Tag Archives: jp morgan

Pay for Success: A ponzi scheme?


This is a follow up to my post Unmasking Pay for Success . Here, I think I have succeeded on showing that this  is nothing but a Ponzi Scheme. It’s based on how pay-for-success has been applied in the UK. It’s dry material and, as usual, long. But if you bumped into this post and don’t read it, don’t say later that you weren’t warned about the truth behind ‘pay for success’.

I still have another part on this next week. It’s about how Pay for success is being applied here in the USA. I hope you find this interesting and informative. Links are at the bottom.

“PAY-FOR-SUCCESS”: ANATOMY OF A PONZI SCHEME

“UK building integrated impact investment marketplace”

Over there they call it “outcomes-based financing”.

“These contracts allow the government to outsource the provision of a service [privatize the functions of government] to impact businesses or other private-sector contenders and only pay for that service once a defined set of outcomes is delivered.”

Now, who in its right mind would want to get into that type of business: you get paid only if you deliver, for example, a sober alcoholic? Sure, it started with services for the unemployed and released prisoners, but it is moving to ALL social services, including mental disabilities and children and alcoholism services. Social services and human behavior cannot be shaped into ‘asset instruments’. Somehow, though, Wall Street will find a way to do it.

“Changing government procurement practices: Outcomes-based financing”

[I had to look it up: procurement = acquisition of good and services from an external source. Very complicated topic too.]

Payment-by-results contracts

 The suppliers – those companies that will be commissioned to find employment for the target populations – are paid on a staggered basis, reflecting achieved outcomes: there is an upfront fee, a job outcome fee once the individual is employed, and a sustainment fee once the individual has maintained the employment for a given period.”

The “upfront fee” is an issue for me. How much is it? How about the “sustainment fee”?

“Importantly, the sustainment fee is meant to make up a “substantial” portion [quote provided by JP] of the total amount the government will pay5, and the government will not pay anything should the outcomes not be delivered.”

There’s another scheme, more ‘attractive’ than that one:

Social Impact Bond

Creating the social malady and then profiting from the pain?

Creating the social malady and then profiting from the pain?

“raising GBP 5mm in a bond whose payout is linked to the government savings achieved by reducing recidivism at Peterborough Prison. Notably, unlike traditional bonds, investors stand to lose their full principal should there be no reduction in recidivism6 since, similar to the Work Programme contract, the government will not make any payment if the defined outcomes are not achieved.

Wait! Don’t run yet to Wall Street to buy these bonds. A bond is a bond. It means that the government is BORROWING. Bonds are DEBT the government owes. Caught in a lie once again. Our government says that ‘pay for success’ is a ‘win-win’ situation because it takes care of social services without engaging in debt. Yeah, right.

But let’s see how JP gets out of this unattractive risky bond business where you are bound to lose everything if you play with them

Risk transfer.

.

“Understanding the risk transfer inherent in outcomes-based financing”

You can bet on it: there’s INHERENT risk in ‘pay for success’. And it gets “transferred” to somebody by somebody. To whom down the pyramid do you think the transfer is more likely to be passed on? Think, then read.

“Transferring risk to the right recipient”

“The Social Impact Bond transfers the impact delivery risk (and hence the risk of financial return) from the government to third-party investors who provide capital to the service providers and take the risk that outcomes may not be achieved.

Did you get that? The big financial institutions who provide the capital is the one [gulp] who stand to lose their money in the bond scheme. What are the chances that JP will want a piece of that losing action? Of course not. JP compares this bond thing with the other scheme:

“By contrast, the Work Programme’s payment-by-results contracts transfer the impact delivery risk from the government to the service provider.”

Uhm, “the provider”? Does that means YOU, Community Access? Aren’t you laughing yet? Let’s see what JP says is necessary before signing the dotted line for these contracts, given these risks:

Both working capital and risk capital are required to win these contracts

“…delivering on these contracts requires working capital to cover operating costs until payments are received, and risk capital to cover the risk that outcomes are unsuccessful (and no program payments are received).”

THE PONZI SCHEME

And from where do you, my little small- business -entrepreneur -non-for-profit get that money?

“each procurement contract is meant to engage a Social Investment Partnership comprising a financial sponsor (or consortium of sponsors) who will then engage one or more service provider8. This arrangement enables the impact business to transfer the risk to investors,

Follow King Midas.

as in the case of the Social Impact Bond. The next natural question is: how much risk are investors willing to take on these new

THE NATURAL QUESTION??! HELLO! No wonder Bloomberg said that he and his billionaire pals HAVE to infringe on our freedom! PLEASE DO! Don’t let me INVEST THERE! We don’t know what we are doing!…………….Ok, enough banter.

