Goldman Sachs buys its first piece of the Massachusetts criminal-justice system

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).

He adds:

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.



    Free tagging: 


      This doesn't sound right

      By on

      I'm sorry, I'm all for gang intervention.. but there's something here that doesn't smell right. I'm not sure what it is, but it's very stinky..


      Goldman Sachs figured out how to keep the taxpayer on the hook

      Goldman Sachs figured out how to keep taxpayers on the hook for their success and failures. Heads I win. Tails in win.

      The banks did such a great job wrecking the economy and then taking people homes through illegal foreclosures, I can't wait to see how they do with substance abuse.


      bend over and take it

      By on

      So in short.. GS is saying "Taxpayers of MA, bend over and take it like a man"

      ... Pretty much


      What about this part?

      I'm still trying to figure this deal out.

      You said this:

      Goldman Sachs figured out how to keep taxpayers on the hook for their success and failures. Heads I win. Tails in win.

      Yet, the article says this?

      If Roca fails and too many men end up behind bars, Goldman will lose almost everything it ventured.

      Losing almost everything you ventured is not winning.

      All they're doing is loaning money for a social program.

      Devil in the Details

      By on

      First of all, the article also mentions the State will be paying 5% interest no matter what. Second, we don't know who decides if things "failed" or not. If Goldman gets to calculate the metrics, for example (this is in fact a hypothetical, I have not seen the entire deal), they could make sure it looks like they succeeded.

      I mean, in theory, banks can't just repossess your home without proper paperwork. In theory, if banks invest in crappy junk mortgages, they lose out when those mortgages fail. In practice, they got a bailout, and did thousands of illegal repossessions and got away with it. So even if this deal doesn't have a loophole built in, it is fair to be wary of an industry that regularly gets away with sleazy stuff.

      confused. is this yet another

      By on

      confused. is this yet another way for MA to give money to those who really shouldn't be getting money? in other words, are tax dollars going towards payouts for gangsters?


      You mean banksters?

      By on

      If you mean the criminals at Goldman Sachs, then yes - yes it is.


      This plan meets a public service financed by government

      We should request access to Goldman Sachs business analysis of this deal to see just how much money they expect to earn in return for their capital.

      We are paying for their business model and we are the public -- we have a right to know. If they refuse, then we have cause to request another solution.

      This structure reminds me of how they loaned capital to cities and towns across the US, and countries across the world with interest rate swaps that cost taxpayers billions in additional interest, including right here in Massachusetts in the way we refinanced the big dig.

      I hope newspapers do some investigative reporting and expose this deal.

      Corporations truly are rapacious.

      I recall John Connolly campaigning on social-impact bonds. Sure, we can finance development and social services but then we pay and pay and pay.

      Debt is necessary to finance capital improvement, building etc. Using debt to finance operations is spending now and paying later for the cost plus the interest.



      By on

      It's a private company, the government has no right to see their proprietary information.


      If they want to do business with the government, they need to be somewhat forthcoming with financial information. And if they wont show, then it should be a no-go.


      public services paid for by the public

      Interest rate swaps, part and parcel of Wall Street financing deals in US municipalities and all over the world, cost taxpayers billions of dollars.

      Either towns and cities should consult with people as skilled in financial analysis or have access to Goldman Sachs analysis.

      We're the buyer. And their track record shows "cavet emptor" means Goldman Sachs just took is for billions of dollars.


      Debt for Services

      By on

      Typically I agree that debt should not be used to finance services (as opposed to capital expenses) but on the other hand, the alternative is unstable tax revenue, under which the program may dissapear in lean years and the benefits of continuity of the program become wasted. Under this scenario, we pay 5% interest on the debt and if re-incarceration goes down we pay a bonus. The program gets stable financing and Goldman is incentivized to contract with organizations that can get the job done and terminate those who don't get the job done. Presumably Goldman is free to use whatever vetting process it choses to evaluate these orgaizations and is not wed to the procurement rules, which typically focus solely on lowest cost. I definately agree that there has to be a attention paid to the measurements of success used and the independence of the process for selecting the individuals that you are using to measure success, but I'm not sure that this isn't worth a shot. The current system, after all, does not appear to be exactly perfect.

      bored hit men

      Sounds to me like Goldman needed to find something to do with all the secret assassins they keep on retainer. Dead guys spend zero days in jail right?

