Goldman Sachs Invests in POP Bonds

Goldman Sachs is investing in a New York City pay on performance bond (POP bond also called a social improvement bond). The Pop bond is based on recidivism rates for adolescents, as described by the NYTimes:

The Goldman money will finance a program called Adolescent Behavioral Learning Experience…which seeks to improve prospects for black and Latino adolescents. The jail program, which will offer counseling and education for an estimated 3,400 incarcerated adolescent men each year, will be run by two nonprofit organizations, Osborne Association and Friends of Island Academy, and overseen by MDRC.

…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.

…Currently, nearly 50 percent of young men released from Rikers reoffend within a year.

As I wrote earlier:

For Pop bonds to work it is critical that outcomes be measured and marked to an appropriate, randomized, control group. If not carefully monitored, the private sector will also excel at innovative and creative gaming at the public expense.

The involvement of Goldman Sachs makes me fear that my last sentence will prove prophetic.