So, at the end, the risk was passed on to the low-level investor, not the ‘senior’ investor. Does Ponzi scheme come to mind? It should.

But no, it doesn’t end there. Keep reading.

OF PONZI SCHEME DREAMS YET TO BE REALIZED

“Finding the right risk and return profile”

[This is the part where the cookie crumbles.]

“Some market participants have anecdotally provided feedback that the pricing does not sufficiently capture the additional cost of the hardest to reach outcomes [IT’S NOT PAYING!], and some fear this will lead service providers to focus rather on the easiest to employ populations. In both instruments, the upside is capped while the downside is not, and the probabilities of realizing the impact are yet to be determined.

Broken dreams.

Broken dreams.

It’s not working. No ‘social impact’ = no meaningful jobs created and recidivism not reduced = no payment to small investors = no money saved: a loss-loss situation.

And what do you think the big financiers will ask the government to do with this losing ‘initiative’?

“More risk-sharing with the government could reduce the downside exposure,”

This “pay for success” will end up with ALL  the risks being passed on to the government, the small level investors and the service provider, and of course, to what is left of  the middle class. The government is there to serve and protect the financial market. This is the JP evidence:

“Engage cornerstone investors, like Big Society Capital”

“With the aim of growing the impact investment sector more generally, the government established Big Society Capital (“BSC”) in July 201112. Backed by a projected GBP 600mm in capital, this organization is designed to provide financing directly into impact investments and also to invest in infrastructure and initiatives that would encourage faster market growth.”

When a government ‘invests’ 600 million bucks to help ‘big capital’ (the ‘society’ in between Big and Capital is there to cover ‘big capital’), you know it is doing EVERYTHING and ANYTHING for them. The government will buckle down and take the risk and put no controls, as they do today when privatization comes with no monitoring.

ON WALL STREET BUILDING YOUR BUSINESS…WITH GOVERNMENT $$

Now, all of this business is supposed to save “tax payer” money by asking businesses to take on the functions of government and to be willing to be paid if and when the service delivers the outcome. No money ahead, supposedly. Well, take a look at how the government will have the responsibility of building a business, from the ground up, take loans for this business, take the risks eventually and let the profits go to the big capitals. If no profits, we lose, financial markets will be protected by the government.

“Ensuring impact businesses are ready to compete

“While the prospect of capital [provided by the government] will help to ensure that impact businesses can financially manage payment-by-results contracts, for example, they also need to be “investment ready” in order to access that finance.”

Basically, the government will put billions of dollars in the seed money, hire big corporations to “teach” the little ones (paid by the government)t and “de-risk” (JP’s term)  these adventurous capitalists by providing the money that will pay JP when the whole Ponzi scheme collapses.

I invite you to read that document. It’s lots of fun…not, but it IS interesting to see the calculating mentality of the greedy billionaires planning their next attack on the people.

This post may be revised later.

Links:

Goldman to invest in NYC jail program

The JP Morgan document:

Counter(Imp)acting Austerity: The global trend of government support for impact investment

Unmasking “Pay for Success”: Wall Street betting on poverty.


This post is based on a reading of “Counter(Imp)acting Austerity: The global trend of government support for impact investment, a research paper done by a Yasemin Saltuk for JP Morgan: “J.P. Morgan (“JPM”) is the global brand name for J.P. Morgan Securities LLC (“JPMS”) and its affiliates worldwide.” It describes the growth and projections of this ‘new’ form of capital investment ‘initiatives’ or ‘ventures’ aimed at directly profiting from the same social problems created precisely by JP and its equals. Basically, they invest, privatize and control those social services delivery systems which they deem profitable, with the government taking the “risk” of the venture. Yes, you will see in the report that the government will assume the ‘risk’, the rules are still been drawn.

There are many names for this new investing ‘trend’. Here in good ol’ USA it’s known as “pay for success initiatives”.

After reading the document, I too came with different names for this ‘initiative’: ‘Voltaire’s ‘social contract’ on steroids’; ‘Your road to wealth starts with the squeegee guy’; ‘The wolves feeding the sheep’; ‘Betting on poverty’…well, you get my drift.

When, as you will see, even the US State Department involved in this “pay for success” business (that’s exactly what it is), you know something fishy is there. And when JP Morgan works diligently in this report, you know that this is in the hands of big government and central banking systems. This ‘approach’ is the result of big lobbying, not the result of social workers finding ways to cope with the impact of budget cuts in the lives of the under-served. RIP ‘not-for-profit’ social services industry. Although it was a looong time ago since they stopped being ‘not for profit’.

