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Wall Street's Latest Investment: Ex-Convicts

Tyler Durden's picture




 

Either the Volcker Rule is making Wall Street's menu of investment choices so unbearably limited, or traditional assets are so overpriced Wall Street won't even touch them with other people's money, but when it comes to allocating capital the smartest conmen in the room are coming up with some truly unorthodox products. Such as investing in ex-convicts in the form of 2000 newly released prisoners.

According to Reuters, Merrill Lynch and U.S. Trust reached out to some high-powered clients this quarter to invest in a social-impact bond whose proceeds finance a program to lower recidivism rates among ex-convicts in New York.

"The project raised $13.5 million over 60 days from clients of the Bank of America Corp-owned brokerage and wealth management firms. Investors included former U.S. Treasury Secretary Lawrence Summers, Utah philanthropist James Sorenson, hedge fund founder Bill Ackman's Pershing Square Foundation and billionaire investor and oil trader John Arnold, according to the bank."

Merely the presence of the bolded words in the above paragraph is enough to explain why this latest investment product will be an inevitable disaster. But at least in the meantime, it will allow people such as Larry Summers to purchase a clean conscience if only for a few months. And of course, let Merrill collect structuring and "advisory" fees.

"They are looking for new and creative ways ... to have a more direct connection between the dollars they are investing and the impact it is having on a social problem that they care about," Andy Sieg, head of global wealth and retirement solutions at Merrill Lynch said during a telephone news conference on Monday.

In an ideal world, however, where investing in ex-criminals has a happy ending, what kind of return can investors hope for? "Investors can realize annual returns of up to 12.5 percent over five-and-a-half years, although the probable return is in the high single digits, he said. Actual returns depend on the success of job-training programs for 2,000 newly released prisoners administered by the Center for Employment Opportunities. Success rates will be determined by Chesapeake Research Associates."

Just what is a "social impact bond":

The social impact bond is the first pay-for-success instrument in which Bank of America participated, and the first in which a state, New York, is participating. Reducing recidivism will help control prison costs, the fastest growing budget item in New York in 2012 after Medicaid, Gov. Andrew Cuomo said in a news release.

 

About 20 pay-for-success bonds have been issued in programs worldwide, but more than 10 U.S. states are considering the programs, said Tracy Palandjian, chief executive of Social Finance Inc, a nonprofit that structures such investments.

 

The new issue attracted an average order of $350,000 from 40 high-net-worth individuals and from family and other foundations. Capital from investors will come in two stages, this June and again in early 2016.

As for the lead investors, no surprises there:

The Rockefeller Foundation provided a $1.32 million guaranty that covers 10 percent of investors' principal should it fail to repay 100 percent of their investment. The Robin Hood Foundation, a nonprofit with strong support from Wall Street and private equity, invested $300,000 in the project.

Supposedly the Reverse Robin Hood foundation was too busy using the proceeds from QE to inflate away the purchasing power of the few hundred people left in the middle class. As for Wall Street investing in ex-cons, why just think of all the money saved from not having to perform any diligence.

 

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Wed, 01/01/2014 - 15:58 | 4291252 BanksterSlayer
BanksterSlayer's picture

So if, god forbid, we finally start sending Wall Street traders to prison ... will Wall Street then begin investing in themselves?

Wed, 01/01/2014 - 16:02 | 4291261 VD
VD's picture

2 good 2 b true by v same 'foundations' that instituted 3 strikes laws : cause in the manufactured unwind the prison-industrial complex......(______)........

Wed, 01/01/2014 - 16:19 | 4291312 mjcOH1
mjcOH1's picture

Is there a 3x inverse ETF for this?

Wed, 01/01/2014 - 16:20 | 4291315 VD
VD's picture

that the soap on a rope 12x inverse bend me over rape me special ETF¿¿¿

Wed, 01/01/2014 - 17:06 | 4291423 0b1knob
0b1knob's picture

How long before some bankster offers CDS (Convict Default Swaps) which pay off if the recidivism rate excedes some set level?

Got to hedge EVERYTHING>......

Wed, 01/01/2014 - 23:31 | 4292403 foodisgood
foodisgood's picture

WTF - anyone of ya fukan naggers, kieks er wasps xplain what all those entilted biatches to alll that extra paper expect from that bet the artical rambles on bout?

So a bunch of extra liquidity is betting 2000 convicts wont be convicts? Or they will be convicts? Or the 2000 will be the beneficiaries of a wad of cash/loan with a 12% APR?

Why all the whining here? 

Can you tell I am more confused than any of you could ever care to even understand why you are master whiners?

