When I hear "innovative financing" and Wall Street banks in the same breath, shouldn't I be nervous?
Yes, you should. There's a long, nasty list of innovative schemes pushed by Wall Street and billed as ways to save governments money that have drained city and state coffers.
As Alexander Arapaglou and Jerri-Lynn Scofield have pointed out on AlterNet, big banks have hauled in boatloads of money from their flawed, and even fraudulent, schemes directed at public funding needs, such as financial contraptions and deals involving complex derivatives and whatnot that were supposed to help governments pay for things like bridges and waterworks. As you might imagine, these products often didn't work as the banks advertised, and cities and states frequently get hosed.
In the case of a social impact bond, a government must budget money to pay back the private financier or foundation for the program. If the program doesn't work, the government doesn't owe anything, and the money loaned could be considered a charitable donation. But if it's successful, the taxpayer, through the government, is forced not only to pay back the loan, but to pay for the profits of the investor. Some people object to the idea of private profit provided by taxpayer dollars.
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