Goldman Sachs and "Social Impact Bonds"

Goldman Sachs is continually looking for creative ways to make profits for itself.  Here's a model of one way to do that:  Social impact bonds are an "innovative way of attracting new investment around such outcomes-based contracts that benefit individuals and communities."  These bonds are supposed to "save governments money over the long term."  It is illuminating that the term "bonds" (really businesspeak) is used to describe a process that affects the lives of people.

Goldman will pay a social services provider to design and oversee the program.  Why is Goldman needed as a middleman?  The government could save itself the cost of the fee to be paid to Goldman.  Goldman is interested only in the outcome (i.e., its payday) and not in the procedures and means to assist young people.

Some services that fulfill public needs are better provided by government. The rehabilitation of youthful offenders is one of those things.  Goldman Sachs is all about profit and profit is a poor motivator for performing public good, as we have seen from their role in the financial meltdown of 2008.

The article claims that Goldman will save money for the taxpayers.  When was the last time that Goldman saved money for the taxpayer?

Then there is this circularity:  Mayor Bloomberg==>Bloomberg Philanthropies=>MDRC=>Goldman Sachs=>NYCity Jail Program=>Mayor Bloomberg.  It all makes sense now!

As one commenter said about the article:

Comment by ALM, Austin, TX:

So if I understand this correctly, since governments can't afford to finance social services, we should look to the private sector, and especially those members of the private sector who need a PR boost (like the banks that brought down our economy), to fund areas that are really governments' responsibility. These very same banking interests oppose any type of tax increases for the wealthiest among us, which might make it easier for the public sector to actually fund and manage needed social services.

Our prison system is already in the process of being taken over by the private sector and this just continues the process with the added irony that these Wall Street crooks deserve to be incarcerated much more than the teenage drug dealers and users who currently make up such a large part of our prison population. But then, that will never happen in our "justice" system. (comments on article below)

Goldman to Invest in City Jail Program, Profiting if Recidivism Falls Sharply
By David W. Chen - The New York Times
 . . . .

In New York City, Mayor Michael R. Bloomberg plans to announce on Thursday that Goldman Sachs will provide a $9.6 million loan to pay for a new four-year program intended to reduce the rate at which adolescent men incarcerated at Rikers Island reoffend after their release. 

The money is not a huge amount for Goldman, which last month reported over $900 million in second-quarter profit, and the investment promises a public-relations benefit for the Wall Street bank. For the city, the money allows the Bloomberg administration to demonstrate, and test, several of its priorities: enlisting private sector help in financing public needs, and tying program money to rigorous outcome evaluations. 

The Goldman money will be used to pay MDRC, a social services provider, to design and oversee the program. If the program reduces recidivism by 10 percent, Goldman would be repaid the full $9.6 million; if recidivism drops more, Goldman could make as much as $2.1 million in profit; if recidivism does not drop by at least 10 percent, Goldman would lose as much as $2.4 million. 

“This promising financing model has potential to transform the way governments around the country fund social programs, and as first in the nation to launch it, we are anxious to see how this bold road map for innovation works,” Mr. Bloomberg said in a statement. 

“Social impact bonds have potential upside for investors,” he added, “but citizens and taxpayers stand to be the biggest beneficiaries.” 

In a twist that differentiates New York’s plan from other governments’ experiments with social impact bonds, Mr. Bloomberg’s personal foundation, Bloomberg Philanthropies, will provide a $7.2 million loan guarantee to MDRC. 

Read the full article here