The Crash

“How will the economic meltdown affect the Jewish community?” someone asked me during a talk I gave last week.

That’s when I knew this crisis was serious.

Asking me to analyze the economic meltdown is like asking Sen. Barack Obama when human life begins. As the senator said, it’s above my pay grade.

But unlike Obama, I’m not being cagey: Like most people, I really don’t get it.

As near as I can understand, the crisis began when banks extended home loans to people who really couldn’t afford them, based on the belief that housing prices were just going to go up indefinitely. When home prices tanked, people couldn’t pay off their loans and the banks and financial institutions that carried the loans began to fail. Now the government wants to step in and spend nearly $1 trillion in taxpayer money to prop up the biggest of those companies by buying up those bad loans.

One of the best explanations I’ve heard for what happened came, allegedly, from President Bush. According to cuttingedgenews.com, Bush was at a closed-door fundraiser in Texas recently when he asked that any cameras be turned off.

He then bluntly summed up the crisis: “There’s no question about it, Wall Street got drunk; that’s one of the reasons I asked you to turn off the TV cameras. It got drunk and now it’s got a hangover.”

Wall Street didn’t get drunk on drink, of course. It got drunk on money. The exact cocktail turned out to be equal parts greed, hubris and more than a dash of deregulation.

In Bush’s closed-door fundraiser world, the effects of the crisis may not be readily apparent.

But here in Los Angeles, even in the relatively affluent Jewish community, the hurricane has begun to hit.

“It’s a really scary time,” Michael Kaplan of Miller, Kaplan, Arase & Co. told me.

Kaplan is the epitome of the sober-minded accountant — which is good, because he happens to be mine — and I immediately turned to him to help me get the lay of the local land.

Loans are harder to come by, he said, and his clients have to jump through quite a few hoops to get them. The wild stock market swings, the tightening credit, the uncertainty of a bailout — all of it has left people insecure and confused about their future.

Kaplan sees retirees and older people who rely on their pension plans and 401ks being hit especially hard. Just as they need the money, there’s less there.

“They’re the ones really suffering,”he said.

As for his wealthier clients, he does know of a billionaire whose net worth has plunged overnight to $250 million. I allowed that I was having a hard time working up much sympathy for this nameless Midas, but Kaplan pointed out that when the rich get a cold, the poor and middle class get a fever. Less money trickles down to job creation, goods and service purchases and, finally, charitable giving.

“Anytime you have a downturn, people hold on to their cash,” Kaplan said. “One of the first things that happens is people reduce charitable contributions.”

“It’s too early to tell the impact of the economic downturn over the long term,” said Marvin Schotland, president and CEO of the Jewish Community Foundation of Los Angeles. “But it certainly has already significantly impacted some of our donors, and it has affected all of us psychologically, causing many people in the short term to lose confidence in the market and our financial institutions. That can only mean that most charitable institutions will be faced with economic challenges in the near term.”

Combine that with the sudden devaluation of many charities’ market-invested assets, and situation looks grim indeed.

Will it get better or worse? Two economists I respect give two different answers.

According to economist James Quinn, we are not at the end of the end, but the beginning of the end.

“The economic situation has not changed,” he writes at cuttingedgenews.com. “We are in a recession that is being driven by consumers with too much debt. Enormous consumer spending reductions will bankrupt over-leveraged retailers, mall developers and commercial developers. A slow soft depression is a distinct possibility.”

Meanwhile, economist Glen Yago, director of Capital Studies at the Milken Institute, urges a bit of perspective.

“This is a pretty big crash for all involved in the luftgeschaft of finance,” he e-mailed me.

“That said, it’s hopefully not as bad as the headlines indicate if the fix works — maybe about 3 percent to 5 percent of GDP, which is a lot [more than 1.5 percent to resolve the S&L crisis], but a lot less than Japan or Indonesia’s resolution costs 10 years ago [30 percent to 40 percent of their GDP]. Even with a credit contraction, the sun will shine tomorrow.”

Who’s right? Who knows what our fate will be?

This week we will enter our synagogues and pray the words of the Unetaneh Tokef.

“Who will live and who will die?” goes the prayer. “Who will become impoverished and who will become wealthy?”

The prayer tells us that whatever dreadful fate awaits us, repentance, charity and acts of lovingkindness can sweeten the Divine Decree.

That can only mean one thing: Even when we’re all hurting, we still must give.

Or, as Nachum the Beggar in “Fiddler on the Roof” tells the wealthy Lazar Wolf after being turned down for a handout: “If YOU had a bad week, why should I suffer?”

The economy is beyond our understanding and outside our control. The New Year comes to teach us that we can’t say the same about our character.

Shana Tova.