The ESEA Giveaway to Wall Street

You’ll be shocked, I’m certain, to learn that the ESEA (pdf) has provisions to support social impact bonds. Actually, they’re not called social impact bonds but “pay-for-success initiatives” (I have a feeling people are getting paid either way…).

The entire bill is riddled with this as a funding mechanism for a variety of programs. So what is a social impact bond? Well, basically it’s a contract gussied up as a bond, in which the investors profit if certain academic targets are met, but end up losing money if those targets are missed. A couple years ago, some asshole with a blog predicted what might happen if Goldman-Sachs et alia were allowed to design such products (boldface mine):

This foray into special education will merely be the beginning: the obvious expansion is to move from special education reduction to general performance–that is, how well ‘normal’ students do (that’s where most of the students–and the business–are). Like the special education contract, there have to be milestones–quantifiable ‘deliverables’: the obvious ones being student test performance. Contractors will have to ‘make the numbers.’ There is no way such a system could work without testing–it would have to be an integral component (I suppose a system could be built around at high school graduation rates, but that could easily be gamed too). The current emphasis on high-stakes testing is the way to justify this sort of educational assessment: once it becomes ‘normal’ to hire and fire teachers based on scores, the next ‘logical’ step is to privatize and monetize this system. In an educational world where scores (usually in two subjects, reading and math) are the proverbial bottom line, making the numbers is all that matters.

But I’m sure this financial pressure will not exert any pressure whatsoever to game the system, overemphasize testing, or neglect parts of the curriculum–or education in general–that aren’t measured or quantifiable.

Meanwhile, we learned this year that said asshole blogger was wrong and Goldman-Sachs played it completely straight.

HA HA! I MAKE THE FUNNY (boldface added):

Before Goldman executives made the investment, they could see that the Utah school district’s methodology was leading large numbers of children to be identified as at-risk, thus elevating the number of children whom the school district could later say were avoiding special education. From 2006 to 2009, 30 to 40 percent of the children in the preschool program scored below 70 on the P.P.V.T., even though typically just 3 percent of 4-year-olds score this low. Almost none of the children ended up needing special education.

When Goldman negotiated its investment, it adopted the school district’s methodology as the basis for its payments. It also gave itself a generous leeway to be paid back. As long as 50 percent of the children in the program avoid special education, Goldman will earn back its money and 5 percent interest — more than Utah would have paid if it had borrowed the money through the bond market. If the current rate of success continues, it will easily make more than that.

…To review, we have Goldman-Sachs not only is profiting by cheating, the program actually will cost more than if the Utah state government had paid for the program itself.

Despicable–and predicted. The reason this was predictable is simple: Goldman-Sachs has lied and cheated so many times, it would be out of character from them to do otherwise.

This flim flammery, at the expense of children’s cognitive development, is now likely to be enshrined as law. And don’t expect the political wing of the Pritzker family to veto it…

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