Obviously, all decent and right-thinking people hate government, right? So now we’re trying this:
Goldman to Invest in City Jail Program, Profiting if Recidivism Falls Sharply
New York City, embracing an experimental mechanism for financing social services that has excited and worried government reformers around the world, will allow Goldman Sachs to invest nearly $10 million in a jail program, with the pledge that the financial services giant would profit if the program succeeded in significantly reducing recidivism rates.
The city will be the first in the United States to test “social impact bonds,” also called pay-for-success bonds, which are an effort to find new ways to finance initiatives that might save governments money over the long term.
… 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 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….
I’ll go for the obvious joke: Hey, if you’re looking for expertise in staying out of jail, you probably can’t beat the people at Goldman. (Though really, what’s the plan for keeping these offenders from going back to prison? Millions of dollars in lobbying? I don’t think so.)
Governments elsewhere are trying this approach, though so far only Bloomberg is using Goldman. Here’s what another government official says:
In Massachusetts, Jay Gonzalez, the secretary of administration and finance, is a proponent of social impact bonds. “We’ve got to change from the idea of, ‘We just pay for stuff and hopefully get the results,'” Mr. Gonzalez said in an interview. “The beauty of this is if they perform to get the results, then we pay. If they don’t, we don’t pay.”
In New York, though, does anyone think it’s even theoretically possible that Goldman won’t be paid? Does anyone think it’s even theoretically possible that Goldman won’t find a way to make the numbers add up so Goldman wins, even if New York’s crime rate begins to approach that of Sinaloa?
Wait, I take that back. I can see a scenario under which Goldman might admit its program failed — it could happen if Goldman has created another financial instrument that gives the firm a bet against its own recidivism program. Can’t you see that happening? Goldman hedges on its own social do-gooder program, so it wins if the criminals stay clean and it wins if they don’t? Wouldn’t that be just like Goldman?
(X-posted at No More Mister Nice Blog.)