Nonprofits Gamble - and Lose

Back in March, I wrote a story documenting the financial meltdown's calamitous impact on the nonprofit sector. I neglected to mention one important reason for this: the reckless behavior of nonprofits themselves.

As Stephanie Strom documents in The Times today, many nonprofits spent the past two decades doing their best imitation of hedge funds. Interest-rate arbitrage, auction-rate securities, complex swaps: these were among the practices in which nonprofits engaged, taking advantage of a change in the tax code that allowed charities easy access to credit markets. Strom offers the example of New York Law School, which in 2006 floated $135 million in auction-rate securities and sold its library for roughly the same amount ($136.5 million), using the money not to build a library but to pad its endowment and borrow for construction.

Now, many of the same nonprofits are drowning in debt that will result in museums being shut down, services being slashed, staff being cut. Some will presumably end up bankrupt or foreclosed, an unfortunate fate for which they have only themselves to blame.

Comments (14)

1. The people that run non-profits know something about human nature of Liberals: Irresponsible behavior always creates calls for protecting the irresponsible from themselves.

   No usually, Liberal do this with other people's money. However, in the case of museums and pornography masquerading as art, there are quite a few Liberals who will be in a position to open their own wallet for a change.

   Posted by Darin_the_Big_Fat_Troll at 09/24/2009 @ 3:36pm

2. I neglected to mention one important reason for this: the reckless behavior of nonprofits themselves.

   posted by Eyal Press on 09/24/2009 @ 3:20pm

   "Nonprofit" is just a term for the tax code. Now if there were some way to formally incorporate as a "nonloss" entity...

   Posted by Mistral at 09/24/2009 @ 3:55pm

3. Why should they be any different from other corporations? Tell me this how can the Readers Digest be bankrupt? Who is giving these people advice? Probably the same hedge fund people who can walk away and not care. Troll boy please come up with another whipping boy besides a museum. Hoe about Enron Field,oh that's right all the crooks robbed that company until it screwed 20000 employees. That was GWB's buddy,Kenny.

   Posted by whatozz at 09/24/2009 @ 5:48pm

4. (1) Why should they be any different from other corporations?

   (2) Troll boy please come up with another whipping boy besides a museum.

   Posted by whatozz at 09/24/2009 @ 5:48pm

   (1) They are different because they don't pay taxes. They are supposed to promote some social good in exchange.

   (2) Press mentioned museums specifically. I wasn't whipping anything.

   Posted by Darin_the_Big_Fat_Troll at 09/24/2009 @ 6:04pm

5. How did the biggest of big gamblers, Fannie & Freddie do.....and are still doing?

   Posted by Happy at 09/24/2009 @ 7:54pm

6. You seem to forget that for every huge, irresponsible Harvard there are a dozen responsible, small non-profits out there who are going under for the third time, not because they treated the market lika a trip to Vegas, but because their legitimate donor base is, itself, drowning in mortgage and credit card debt.

   Wealthy non-profits that gambled and lost should be ridiculed and criticized. But its wrong to tar all non-profits with the same brush, especially charities that depend on individual donations from working poor and middle class Americans, populations that are finding themselves in need of the very struggling community-based charity services that so many of them used to so generously support.

   Posted by Infokronea at 09/24/2009 @ 10:58pm

7. Demoncrats are cleaningup!!

   A tiny car company backed by former Vice President Al Gore has just gotten a $529 million U.S. government loan to help build a hybrid sports car in Finland that will sell for about $89,000.

   The award this week to California startup Fisker Automotive Inc. follows a $465 million government loan to Tesla Motors Inc., purveyors of a $109,000 British-built electric Roadster. Tesla, like Fisker, is a California startup focusing on high-end hybrids, with a number of celebrity endorsements that is backed by investors that have contributed to Democratic campaigns.

   Fisker's Karma hybrid sports car, above, will initially cost about $89,000. .The awards to Fisker and Tesla have prompted concern from companies that have had their bids for loans rejected, and criticism from groups that question why vehicles aimed at the wealthiest customers are getting loans subsidized by taxpayers.

   "This is not for average Americans," said Leslie Paige, a spokeswoman for Citizens Against Government Waste, an anti-tax group in Washington. "This is for people to put something in their driveway that is a conversation piece. It's status symbol thing."

   The Karma will target an exclusive audience -- Gore was one of the first to sign up for one. Mr. Fisker says all new technology starts out being expensive. He pointed to flat-screen televisions that once started at $25,000 but are now affordable to the mass market.