Thu, 01/02/2014 - 03:09 | 4292653 jbvtme
jbvtme's picture

won't be long now

Wed, 01/01/2014 - 23:10 | 4292369 newdoobie
newdoobie's picture

Nah, they'll fudge the numbers and rake it in for themselves. Another crooked scheme.

Bonus for the guy who thought this one up!

Thu, 01/02/2014 - 00:31 | 4292511 noless
noless's picture

I would love to know what kind of training they're going to offer.

Wed, 01/01/2014 - 16:04 | 4291269 Rainman
Rainman's picture

Correct.....and a similar plan has been worked out with the devil for their cursed afterlife.

Wed, 01/01/2014 - 16:07 | 4291284 VD
VD's picture

nah no cursed afterlife and the meek don't inherit shit so get your mug in the manger or else the wall st crooks get it all!

Wed, 01/01/2014 - 16:25 | 4291325 Anusocracy
Anusocracy's picture

Give the cons jobs as cops.

Seems obvious to me.

Wed, 01/01/2014 - 16:26 | 4291330 VD
VD's picture

the cons already are the cops...so....more taxes for ever moar cons....

Wed, 01/01/2014 - 16:35 | 4291352 Anusocracy
Anusocracy's picture

The Wailing Wall Streeters could always use more protection.

Wed, 01/01/2014 - 16:12 | 4291294 Uber Vandal
Uber Vandal's picture

Are you certain that this is not hell, and the material wealth, and poverty, and pleasures, and pain, are not a trap to keep us here, to possibly keep us from advaning beyond our baser self?

Just a thought.

 

Wed, 01/01/2014 - 17:33 | 4291308 Rainman
Rainman's picture

The question is way too complicated . Besides,  I've contracted a vicious hangover...everything is hell.

Wed, 01/01/2014 - 18:28 | 4291599 Oath_Keeper
Oath_Keeper's picture

It has started here too, within the past 24 hours several of my friends have complained of the same thing.

Wed, 01/01/2014 - 16:31 | 4291344 caShOnlY
caShOnlY's picture

So if, god forbid, we finally start sending Wall Street traders to prison ... will Wall Street then begin investing in themselves?

NO!  the gist is that you don't have to send them to jail, indict them or even charge them!  They just stay where they would have wound up!! Wall St. demonstrates how it doesn't cost the taxpayer a dime!! 

Wed, 01/01/2014 - 15:56 | 4291253 JackT
JackT's picture

WTF?

Wed, 01/01/2014 - 16:16 | 4291307 Winston Churchill
Winston Churchill's picture

Surely corruption will be a problem,as in

Wall Street  corrupting these upstanding felons.

Wed, 01/01/2014 - 16:02 | 4291262 q99x2
q99x2's picture

Does the program include airfare to their prospective place of employment--China?

Wed, 01/01/2014 - 16:02 | 4291276 sangell
sangell's picture

Norplant implants in the 'hoods' where these rats are spawned would be a more useful investment.

Wed, 01/01/2014 - 17:44 | 4291464 New World Chaos
New World Chaos's picture

Imagine if there was a free $1000 for anyone who gets "fixed" simply and reversibly.  Think IUDs and sperm duct blockers.  Within 50 years there would be far fewer crackheads, fewer unwanted children causing problems...  The lifetime savings due to reduced crime, reduced need for services, etc. would surely exceed $1000.  The program would be voluntary.  That won't stop the PC left from screaming bloody murder, of course, but what could they ultimately do if TPTB supported this program?  Perhaps a better question is, why have TPTB NOT come up with a program like this?  I think they actually want a very large, very angry, very easily misdirected Free Shit Army to help loot the middle class during the controlled demolition of Western civilization.  Order out of chaos.  Of course, the masses will be thrown under the bus once the planned world government is entrenched.  More fresh-squeezed soul juice from what will be the biggest human sacrifice in history:  5 billion people!  (I know the elites are the main "useless eaters", but they are too slippery for mere social engineering to work on them).

Wed, 01/01/2014 - 17:42 | 4291493 Winston Churchill
Winston Churchill's picture

Indira and Sanjay Ghandi tried that.

Both assasinated.

Wed, 01/01/2014 - 16:05 | 4291277 Real Estate Geek
Real Estate Geek's picture

Why do I have the feeling that organ harvesting is part of the business plan?

Wed, 01/01/2014 - 20:28 | 4291785 WillyGroper
WillyGroper's picture

It's what's for dinner?

Thu, 01/02/2014 - 00:00 | 4292461 Woodhippie
Woodhippie's picture

The "other" pink meat.

