The Dodd-Frank Act turns four, just in time for strong critiques of its implementation. Plus, more on a new study showing that millennials tend to fear investment, instead opting to save money in cash. Also, in an incongruous pairing, Goldman Sachs will fund an educational program on Rikers Island. It's part of a social impact bond, where investors put money into social programs with the promise of profit if the program meets its goals.
The fighting between Israel and Hamas in Gaza has left more than 500 people dead. The State Department said it was deeply concerned about the risk of further escalation.
Governments and non-profits struggle with shrinking tax revenues and donations, and the lack of funding puts social programs in jeopardy. A new movement tries to fill that gap with money from banks.
The twist? The people providing this money aren't donors; they're investors, and they stand to make a profit on social services. That’s why the first attempt at what’s called a social impact bond in America is being closely watched by scholars, bankers, and politicians alike.
The bond involves the incongruous pairing of one of the world’s best-known banks with one of New York's most notorious prisons. Goldman Sachs is lending $9.6 million to fund an educational program on Rikers Island for 16-18 year old offenders.
The program aims to change the young inmates' way of thinking, with the goal of enabling them to make the choices that will ensure they don’t get locked up again. But they face grim statistics -- About half are likely to be back in prison within a year after getting out.
This high recidivism rate carries high costs for the young offenders, their families, and their communities. It’s also alarmingly expensive for New York City to keep them in prison. That’s where the social impact bond comes in, becoming profitable only if the city saves substantial money through a reduction in re-incarceration attributable to the education program.
If the program leads to a 10 percent reduction in recidivism, Goldman recoups its investment. If the reduction in recidivism is greater than 10 percent, Goldman profits.
“Goldman doesn’t earn any return unless the city reaps significant savings on the decrease in recidivism,” explains Andrea Phillips, a vice president at the bank’s Urban Investment Group. (Not all of Goldman’s money is technically at risk. Bloomberg Philanthropies is kicking in $7.2 million to guarantee part of the loan. That has drawn critics, who say it prevents this social impact bond from being a pure test of using private capital for social good.)
The basic case for social impact bonds is they risk bank money instead of taxpayer dollars. A key worry is that it’s a bad and untested idea to mingle services for the poor with bank profits.
“I understand the discomfort with that,” says Susan Gottesfeld, associate executive director at the Osborne Association, a non-profit operating the program at Rikers. “But I feel that it’s not only government’s job, not only non-profit’s job to make sure that our society’s working. And if banks who make lots of money are interested in using that money to make something possible that otherwise would not be, we’re very open to that.”
Gottesfeld says she often hears from other non-profits asking for advice on how they can strike bank deals of their own.
This program will ultimately be judged by what it can do for young people like Louis Rivera. He now works near Coney Island, far better waters than those around Rikers Island, where he did time for attempted burglary. He says the program helped him turn himself around, and what he learned showed him how to give his two year old son Landon a better future.
“I wanna teach him that life doesn’t have to be that for him,” Rivera says. “Regardless of where you come from, because life’s not about the things you go through it’s about the choices you make when you go through them.”
Independent analysts are evaluating the program’s impact, with a report expected next year. If it’s a success for the city and Goldman, expect to see many more banks, governments, and charities buying in to social impact bonds.
Amanda Moffitt is 30, so she was just getting settled when the economy tanked.
“It was 2008, so there was a lot of concern about the stock market and what could possibly happen to your money when you invest it,” Moffitt says.
And, it turns out, that attitude has stuck among young adults.
“They are the most risk-averse group,” says Greg McBride, vice president and chief financial analyst at Bankrate. Its new survey shows that once those under 30 actually have some money to save, they’re very cautious.
“They prefer cash by a 3-to-1 margin over the stock market, for money they’re not going to need for at least 10 years,” he says.
That could be too conservative of a strategy, since savings accounts don’t keep up with inflation.