      Woohoo the Vampire Squid is Ready

      By on

      ..for new municipal gaming schemes.

      The classic introduction was written by the son of a former TV news guy.

      So you got Price Waterhouse licking its chops over speculation and talent attraction potential in some little night life thing and now the Squid figures it can make a buck off masshole stinginess with the prison system.

      Oh and the casino boondoggle that will blow chunks but make speculators and hard hats happy for 10 minutes.

      This place really does grab its ankles hard to mollify a bunch of free market douche wagons and Barbara Anderson grenade tossers. Why not appoint Grover Norquist Governor for life and call it good?


      What the hell does the father of the writer have to do with it?

      You're worrying about "free market douche wagons"? Try worrying about the MA human services/industrial complex. The former Boston Police Commissioner went to work for John Larrivee's "Community Resources for Justice". Our correctional system is so screwed up by political hack judges that like any good progressives, they invent a problem and then charge you to "rectify" it. And if you think Mr. Larrivee's name sounds familiar, he's the guy whose influence got a kid 3-4 years for killing someone while DUI in Lynn in 2010. The 20 year old driver claimed his drinking/drugging was a result of the stress of knocking up a former girlfriend.Meanwhile, the granddaughter of the biggest car dealer in Salem, a girl who was in the athletic hall of fame for 2 sports at Salem High, is dead. When you can blow off a guy with that kind of influence, you have juice. The O'Brien trial now under way at the federal courthouse in Boston is an example of MA politics in action.

      As per usual, Goldman has surely got this game already fixed

      By on for example providing legal counsel to any program graduates that ever get arrested, or ensuring that only pre-qualified, low-risk participants are signed up for the programs in the first place (in the same way that charter schools are able to inflate their test performance results). Do the state gov't. geniuses in Ashburton Place really think that Goldman Sachs would play any game where they haven't already ensured that the fix is in?


      On the flipside

      By on

      Wouldn't that give the state and nonprofits an incentive to just pocket the money and not do any work with the thugs, - let them run amok and keep bouncing them in and out of prison instead of trying to get them to turn their life around and become productive members of society? Politicians and nonprofit hustlers line their pockets, prisons are kept full, and common folks are terrorized by out of control thugs - pretty much what it is now.


      I coud not have put it any

      By on

      I coud not have put it any better. This is a scheme that will cost the communities big time. Government and private corporation coming together to stop inner city crime yeah right. If there are no people in prison it effects the middle class people in suburban america because they will lose jobs because of low recidivism. Can not seeing this working because it woukd benefit the common folk.


      By on

      This must be the most misguided, unethical and bone-headed program on the books. Making bets on whether someone can straighten out their life and maintain their freedom? Have we sunk this low? Sickening. How about we help them because it's the right and decent thing to do?

      If these programs are so good why aren't all arrested gang members offered them? Are the interventions only for those deemed less likely to be jailed again?

      This sweet deal for Goldman Sachs makes it more costly for the Commonwealth and gives them the opportunity to point at the wonderful work they do for the greater good - all the while collecting at least 5% no matter the outcome. No risk with a potentially big reward. Sound familiar? Is the interest tax exempt? What a load of cow dung.

      The public needs to pay for certain things so just suck it up and cut out the middle man. Keep perverse and twisted competitive interests out of the lives of marginalized citizens and an already fragile criminal justice system.

      This is revolting in so many different ways it's impossible for me to describe my displeasure with our 'leaders'.


      Roca-Goldman Sachs

      By on

      This was reported on in the Globe back in January:

      Wall Street helps to exacerbate the economic and societal conditions that end up with a load of unemployed youth on the street with no realistic hope of advancing. They also invest in the private prison systems that make money off the high rates of incarceration of these desperate people. Then if you're trying to prevent these youth from making the bad decisions that land them in prison in the first place, you represent a new frontier for Wall Street to make some additional money.

      Feels like we're living in a Terry Gilliam movie. Time to extract the tape worms.

      I'm no fan of Goldman or Wall Street

      By on

      even though I technically work in the industry.

      But please explain how they are to blame for the "economic and societal conditions that end up with a load of unemployed youth on the street with no realistic hope of advancing". I'll blame them for a lot of things (I'm even writing a book about some of the abuses especially in retail financial advice) - but I think you've jumped the shark on that one.

