm going to need to find a good job. So after taking a little time off to figure some things out, I started to look recently for positions that were up my alley.

What has been amazing has been the help from people, whether friends, people who read this blog, people who barely know us, and people who just hear that I'm unemployed. Everyone either has a lead, thinks their own company might be looking, or has friends to send my resume to who might be able to help. More impressively, some of those friends of friends - people who don't know who we are at all - will call and say that while they don't know of anything, here are some friends of theirs who might. Others will follow up with me before I've even had a chance to do so with them, e-mailing or calling me to offer their help. It's truly amazing, touching, and heart-warming.

The kindness of others has reached the point where I'm starting to feel bad. It's simply impossible to keep track of all the people who have contacted me and follow up with them all as I would like to. I've had to prioritize by which jobs seem most up my alley and that I would have a reasonable chance of getting the job, while pushing the rest to the back burner until those first few play out. This is obviously a wonderful luxury, but it hurts to not be able to properly thank all those who have been going out of their way for us.

So... for all those who are reading this, thank you.

Almost...!

Busy season is almost over. Today. Tomorrow. After busy season party on Thursday. And then... let freedom reign!

Just As A Note

Working 69-hour weeks stinks. And before any lawyers complain, remember that auditors don't get paid like lawyers. Not even close.

SerandEz, Hedge Funds, & Charities

After this weekend during which I obviously won't be posting all that much, we will quickly be hitting the new year. For those of us who are auditors, that means we get to work like lawyers and get paid at the rate of people who work as waiters... but we don't get tips. It also means I'll be posting far less frequently (actually, I already have been slowing down the past few weeks) as busy season will be taking up all my time.

On a more interesting note, I audit hedge funds for the firm I work at, and it's always interesting to see how much work goes into figuring out what to invest in. I think that people who know very little bash hedge funds for making so much money (which is really a ridiculous thing to complain about), but I don't think people often appreciate how hard the people there work. One of the things they do is analyze companies - not just big companies, but small companies with products that are worth investing in... because they're products that people can use. I wonder if the average person appreciates how much this country is built on venture capitalism. Anyway, two analysts who were at hedge funds have decided to use their skills for a different and oh-so-important field: Charities.

Mr. Karnofsky and Mr. Hassenfeld, both 26, are the founders and sole employees of GiveWell, which studies charities in particular fields and ranks them on their effectiveness. GiveWell is supported by a charity they created, the Clear Fund, which makes grants to charities they recommend in their research.

Why it's important:

While 34 percent of wealthy donors who responded to a survey sponsored by the Bank of America said they wanted more information on nonprofits, almost three-quarters said they would give more if charities spent less on administration.

I'd love to see this done for Jewish charities, though it's so hard to get the information necessary.

Other stuff: Wow, the MTA is ripping us all off. I can't believe they're going to get away with this (a new bonus system that is lower and will result in people having just nickels and dimes on cards, which will likely be thrown out). And this is probably the most bogus line of the article:

“There is no expectation of additional wastage or float,” Mr. Dellaverson said.

Honestly, if that were true, then they're simply idiots for not factoring it in.

And this is a nice new wave in technology: Professors who actually want to teach people! An MIT professor of physics is teaching people around the world who want to learn by posting videos of his teachings. MIT is actually to credit, as they have something called OpenCourseWare where it's posted.

Finally, today's BOTW was excellent. Check it out.

Hedge Funds, Abortions, and Bad Math

I hate dumb studies.

One in five pregnancies worldwide and one in three pregnancies in Europe ends in abortion, according to a new study published in a special female-focused issue of the Lancet.

The study also found that, on average, 90 percent of women worldwide will have an abortion before the age of 45, based on 2003 data. However, many women will have had multiple abortions and many none at all to come to this average.

Although the statistics may seem startling, worldwide rates of induced abortion actually fell 17 percent from 46 million to 42 million between 1995 and 2003.

The bold part is idiocy. You can't "average" women with multiple abortions with women with no abortions and come to a percentage of women who have had abortions!! Using that mathematical model, if 1 out of every 10 people eats 12 pieces of cheese a day, then 120% of people eat a piece of cheese every day.

If 30% of women in the US and Europe have abortions, and on average have three in a lifetime, that means 30% of women have abortions. Not 90%.

How can people who are this bad at math do statistical studies?! I hate dumb people.

Elsewhere, this is an excellent article regarding the pricing of investments that aren't traded on the open market, and how difficult it can be to do so. The variance in how investment companies, brokers, and funds price these securities can have huge impacts on the market. The problems the market is having isn't just from "subprime" mortgages, but how investors in those mortgages priced them.

Note: One of the responsibilities I'll have this coming year is pricing these things. Fascinating, fun, and freaking impossible.

Ezzie's Blog Roundup, 9/19: Cancer Research

This isn't a blog roundup so much as a general roundup; there are a number of items of interest out there, and thanks to DB, Freakonomics, and various anons for pointing some of them out.

For those who don't know, I audit hedge funds for a living. I'll often joke or lament that there is little redeemable social quality to it, as opposed to (say) Serach's job, in which she teaches two classes, each with 14 special-education students. But it's not completely true: The money that is being made is usually not just sitting there making these people richer (though that certainly is true), but rather is being used to promote good ideas, new businesses, and sometimes even more: Breaking down the walls between people in cancer research so they're willing to share their ideas. It's a very interesting article.

Elsewhere:

• The New York Times writes about and has a slideshow of pictures that were taken around Auschwitz in 1944 - a rarity, as most pictures were from after the liberation of the camps. The pictures are of German officers and auxiliaries having a good time... just a few miles from where hundreds of thousands were being murdered. It's mind-boggling in its sickness.
• Orthomom discusses an interesting piece about people testing for Gaucher (and other) diseases, and the decision by some to abort. It is a very difficult balance of morals.
• Mishmar's Boruch Horowitz discusses choosing your battles wisely.
• Kefirot on political conservatism, the environment, and life. Quite a nice mix.
• Chana on trust.
  

Finally, an interesting video someone sent me; apparently there's a new cable channel called TJCTV dedicated to Jews. It looks very interesting, and I hope it's successful.