And forget about “best practices”. If it ain’t increasing profits, it ain’t best practice.

Let me share with you what I found in that report. I’ll do this  in two different posts, the second will discuss how ‘pay for success’ will work and how it will be financed.

1. Origen of the new millennium’s “pay for success”: coping with debt with more debt

This ‘impact investments’ (“those intended to create positive social or environmental impact alongside financial return”) is not new. The report mentions that in France, for example, this idea is at least 100 years old. It was previously known as “social economy” in the form of ‘credit cooperatives’ with ‘social outcomes’ goals at its heart. This bank is the oldest in that tradition, supposedly:

Crédit Coopératif is a co-operative bank…” http://www.credit-cooperatif.coop/menu-bas/english-presentation/

But today’s ‘impact investments’ ideas are the direct result of the economic crisis created by the central banks:

“As governments across the developed world grapple with austerity, many are faced with the reality of reduced public spending at a time when economies struggle to grow…”

“In a global trend, governments are increasingly turning to domestic impact investment as they balance the need for fiscal consolidation with the demand for investment in economies struggling to grow.”

“As such, this period of fiscal consolidation has been an opportunity for impact investments”

“Whether or not the motivating factor is directly caused by fiscal consolidation [they don’t care] the coincident trend is clear: governments across developed markets are increasingly turning to the impact investment sector for delivery of domestic social services as they cut spending” [yeehaaa!]

Mind you, “fiscal consolidation” means “a policy intended to reduce deficits and the accumulation of debt.”  Reduce deficits means reduced social spending in order to pay the central banks, and reduce the accumulation of debt, well, in an economical system based on debt, reducing debt is impermissible and unacceptable. You will see how the report confirms that creation of debt is at the heart of this “pay for success” capital venture.

Anyway, this “pay for success” is the central banks’ medicine to the problems THEY have created with their debt collections and bailouts.

2. Why are JP Morgan  and the big banking systems interested in “pay for success”?

The language of WS and central bankers gives you a huge hint:

“[to] attract private investment capital, to take a more significant role in delivering social services”

“we show the consolidation required …”

“Fiscal consolidation is insufficient, coincident investment in growth is critical” [market growth, that is]

directed financing towards intentionally impactful and financially sustainable business – what we will refer to as “impact businesses”

“to deliver better returns”

encourage faster market growth”

allow businesses to improve their market position

opportunities for strategic investment

We believe this makes the market for impact investmentsthe investments that finance impact businesses –a key recipient of government support today and in the future.”

There can be no doubt about the nature of this ‘pay for success’ model: it is a profit-seeking, global financial market investment business. It has been thought out aaaaaall the way up there, where none of us can see or influence it. It deals with nations’ “consolidation” policies, “market growth”…This is NOT a GRASSROOTS movement.

In addition, these bankers DEMAND “fiscal consolidation” in order to participate in the shark feeding frenzy : the consolidation required”, “Fiscal consolidation is insufficient”.

And more ‘egregious’ is this:

“a key recipient of government support today and in the future.”

I thought that capitalists didn’t want the government to meddle in their business, that this ‘pay for success’ was about BIG BUSINESSES HELPING the ‘salt of the earth’, the downtrodden. But now I find here that it is about THE GOVERNMENT supporting the market! And to rub it in our face, they will finally, FINALLY take official and in-the-public’s face control of  how we receive services, if any and in whatever shape they decide it will happen:

to take a more significant role in delivering social services.”

And here we are, gingerly and happily CONSENTING to this total corporation appropriation of our lives, of how ‘recovery’ will be defined in terms of how much profit your pain gives them.

3. First ‘moral  implications’ question: profiteering from poverty

How safe it is for us to entrust the repair of the damages done by that global market and the global banking industries to our society into the hands of those same people?

Is it moral to devise a system of big stock  buying and investing and subject  our health services to the ups and downs of the market? As you will see later in the report, these people are aware that, in order to reap the most profit, the most sick and difficult to help due to mental illness will be left behind, those who can’t be shaped into some profit-drawn box of ‘behavioral outcomes’ will be left unserviced.

If, as even they acknowledge, this is the result of the financial and austerity crisis, isn’t there ANY way to solve the problem other than surrendering our lives to the global markets? And why does it have to be PERMANENT? Today they are only finessing the TRANSFER of our lives to their hands, drawing the rules they will use to make US PAY for that too,

“today and in the future.”

Tomorrow I will post the rest of the report. It will deal with the actual rules of how they will finance ‘pay for success’.

Lourdes C.