      These kids are unemployed for a lot of reasons - and if Wall Street is to blame, it is barely tangential to their existence (and I can assure you if they applied themselves in school and came out of a decent college, Wall Street itself would be throwing money at them to come work for them. They are desperate to raise their female and minority hiring, as are many firms in other industries)

      Shark jumping

      By on

      It's a long chain of cause and effect that would be better explained by some sort of James Burke narrator, but do you think the gaping chasm that has opened up between blue collar workers and the 1% or whatever you want to call them has no relationship to Wall Street and desperation at the lower end of the economic spectrum?

      Jobs that these kids could possibly have had in ages past do not exist any more. Wages have stagnated in the name of increasing quarterly profits. Production and efficiency have increased with all the earnings from those advances going straight to the top, while social mobility in this country has sunk to its lowest levels ever -- and some of the lowest among modern western democracies.

      Nobody on Wall Street is rubbing their hands in a Mister Burnsian fashion planning the downfall of society, but they are pushing the pedal to the floor in terms of extracting the most they can get out of every part of the economy without much care of the implications of what they're doing. And that includes throwing millions upon millions into lobbying to get rid of any taxes they pay into the system and cut down any regulatory barriers to making more money.

      And if you point out the idea that their choices have repercussions, you're told you don't understand how the world works. Kid on the street follows the same behavioral pattern and they're lectured about their life choices and living with the repercussions of them.

      I can assure you if they applied themselves in school and came out of a decent college

      don't trip over that fin.

      No fins

      By on

      1) No I don't think the chasm has much if any relationship to Wall Street. 60% of America has effectively no savings. Another 20% has some, but not much. There are most certainly a percentage of Americans that are poor through no fault of their own - job loss, illness etc. But not 60-80%. How is that Wall Street's fault? Wall Street didn't make them buy multiple cars (or worse - lease them), wall street didn't run up their credit card bills, Wall Street didn't buy everyone in the family a cell phone, or install a high speed internet connection, or sign them up for the gym, or Netflix, click on an ad from google of Facebook - the list goes on.

      2) You are right about the actual people that work on Wall Street - what are you doing about it? Are you complaining to your employer about fees and fund costs in your 401k? Who do you use for your investments - some traditional high cost brokerage or a Vanguard? Do you have someone helping you with your investments you are paying over $1000 a year to for their advice? Did someone talk you into buying an annuity? A permanent or "cash value" life insurance policy? Did you fall for the pitch that you need a long term care policy? Are you boycotting publicly traded companies wherever possible? The mere act of buying almost anything instead of saving your money helps wall street. If the bottom 80% of the country wants to stop the 1% from getting rich, you have to stop enriching them.

      3) Won't waste much time on the tax issue - because it's a non-issue. We already have the highest corporate tax rates in the developed world - which is why companies don't repatriate money and at the end of the day if we collected all that and got rid of all the loopholes it would only increase our federal revenues by a few percent - and most of that is already spoken for anyway which is why despite reductions in the deficit, we are still tens of trillions in the hole and growing. God help us if interest rates ever get back to "normal" levels.

      4) Don't understand your last point. Will say I've seen both sides of this up close and personal so I know whereof I speak.


      By on

      The highest corporate tax rate in the world and that rate is effectively applied to how much of these corporations' actual profits?

      And on the basis of point number 4, I guess I can just say the same and walk away? Whatever. The poor are poor because it's their fault. Obviously the system is not stacked against anyone, not manipulated by anyone and you worked hard for everything you got, therefore everyone is wrong and you're right. The fact that we haven't boycott the economic system that surrounds every part of our lives and rigs the legal system to maintain itself in power means the people running the economic system are not culpable, it's our fault for not somehow forcing the change by abstaining from any economic activity.

      (re-reading that it sounds really whiney...but I'm tired and cranky.)

      My working theory

      By on

      My working theory: they've found a loophole in the conditions of the contract, where all that's specified as a performance metric is "days spent in prison." Thus, they have figured out how to do one of two things:

      1. Buy off any judges associated with sentencing these folks for later crimes. Has to be way cheaper than the million dollars they stand to make.
      2. Hire hitmen to kill the bond-targets. Dead men spend no time in prison.

      Bookmark this post, and tell me in five years how I did.