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Tom Watson

Tom Watson

Posted January 16, 2009 | 10:10 PM (EST)

Obama vs. Madoff: Charity, Change and Crisis at the Dawn of a New Era


We do not have an advance copy of President-Elect Barack Obama's inauguration address just at hand, but it's no particular leap of faith to predict that a national call to public service will be issued from the west front of the Capitol on Tuesday afternoon.

Yet that call - a hallmark of the 44th President's call for change during the long campaign - will be issued against the stark backdrop of the greatest American economic crisis since the 1930s, a financial crisis made even worse by declining faith in the very markets and institutions that created the era of unprecedented wealth that is now just ending.

Symbolic of that "crisis of the gut" (this is not an economist's term) is the scandal surrounding financier Bernard Madoff's alleged swindle of billions and its much-publicized effects on philanthropy.

Typical was the reaction last week of Hollywood mogul Jeffrey Katzenberg. "This is extremely painful and humiliating for me," he told CNBC. "It has done extraordinary damage to my philanthropy."

Catch that? Charitable commitments are often (but not always) in the first line of discretionary cutting when bad things happen or hard times hit. And the obvious worry is that while Madoff is particularly infamous (and his effect on Jewish philanthropy in particular may be felt for years) he may not be the only major source of philanthropic dollars to hit the pavement. As philanthropy strategist Lucy Bernholz wrote last month: "Surely, rising economies hide all kinds of scandals which only get exposed as the tide inevitably pulls out."

Confidence can be an economic factor of serious impact, as the Conference Board has been telling us since 1967. Belief in a better economic future spurs consumer sales and increased investment and growth. Conversely, an uncertain or troubling view of the future - a lack of trust - leads to the opposite, or so the trendlines suggest.

Enter the new president, arriving in office amidst plummeting economic confidence and major international challenges - but also with a bank account of vast personal goodwill that virtually overflows. Some of that goodwill will certainly be used in the cause of national service - and we'd hope, a call to engaged philanthropy at every level.

Indeed, the Peace Corps and other service organizations are looking forward to the fulfillment of then Senator Obama's pledge a year ago: "We will double the size of the Peace Corps by its 50th anniversary in 2011. And we'll reach out to other nations to engage their young people in similar programs, so that we work side by side to take on the common challenges that confront all humanity...."

For every nonprofit ED or foundation board member or organization president struggling with reluctant and frightened donors -- and a diminished budget and programs -- the leading economic indicators don't really mean anything. The recession is here and it will last as long as it is going to last. As Dr. Susan Raymond wrote last month:

All that can be said has been said about the recession. We only have three or four meaningful numbers in the nonprofit sector anyway, and we have combined, compared, and contrasted them in every possible way, from every possible pundit (yours truly included) with every possible interpretation. Enough looking at the ball, already. It is time to look up, and to see how, given what we know, we are going to play this game.

Philanthropy will be down, yes; that is almost a given. But whether the crash of important institutions combined with headline--making events like the Madoff scandal will permanently damage the confidence of our philanthropic society remains to be seen.

The new President can have a salutatory effect on the confidence of donors, of volunteers, or social investors. And in calling for service, he can signal that service -- as well as commerce -- is at the heart of the American instinct. Surely in the philanthropic sector, we do indeed have more to fear than fear itself -- but brushing some of that fear side next Tuesday would be a wonderful start to recovery.