   The four-door Karma, powered by a lithium-ion battery, will be able to run solely on electric power for 50 miles, and will achieve an average fuel economy of 100 mpg over the span of a year, the company says. Production is scheduled to start in December, with about 15,000 vehicles a year expected to hit the U.S. market starting next June.

   Posted by BigPasture at 09/25/2009 @ 01:52am

8. Many of the 1,500 people who have made deposits on the Karma are former BMW and Mercedes owners who want an environmentally friendly car without sacrificing luxury, Mr. Fisker said.

   He said he pitched the Karma to Mr. Gore at an event hosted by KPCB last year, and that the former vice president almost immediately submitted a down payment for the car.

   Kalee Kreider, a spokeswoman for Mr. Gore, confirmed that the former vice president backs Fisker and purchased a Karma. "He believes that a global shift of the automobile fleet toward electric vehicles, accompanying a shift toward renewable-energy generation, represents an important part of a sensible strategy for solving the climate crisis," she said in a statement.

   Fisker's top investors include Kleiner Perkins Caufield & Byers, a veteran Silicon Valley venture-capital firm of which Gore is a partner. Employees of KPCB have donated more than $2.2 million to political campaigns, mostly for Democrats, including President Barack Obama and Hillary Clinton, according to the Center for Responsive Politics, a nonpartisan group that tracks campaign contributions.

   No conflicts of intrest here and the American taxpayers get to join the evionmental FOOLS club!

   Posted by BigPasture at 09/25/2009 @ 01:54am

9. Posted by Darin_the_Big_Fat_Troll at 09/24/2009 @ 3:36pm

   So museums and "pornography" are always synonymous, Darin?

   You get really "turned on" at the Air & Space Museum or the T-rex skeleton at the Natural History Museum, do you???

   Posted by Mask at 09/25/2009 @ 07:51am

10. (1) They are different because they don't pay taxes. They are supposed to promote some social good in exchange.

    (2) Press mentioned museums specifically. I wasn't whipping anything.

    Posted by Darin_the_Big_Fat_Troll at 09/24/2009 @ 6:04pm

    Wow what are you like 70? People have been painting nudes since people could paint human figures. Some of the most famous pieces of art ever are nudes. Like David for instance. I guess David is a huge marble piece of porno eh?

    Posted by Cccomfo1 at 09/25/2009 @ 12:04pm

11. Posted by Cccomfo1 at 09/25/2009 @ 12:04pm

    Darin will go "Maplethorpe" and "Sorrento" on us...ditto-head fodder for why "We shouldn't support so-called 'art'."

    Apparently those guys think the ONLY thing going on in a museum is "homo-erotic art" and "insulting Christianity"!

    Posted by Mask at 09/25/2009 @ 12:45pm

12. I think we should support art...as individuals. Nowhere in the Constitution can I find "support the arts" in the enumerated powers given to Congress.

    Support of the arts is the province of patrons. Individuals. Frankly, such individuals have much more refined and discerning tastes than a review board of bureaucrats. Most taxpayer-funded "welfare art" is so hideous I would not hide it in my closet for fear somebody might accidentally see it while hanging up their coat.

    Most Americans would not travel any great distance to see a work by Jackson Pollock. I wouldn't cross the street to see it. Nor do they spend much time populating our nation's opera houses.

    Why is it again they are paying for them?

    Posted by Citizen_Carrier at 09/25/2009 @ 12:58pm

13. I think we should support art...as individuals. Nowhere in the Constitution can I find "support the arts" in the enumerated powers given to Congress.

    Support of the arts is the province of patrons. Individuals. Frankly, such individuals have much more refined and discerning tastes than a review board of bureaucrats. Most taxpayer-funded "welfare art" is so hideous I would not hide it in my closet for fear somebody might accidentally see it while hanging up their coat.

    Most Americans would not travel any great distance to see a work by Jackson Pollock. I wouldn't cross the street to see it. Nor do they spend much time populating our nation's opera houses.

    Why is it again they are paying for them?

    Posted by Citizen_Carrier at 09/25/2009 @ 12:58pm

14. I think we should support art...as individuals. Nowhere in the Constitution can I find "support the arts" in the enumerated powers given to Congress.

    Support of the arts is the province of patrons. Individuals. Frankly, such individuals have much more refined and discerning tastes than a review board of bureaucrats. Most taxpayer-funded "welfare art" is so hideous I would not hide it in my closet for fear somebody might accidentally see it while hanging up their coat.

    Most Americans would not travel any great distance to see a work by Jackson Pollock. I wouldn't cross the street to see it. Nor do they spend much time populating our nation's opera houses.

    Why is it again they are paying for them?

    Posted by Citizen_Carrier at 09/25/2009 @ 12:58pm