News Current issue Survey: results Search Archives Français Deutsch Русский עברית Español

Table of contents Ethics and Judaism Fall 2009 - Tishri 5770

    • Editorial - September 2009

    • Wishes of the Prime Minister of Israel

Rosh Hashanah 5770
    • Rights and Obligations

    • Loneliness and Solidarity

    • Strengh and Determination
    • In the Eye of the Storm

    • The artificial map of the Middle East
    • The Syrian-Iranian Nexus
    • The Pernicious Myth of Demographic Fatalism
    • Dehumanizing the Other:
Muslim Arab Anti-semitism Today

    • Economics Israel Style!

    • Jerusalem and Amman

Judea - Samaria
    • Normal Life
    • Israel and the Palestinians: the water issue
    • Kiddah
    • Kinor David

Crimes and Justice
    • The Story of Ivan Demjanjuk

Art and Culture
    • Holocaust Art

Ethics and Judaism
    • Financial Responsibility

E-mail this article...
Financial Responsibility

By Rabbi Shabtai A. Rappoport
P. is the treasurer of a known charitable Organization that supports needy ailing people in purchasing necessary expensive medications or medical equipment. Many people appreciate the numerous benevolent activities of the organization, and when approached contribute generously. Some even made large endowments whose generated income could be used for the Organization's current undertakings. P. was in charge of investing the available funds in order to guarantee an uninterrupted pursuit of the Organization's vital goals. Under the brilliant management of the fund-raising endeavors these resources constantly increased, and P. had to decide on an investment policy. On one hand he could purchase government treasury bonds, whose yield was relatively low, but were as safe as the government of the country itself. On the other hand, private investing houses promised a triple return compared with that of the treasury bonds. P. realized that he was responsible for the security of the funds entrusted to his management. However, he reasoned, the purpose of the endowments was to enable the Organization to maintain and expand its quintessential activities; this could be attained three times better with the triple return. As far as the security issue went, the investment house he considered had an excellent reputation for years and as the economy was showing steady growth in the last fifteen years, thus he should not be concerned about the safety of the endowments. After all investing with a reputable firm seems the right middle of the road approach between audacity and over conservatism.
In Jewish Law, the issue of investing charitable funds, where the philanthropist is not involved with the decision making process, and all the more so the potential beneficiaries, seems to be analogue to funds inherited by minors, who live off the yield from the investment of the estate. In that case, as well, the original owner of the estate is dead and is not involved anymore in the decision making process, as are not the minor heirs. The dilemma in the latter case is similar to the former, should the person in charge prefer higher return in order to provide better living conditions to the orphans, or should he be extremely conservative in order to guarantee the principal estate.
Halacha provides clear rules in this latter case, in Baba Metzia70, a: "We seek out a man who possesses broken pieces of gold (because they are certainly his, for when money is given into the safe-keeping of others, only proper coins are given — i.e., a wealthy person is sought) take the gold from him (as a security for the funds invested with him) and entrust to him the orphan's money on terms that are near to profit and far from loss. An object which bears an identification mark cannot [be taken as a security]. Perhaps it was [merely] entrusted to the investor, and its owner may come, state the mark [which proves his ownership] and take it away."
The commentators to the above passage from the Babylonian Talmud, quote the Talmud Yerushalmi to explain the term "near to profit and far from loss" as meaning that if the investment made by the wealthy investor will prove profitable, the orphans will share that profit. However, if there will be a loss that loss should be borne solely by the investor. That is why the investor must possess available securities to cover such loss. The obligation to invest the estate funds in this fashion is agreed upon by the Geonim, Maimonides (Laws of Creditor and Debtor IV, 14), and later authorities (i.e. Rabbi Yehoshua Falk Katz, in his commentary to Shulchan Aruch Choshen Mishpat, CCXC, 8)
Several commentators point out the economic reality dictated by this ruling, namely, that the investor will demand a considerable share in the profit against his liability in case of loss. The heirs will thus receive a lower income, but the principal estate will be protected.
Such a deal of "near to profit and far from loss", for an investment, is usually prohibited by the Rabbinical Laws of usury, because it resembles a loan that carries a guaranteed interest, which is strictly forbidden by Biblical Law. However, it is permitted in cases of investing funds inherited by minors, or charitable endowment (Shulchan Aruch, Yoreh De'ah CLX, 18).
The Babylonian Talmud goes on quoting R. Ashi demurring: "That is well if you find a man who possesses broken gold; but if you do not, is the orphan's money to be frittered away (because it could not be invested safely enough, the orphans will live off the principal)? But, said R. Ashi, we seek out a man whose property is secure, who is trustworthy, obedient to the law of the Bible, and will not suffer a ban of the Rabbis (and will obey them rather than come under their ban), and the money is given to him in the presence of a Beth din (so he will be duly impressed with the solemnity of his obligations)". According to R. Ashi the level of security is somewhat reduced, but the terms of the investment "near to profit and far from loss", including the reduction in the orphans' share in the profit due to the risk borne by the investor, remain the same. If such a deal proves to be unattainable, the orphans will live off the principal. Hence, in P.'s case, the choice is clear. The investment of the charitable funds should be as secure and conservative as possible, even at the price of a much smaller income.
In case P. deviates from this rules, invests the endowments in a less secure investment, and a loss to the principal is suffered, P. will be personally liable for refunding the loss.

Redaction:   |  Advertising:

© S.A. 2004