Wed, 01/01/2014 - 16:03 | 4291279 awakeRewe
awakeRewe's picture

How could this possibly go bad? /sarc

Wed, 01/01/2014 - 16:12 | 4291280 Rainman
Rainman's picture

Sounds like they're forming a slave labor worker pool ..interesting... clock them in with a full body cavity search.

Wed, 01/01/2014 - 16:14 | 4291291 Judge Crater
Judge Crater's picture

It costs taxpayers $140,000 a year to house one inmate for a year in the Rikers Island penal colony.  You would think government officials would have an incentive to cut the number of repeat offenders.  Wrong, of course. 

Wed, 01/01/2014 - 16:27 | 4291327 Tijuana Donkey Show
Tijuana Donkey Show's picture

penal

Wed, 01/01/2014 - 16:55 | 4291398 RafterManFMJ
RafterManFMJ's picture

I know for a fact I could reduce that cost to 10K or less per prisoner.  

 

Wed, 01/01/2014 - 20:23 | 4291771 Jadr
Jadr's picture

Care to elaborate?  Would you entirely cut expenses by reducing expenditures on inmates?  There are many different costs associated with housing an inmate.  Food, land/building costs and upkeep, medical, clothes and laundry, the huge labor costs for guards and administration as well as the costs of any programs aimed at reducing recidivism and I am sure I am surely excluding some other expenses.  I don't doubt that inmates could be housed for much cheaper than the government pays buy I think $10,000 total is extremely unrealistic if you want to treat the inmates in a remotely human manner.  I don't think that prison should be an enjoyable experience and that prisoners shouldn't be living "comfortable" lives while in prison but they are still humans and should be provided a basic level of care and sustenance.

Wed, 01/01/2014 - 21:15 | 4291979 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Since the vast majority of prison guards are sub human do you think it is fair to them to ask them to treat others humanely? I do not believe they have the capacity. And since membership in organized crime families is on the decline it is not likely that prison guards can find other work so I really do not see how this problem can be resolved.

Wed, 01/01/2014 - 22:57 | 4292336 RafterManFMJ
RafterManFMJ's picture

Well, I hate to give up my business plan, but here goes:

1. Construct a corral with wire fencing that encloses some 1000 acres.

2. Only one gate, and prisoners are deposited into the facility via zip line.

3. Visitation is visual only, done via one of those pay-to-use touristy telescopes mounted on a guard tower.

4. Prisoners are tagged with GPS units, and when deposited in the facility they are given a short sword, a throwing spear, 5 gallons of water, 5 lbs of corn meal and 50 packets of heirloom seeds and are dressed in an insulated camo onesie. 

5. When their sentence is complete, the GPS unit vibrates when said prisoner is moving in the right direction; when he/she reaches the extraction point a team opens the gate and leads him out. He can leave with as many squash as he can carry.

6. Guard towers are manned with internet controlled machine-guns - anyone around the world can fire on any visible prisoners for 4 bucks per round. Prisoners are advised to stay well away from the wire/towers.

 

 

Thu, 01/02/2014 - 00:04 | 4292467 Woodhippie
Woodhippie's picture

That's f*ckin' comedy right there.

Thu, 01/02/2014 - 03:20 | 4292658 NickVegas
NickVegas's picture

Releasing top secret FEMA camp designs could be considered providing material support for terrorists, Sir. This is your first warning.

Wed, 01/01/2014 - 16:13 | 4291296 KickIce
KickIce's picture

Should-be-convicts + ex-convicts; a match made in hell.

Wed, 01/01/2014 - 16:15 | 4291302 Thing1Thing2
Thing1Thing2's picture

What is this non-profit "Robin Hood foundation"?   Is this used to redistrudute the wealth club for the banks?

Wed, 01/01/2014 - 16:41 | 4291343 Rainman
Rainman's picture

here's their propaganda sheet < it was Capone's idea to hand out a lot of turkeys at Xmas >

http://www.robinhood.org/

 and the board of directors .... Hi Larry !! Hi Steve !!

http://www.robinhood.org/about/board

Wed, 01/01/2014 - 17:36 | 4291479 Musashi Miyamoto
Musashi Miyamoto's picture

The homeless are not pidgins. You will see no praise for these men on the on the streets. It is only the directors of these "charities" driving to a private fundraiser in a new Mercedes that will glorify the illusion of generosity.

Bread and Circus

Wed, 01/01/2014 - 16:19 | 4291306 Stockmonger
Stockmonger's picture

Why bother with this when they could just have taxpayers write checks directly to Wall Street financiers/

Wed, 01/01/2014 - 16:27 | 4291318 RaceToTheBottom
RaceToTheBottom's picture

WS is just doing a little to reduce the violence from those most likely to do violence when it does occur against them.