“Kind of gets us back to that Depression mindset of hiding cash under the mattress,” says David Weliver, editor of moneyunder30.com. Part of the whole problem is choice overload.
“The thousands of investment choices, and all the conflicting advice out there. A lot of it is they sit tight and do nothing,” Weliver says.
As for Amanda Moffitt, she’s wised up. She’s working to become a financial planner.
So where should millennials be investing?
We've heard the mattress is not the way to go, and saving accounts aren't much better. Young people may also simply be intimidated by the vast array of choices, or worried they don't have enough money on hand to make investing worth it. Nonsense.
We've dug back into the Marketplace archives to find some of the best advice we can offer for young (or otherwise new) investors. To start, here's a quick personal finance cheat sheet.
- What are all these investment words? Confused by Muni bonds, junk bonds and hedge funds? What does REIT stand for? What do I use to save for school? Retirement? We have answers to all these questions and more.
- Why bother investing? Young people seeing the state of the economy and saying "why even bother?" isn't new. Deep into the Great Recession, we asked a financial planner that exact question.
- Advice for new grads: A few years ago, Marketplace Money responded to a reader who was just graduating and looking to invest. Our advice? Evaluate your short- and long-term expenses, then get an IRA.
- More on mutual funds: Many mutual funds offer "quick and easy" plans aimed at first-time investors, but easy doesn't always equal better. Marketplace Money explains.
- What if I have a bunch of retirement funds? If you have a few different retirement plans, we have some tips to juggle them all.
People like to watch other people play video games. They like it so much that tournaments for competitive gaming — or e-sports as it's known — are packing stadiums and offering multi-million dollar prizes.
They're also getting the attention of the likes of ESPN, which televised the "International Dota 2" Championships in Seattle over the weekend, with winners soon to be announced.
Tickets to "Dota 2" sold out in an hour at the 17,000 seat Key Arena, and millions of people were expected to watch the games on ESPN2, ESPN3 and online.
"This is a huge amount of fun for us, we're all fans and we get to kind of show off a little bit, put on a big show for everybody," says Johnson.
"Everybody" includes hordes of young men ages 18 to 34, a group advertisers love.
Nicholas Taylor, who teaches digital media at North Carolina State says cable tried airing gaming championships in 2008, but the timing was wrong. That's not the case anymore.
"As it may have been, a shot in the dark, let's put it that way, for ESPN six years ago, is now probably a pretty sure bet in 2014 and going forward," says Taylor.
ESPN says it hasn't committed to any other e-sports coverage. But, Taylor says, the sport is so big, it's going to happen.
McDonald’s and KFC's parent company Yum! Brands apologized to Chinese consumers over concerns that a supplier of theirs was selling expired chicken and beef to fast food chains.
Chinese regulators have shut down the supplier, Shanghai Husi Food Company, which is owned by OSI Group, an American food supplier based in Aurora, Illinois that has an annual revenue in the billions of dollars. The Shanghai supplier also provided food to Pizza Hut, Papa Johns, and Starbucks.
Sunday evening, a local television news program in Shanghai aired a report that showed workers at the supplier’s plant repackaging chicken and beef products that had gone past their expiration dates. The report stated workers also hid crates of expired beef from inspectors sent by McDonald’s.
Foreign fast-food chains typically earn more trust among Chinese consumers who believe the chains will have better hygiene than local eateries, so the question Chinese consumers are asking now is: what about the rest of these brands’ suppliers?
"I think we will come to a point where the large brands – KFC, McDonald’s, Starbucks, and others – will have to start just like Nike and Apple did, showing who their suppliers are and releasing reports about the quality of each one," says Richard Brubaker, founder of Collective Responsibility, which helps multinational companies in China with corporate social responsibility.
Brubaker says all of the companies involved in this particular scandal will need to begin doing unannounced inspections at their suppliers in China, and they’ll have to be more transparent about their supply chains to regain the trust of not only Chinese consumers, but the trust of investors, too.