muses of the moment

September 8, 2012

This should end well……

Filed under: Odds 'n ends, The Banking Crisis — totallygroovygirlfriday @ 1:06 am

Goldman Sachs leads the way into a new investment market: the non-profit program.

Click here.

Here is some detail on the first “bond”, should clear some things up:

The details of the nation’s first social impact bond were revealed in early August, when New York City Mayor Michael Bloomberg announced that Goldman would invest $9.6 million to cover the costs of a program designed to reduce youth recidivism by providing education, training and counseling to 16- to 18-year-olds incarcerated on Rikers Island. Goldman’s investment, structured as a loan to the nonprofit overseeing the intervention, will cover the program’s cost for four years (and makes the “bond” descriptor something of a misnomer). If, after that time, the program is deemed a success — a threshold achieved if recidivism falls by 10 percent or more — the city’s Department of Corrections will repay Goldman’s loan in full. Depending on how sharply the rate of reoffending falls, the $923 billion financial firm stands to earn a return of up to $2.1 million from the deal (provided recidivism drops by 20 percent or more).

But in the eyes of government reformers, one of the most compelling aspects of the social impact bond is what happens if the program doesn’t reach its goal: the city government owes nothing.

First off, this sounds like a terrible idea to gg. Simply because banks and government are involved. Their track record is just horrendous.

And gg is highly suspicious of that last sentence: “city government owes nothing”. groovygirl can not imagine a world in which a bank is doing something and not getting anything. So, if the government is not paying the fee, that means it is taken out of the investors’ dollars before it gets to the program. And if that is the case, where is the incentive of the bank to pick worthwhile programs? Their business model for this bond is the initial fee, interest, and trading fees, not the pay-back.

And if this is structured as a “loan”, there will be interest income on bank balance sheets (taken directly out of the investor’s bond funds, up front, of course), and an asset on the bank’s balance sheet.

This is totally disgusting. gg just threw up.

After Deputy Mayor Gibbs saw a presentation on the innovative financing concept, Misner was tasked with combing through the city’s portfolio of social programs and asking herself where the SIB model might best apply.

Beware of the words “innovative financing concept”.

This will be marketed as not costing government anything to put on social programs (thus saving tax payer dollars) and the bond investor will feel as if he/she is helping society. In reality, it will be neither. The more middle men you put between helpless people and charitable giving/social programs, the less money there is to actually do anything. This “social bond” is just another middle man. It disgusts groovygirl.



  1. Where´s my previous comment? It supported you gg and spelled it out better. XX

    Comment by Guy de Simon — September 8, 2012 @ 2:49 pm

  2. Guy,

    I don’t know. I didn’t see another comment from you. I checked spam and you weren’t in that folder either. Very weird…

    I appreciate the support!


    Comment by totallygroovygirlfriday — September 10, 2012 @ 12:47 pm

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