WS does nothing not in their self interest.

Wed, 01/01/2014 - 17:06 | 4291346 Tijuana Donkey Show
Tijuana Donkey Show's picture

And this is how it works:

  1. we get to force people into a job program, when there are no good jobs
  2. The jobs offered are something that benefits WS, and their crew, and most people wouldn't do
  3. The ex-cons get no choice, as probation is tied to the jobs
  4. All the ex-cons get health coverage from ACA, shifting the burden from the state to everyone else
  5. Wall St. gets paid to keep them out of prison by putting them in work camp setups. 
  6. Extra credit - Cons are forced into high priced Blackrock rentals in their forclosure rental pool. 

So how long until everyone is a criminal? I owe my soul to the company store.....

Wed, 01/01/2014 - 16:39 | 4291364 Peter Pan
Peter Pan's picture

The overseen tragedy is the humungous costs to society of jailing a great many people who might not have ended up in prison had the state invested in a bit of micro credit to help some people get on their feet instead of letting them get locked up for some minor shop lifting expense brought on by need rather than inate criminality.

Wed, 01/01/2014 - 16:44 | 4291383 RafterManFMJ
RafterManFMJ's picture

You know, we could test then target the most intelligent and capable students, then off to a special, unstructured school with a classically liberal education. What wonders in art and science would ensue?

Or, on the other had, we could burn cash on known sociopaths to try to 'help' them.

What I think is going on in reality is Wall Street is assembling an army of heavies and thugs who will do literally whatever they are told to do.  They are black-listed from any real job due to a felony conviction, so they will be extremely loyal. Pay them decently and you'll have a protection / enforcement arm that would make the Zetas proud.

Wed, 01/01/2014 - 16:49 | 4291391 RafterManFMJ
RafterManFMJ's picture

It's absolutely to the point of HILARITY the amount of money this Nation, this People piss away trying to elevate different groups of people that cannot, and in many cases, violently resist the 'uplift' foisted upon them.  The pious uplifters stand there, brown from head to toe as they feverishly attempt to polish an entire bushel of turds.

I suppose it's one way you can feel morally superior, pissing away money stolen from the productive, and you always know that since your uplift cannot work, you'll always have employment.

Wed, 01/01/2014 - 18:19 | 4291579 SilverRhino
SilverRhino's picture

I think you might have nailed it.   

Got a job that even Blackwater might quail at?  Call in these boyz.

 

Wed, 01/01/2014 - 20:07 | 4291751 W74
W74's picture

Blackwater?  Fuck those mercenary cocksuckers.  I had a hard time not pulling the trigger on about 10 of them one day back in '07.  Fuck.  That.  Nonsense.  I hope the children of all those pondscum mercs are ashamed of their boisterous gear-queer fathers.  I guess murder and thievery are ok as long as it's done in Muzzie lands, of course when you have wars run for the benefit of the you-know-whos this makes total sense.  Fuck them.  Modoc, NC needs to get flooded on a biblical scale.

Fri, 01/03/2014 - 06:18 | 4295923 SilverRhino
SilverRhino's picture

Blackwater?  Fuck those mercenary cocksuckers.

+1000000000

My ex wife (russian) dated one of those guys.  I thought "My my how appropriate" 

LOL 

Wed, 01/01/2014 - 17:19 | 4291447 Emergency Ward
Emergency Ward's picture

How many parasite bureaucrats does it take to run a program like this?

Wed, 01/01/2014 - 17:34 | 4291469 Musashi Miyamoto
Musashi Miyamoto's picture

I am horrified that these captains of industry are taking a break from operating the engines of growth to focus on the worthless no-producers. Please o heroes of the ages leave social progress to the lesser man. It is beneath your dignity to parley with the dregs.

In my most humble, request that you gift the lower classes with Credit Default Swaps. Only this can inspire these wicked men to see the light of Jesus Christ and be welcomed into the kingdom of debt in brotherhood and solidarity .

Wed, 01/01/2014 - 17:39 | 4291482 logicalman
logicalman's picture

The US - 5% of the world's population - 25% of the world's incarcerated - Bullish!

Welcome to the land of the FEE

Wed, 01/01/2014 - 17:47 | 4291500 22winmag
22winmag's picture

As if treating the symptom and not the disease is a solid plan.

Wed, 01/01/2014 - 18:15 | 4291570 Watch Bird 1
Watch Bird 1's picture

UN effing believable!  For those of us who haven't read the fine print on this remarkable profit opportunity, may we understand the concept to be: lower recidivism = lower taxpayer costs to house prisoners, but instead of any cost reduction actually saving the taxpayers money, said savings (taxpayer money) is instead directed to the "investors"??!!  Where are we going, and why are we in this handbasket??!!

