Bloomberg reports the investment firm has come up with a new financial scheme to make money off criminals in Massachusetts: "Social-impact" bonds that will pay for intervention programs to steer arrested gang members towards the non-thug life by loaning non-profit groups such as Roca money to expand their programs, with the state paying off the loans and then some when certain performance goals are met.
Under the deal, if men targeted by Roca spend 22 percent fewer days in jails and prisons than their peers, Massachusetts would save enough to repay Goldman’s $9 million loan. An even bigger drop in recidivism would hand Goldman as much as $1 million in profit.
Bloomberg says that if the bond fails and participants wind up with the same incarceration rate, Goldman Sachs would lose everything. Although Blomberg then adds that state is paying 5% interest for the life of the loan.
As Mike the Mad Biologist notes:
The reason this is necessary has nothing to do with the need for free market incentives or any other hooey like that. Instead, it is the unwillingness of the commonwealth (and the Commonwealth) to provide necessary services through taxation. If the program works as advertized, there’s no reason why the state can’t or shouldn’t fund this, rather than giving Goldman Sachs a cut of any potential savings (and guaranteed five percent interest).
Given their history of financial chicanery aimed at municipal governments (Goldman Sachs played too), it’s also hard to believe that they won’t game the metrics. Probably not in this specific case: too much attention will be paid. But down the road, expect municipal and state governments to be fleeced, all because the idea that we are members of a commonwealth, that if you are strong, you are supposed to aid others because it is the right thing to do, has withered.