J.B. Pritzker and Goldman Sachs doing the special ed hustle

J.B. Pritzker

Goldman Sachs and J.B. Pritzker may call it "philanthropy" but it's a profitable brand that includes their benefiting financially from cuts in special ed and from every child who's dropped from or pushed out of a SpEd program.

It's all because of the latest corporate scheme in which private firms foot the initial bill for public services and then are repaid with interest if those services reduce the number of kids in special ed. They call it "social impact" investing.

In Utah for example, GS and J.B. have committed $7 million to area pay-for-success programs through the United Way, which will fund preschool services for five cohorts of children. Even at a 5% rate of return, they still receive 95% of any special-education savings to the state until the investments are repaid with interest. After that, the firms will receive 40% of ongoing cost savings until the participating students complete sixth grade.

If only companies like Goldman Sachs didn't operate virtually fax-free, there would likely be adequate public funding for special ed and all other education funding. Instead schools are forced to operate on the largess of private investment firms who not only operate at a profit, but also influence important public ed policy issues -- like which child should be in SpEd and which one needn't be?

According to Crain's,

United Way of Salt Lake is betting that the savings from keeping kids out of special-education, which is much more expensive than providing standard instruction, will provide the repayment to the investors.

About 600 students enrolled in public and private preschool programs in 2013. Of those students, 110 4-year-olds were expected to need special education during their kindergarten year. But only one of the students — who are now in the first grade — has required special education, which translates to about $281,000 in cost avoidance for Utah's public education system with 95% kicking back to the investors.

What these type of private funding schemes do is create pressures on school districts to remove students with special needs out of individually designed learning programs.

Pritzer says:

"Im not in the business of investing for 5 percent returns" but, "there are portions of people's portfolios invested in low-return opportunities, like treasuries. If you can prove this out, Goldman, Fidelity and other investors who put large amounts of capital into bonds, they could put them into social-impact bonds."

While social impact bonds pay out a relatively healthy interest rate when they succeed — between 5 and 7 percent a year in the Utah program — the investors lose all the money when they fail.

According to Huffington Post:

The success of the program is Salt Lake is intended to provide a more replicable template for funding and implementing preschool programs.

Chicago operates in early childhood Head Start programs in much the same way. Instead of relying on public funds to expand the programs and keep the benefits for itself, Rahm Emanuel has turned to lenders such as Goldman Sachs, Northern Trust and the Pritzker Family Foundation to provide the upfront money, with promises of substantial profits for the lenders down the road if the program goes as planned.

Great hustle, J.B.

Rahm's way of paying for pre-school puts millions into pockets of his investor friends.

If there’s one thing we know about Wall Street, it’s that most Wall Street firms are not in the business of philanthropy.

Yet the city is about to enter into a $30 million agreement with several Wall Street lenders to finance an early education program that from all appearances will allow banks to profit off the educational success of children with almost no risk to their own bottom lines. -- Mark Anderson at the Ward Room 

 Instead of simply finding the money in the city budget to expand the program and keep the benefits for itself, however, the city has turned to lenders such as Goldman Sachs, Northern Trust and the Pritzker Family Foundation to provide the upfront money, with promises of substantial profits for the lenders down the road if the program goes as planned.

Fran Spielman at S-T writes:

Rahm' plan for funding early childhood education is being compared to former Mayor Daley's parking meter plan.

“This is basically privatizing Head Start — giving these banking companies a very high rate of return — higher than even what we saw in the Infrastructure Trust,” said Ald. Scott Waguespack (32nd), one of a handful of aldermen who voted no.

“Head Start has been proven to work for decades…. It reminds me of the parking meter deal. The same type of people came in and said it was a high-risk asset [when] it was a low-risk asset...We lost billions of dollars. We’re not gonna lose billions here. But, taxpayers under this scheme are gonna pay a lot more than if we just went out and re-allocated resources we already have.”

Goldman Sachs exec exposes rip-off of Teacher Retirement Fund

Wall St. (N.Y. Times)

Greg Smith's book, "Why I Left Goldman Sachs," is being released Monday. It's a window into the culture of Wall Street and a company that routinely ripped-off clients, including teacher retirement funds. Smith was so disgusted with his firm, Goldman Sachs, that he quit via an open letter in the New York Times  in which he says:

"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail."

The term refers to clients, including teacher retirement fund managers, who were easily persuaded to invest fund dollars into poor performing stocks the Wall Street-ers where anxious to dump. The funds lost millions and now teachers are being forced to pay the price with cuts in their hard earned benefits.

In an interview on CBS News' 60 Minutes on Sunday to promote the release of his book Smith says:

"What Wall Street will do is they will approach one of these philanthropies or endowments or teachers' retirement pension funds in Alabama or Virginia or Oregon and they'll say to them: 'We have this great product that is going to serve your needs'. And it looks very alluring to these investors but what they don't realise is that upfront they are immediately paying the bank $2m or $3m because of their lack of sophistication."

How Wall Street plundered Philly schools

Interest-rate swaps

Philadelphia, like many cities, has faced serious financial difficulties in recent years. These difficulties have forced the city government to make ends meet by cutting agency budgets, cutting services and raising taxes. The city trimmed almost $100 million off its budget during 2008 and 2009, and the school district faced a $629 million budget hole just this year, which was closed by laying off teachers and cutting programs for students.

The Pennsylvania Budget and Policy Center, points to highly-speculative, risky interest-rate swap deals the city negotiated with banks such as Wells Fargo, Morgan Stanley and Goldman Sachs that have cost the city and school district $331 million in net interest payments and cancellation fees, according to the report, "Too Big to Trust? Banks, Schools and the Ongoing Problem of Interest Rate Swaps.” If interest rates continue to remain low, still-active swaps could cost the city another $240 million in future net interest payments.

According to the report:

These financial institutions have profited, while Philadelphians have paid the price through lost city services, lost jobs, and lost school programs. The financial institutions, on the other hand, have returned to profitability with subsidies from taxpayers—including Philadelphia taxpayers—and with multimillion-dollar contracts with the city. Moving forward the banks should respond as good corporate citizens of Philadelphia, by refunding a portion of the lucrative cancellation fees they received for terminating bad deals and renegotiate those deals which are currently active.

"Good corporate citizens," indeed.