Wed, 01/01/2014 - 18:24 | 4291585 jonjon831983
jonjon831983's picture

IPO coming up, new symbol: XCON

"Ex-Con is engaged in providing low cost outsourcing services and consulting. The Company’s business is structured around "Cleaning", Manufacturing and Financial Services."

Wed, 01/01/2014 - 19:10 | 4291663 W74
W74's picture

I've thought of the same thing except why not make it $10,000 lump sum and a $2,500 tax credit every year thereafter.  Society would still come out ahead.

Lets further that and offer $100,000 lump sum if moving to Sierra Leone and giving up American citizenship. Besides, the continent of Africa is a land free of hate, racism and the White man's institutional/structural oppression; which makes this voluntary non-oppressive/non-coercive government assistance program a win-win-win across the board.

Wed, 01/01/2014 - 19:26 | 4291683 mantrid
mantrid's picture

"Success rates will be determined by Chesapeake Research Associates"

why not BLS?

Wed, 01/01/2014 - 19:29 | 4291692 Andre
Andre's picture

How will this work when for-profit prisons sue when they don't have full prisons?

 

Wed, 01/01/2014 - 20:05 | 4291749 cynicalskeptic
cynicalskeptic's picture

States will start enforcing more and more draconian laws - like having illegal 'secret' compartments in cars- producing MORE convicts to fill the vacancies resulting in more EX-Convicts for Wall Street.....

Soon you'll only have cops, prison guards, convicts, ex-convicts and bankers

Wed, 01/01/2014 - 20:04 | 4291744 are we there yet
are we there yet's picture

Sounds almost like a new student loan in a sucker bond form.  Is this job training out of prison different than the various job training opporunities in prison? If it is different, why could they not just train in prison where room, board (and attendance) is more favorable.

Wed, 01/01/2014 - 20:09 | 4291754 are we there yet
are we there yet's picture

Xcons game a system. Creating a new system to game is not much of a solution.

Wed, 01/01/2014 - 20:25 | 4291775 Papasmurf
Papasmurf's picture

I'm sure this is hedged with an investment in GEO.

Wed, 01/01/2014 - 20:49 | 4291829 StychoKiller
StychoKiller's picture

Someone toss me some crazy pills, I'm fed up with going without!

Thu, 01/02/2014 - 02:18 | 4292620 I Write Code
I Write Code's picture

I'll take some of the first tranch on the proceeds of kidney "donations".

Thu, 01/02/2014 - 07:40 | 4292763 Freewheelin Franklin
Freewheelin Franklin's picture

So, I guess that they will never stop locking up people for victimless. non-violent offenses. In fact, it will probably add to the population since non-violent offenders of victimless crimes are the easiest to "rehabilitate".    

Thu, 01/02/2014 - 07:42 | 4292764 litemine
litemine's picture

Don't worry. This scam will let many that  "WILL RE-OFFEND" and any Damages or Civil suits Will be backed by the TAX Payer. Keep Moving. There's nothing to see here.

Thu, 01/02/2014 - 10:25 | 4292955 DriveByLurker
DriveByLurker's picture

This is THE investment opportunity of 2014:

 

1) Short these bonds, perhaps with a credit insurance derivative product.

2) Give the 2000 a "seed grant" of meth, burglar tools, and cheap booze.

3) Profit!

Thu, 01/02/2014 - 13:17 | 4293514 Rottenclam
Rottenclam's picture

I was unsatisfied with the information that the Reuters article actually provided:

The social impact bond is the first pay-for-success instrument in which Bank of America participated, and the first in which a state, New York, is participating.

So I started trying to find out more, and this is what I found: http://www.mdrc.org/project/social-impact-bond-project-rikers-island

MDRC will implement a cognitive behavioral therapy program for 16- to 18-year-olds detained at New York City’s Rikers Island with the goal of reducing the high recidivism rate for this population by focusing on personal responsibility education, training, and counseling.

Now, I'm not saying we should "give up" on this demographic (teenagers that are in jail), but if anybody here on ZH actually knows anybody that has been to Rikers Island, you'll agree with me in that the likelihood of cognitive behavorial therapy program changing more than a handful of inmates is pretty slim.

Of all the guys I know (5 of them) that have been to Rikers Island, only two are reformed, and it sure as hell wasnt therapy that reformed them.  This bond may be a noble gesture by the fat-cats, but I honestly think that the money could be invested in better things that would impact 16-18 year olds sitting in Rikers. 

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