Bank to make a killing by cutting crime

AP | August 04, 2012

GOLDMAN Sachs will invest almost $US10 million ($9.5m) in a New York City jail program that will allow the investment firm to profit if it can reduce recidivism rates.

The move makes New York the first US city to test "social impact bonds" that enlist private entities to help save governments money over the long term.

Inmates aged 16 to 18 will receive education, training and counselling intended to reduce the likelihood of reoffending after their release.

"New York City is continually seeking innovative new ways to tackle the most entrenched problems, and helping young people who land in jail stay out of trouble when they return home is one of the most difficult - and important - challenges we face," Mayor Michael Bloomberg said.

"As the first city in the nation to launch a social impact bond, we are taking our efforts to new levels and we are eager to see the outcome of this initiative."

City officials said Goldman would provide a $US9.6m loan to pay for the program at the Rikers Island jail complex.

If recidivism drops by 10 per cent, the firm will get back the $US9.6m. If it drops even more, Goldman could make as much as $US2.1m in profit. If recidivism doesn't drop by at least 10 per cent, Goldman will lose as much as $US2.4m.

Nearly half of the adolescents who leave city jails return within one year. Social impact bonds were first used in Britain and are being explored in Australia and elsewhere in the US.