What if?
That’s the way Lindsay Beck, a two-time cancer survivor and
the founder of a successful charity, started thinking about how the world of
finance and Wall Street could revolutionize the staid nonprofit industry.
Ms. Beck was a graduate student at the Wharton School of the
University of Pennsylvania when she blurted out a question that had been
consuming her: “Could there be a Nasdaq for not-for-profits?”
The idea — creating the equivalent of a profit-driven stock
market for nonprofits — might seem counterintuitive at first. It was a “radical
idea, and maybe I was naïve,” she acknowledged.
But for the last year, she has pursued the concept. It has
gained enough traction that it has won her meetings with executives at Goldman
Sachs, Deutsche Bank and members of the Obama administration. A team of lawyers
at Morrison Foerster has been working to understand the tax implications and
how to comply with Securities and Exchange Commission rules.
Ms. Beck’s idea is just an idea, a germ of a concept that
could go nowhere. And it is early, very early. But it has the potential to
upend an entire part of the global economy if it succeeds. By some estimates,
if just 1 percent of the money in the portfolios of wealthy individuals in the
United States was directed to nonprofits through new financial instruments like
social impact bonds or Ms. Beck’s exchange, the nonprofit world would be
sitting on $1 trillion.
Wall Street is littered with clever plans to use financial
instruments to change behavior — carbon trading, for example. Some have changed
the world, and others failed miserably. As Douglas Horton said: “Good ideas are
a dime a dozen. Bad ones are free.”
Several ideas about using financial instruments and a
for-profit approach in the world of nonprofits are now taking hold. This month,
Goldman Sachs announced a $250 million social impact fund. Morgan Stanley plans
to raise $10 billion over the next five years for what it calls its “investing
with impact platform.”
In September, JPMorgan Chase teamed up with the Bill and
Melinda Gates Foundation to start a $94 million investment fund to finance
late-stage drugs, vaccines and tools to fight diseases like malaria,
tuberculosis and H.I.V./AIDS.
Considering the black eye that Wall Street has suffered in
the public consciousness, some of these efforts will probably be greeted with
cynicism. That may very well be part of Wall Street’s motivation, but that
hasn’t stopped the nonprofit sector from jumping at the chance to explore how
to use these funds to raise money.
Ms. Beck’s idea is an outgrowth of her experiences. She
started a nonprofit, Fertile Hope, which helped female cancer survivors with
pregnancy. Later, it merged with Livestrong (before Lance Armstrong confessed
to doping and left the foundation).
Afterward, she decided to get an M.B.A. She began examining
how to make the nonprofit world more efficient at fund-raising and made it her
independent study project. She says she has long believed that charitable money
is often misallocated; some of the most effective organizations struggle to
raise funds, while some of the least effective charities are allocated
millions.
That got her thinking: An exchange, like a stock market,
would make the success — or failure — of organizations more transparent,
leading to more money in the best hands. On top of that, if donors thought about
their charity as an investment, literally, it would transform the nonprofit
sector.
“When you take off your charity hat and put on your investor
hat, you behave very differently,” she said.
She has been inspired, in part, by several programs that
Goldman Sachs developed to sell so-called social-impact bonds. A group led by
Alicia Glen, a managing director at Goldman Sachs who is a former lawyer and a
former assistant commissioner for housing finance for New York City, has developed
a series of such bonds.
Ms. Beck’s vision for an exchange “is very creative and
visionary but it may take a long time to come,” Ms. Glen said. She added that
although it might be years, if not decades, before such an exchange could be
viable, “It is a very laudable goal.”
Ms. Glen should know. She helped develop the financing
program for the Citi Bike program, in which Goldman Sachs paid for the purchase
of the bicycles and stations in exchange for a potential profit that was capped
by the city. Such an arrangement helped provide money for a program that the
city could not otherwise have afforded.
The company also created a $9.6 million loan for New York
City for a program run by MDRC, a social services provider, aimed at preventing
former Rikers Island inmates from ending up back in jail. The program has clear
goals and benchmarks. Goldman will directly benefit only if the program works.
If recidivism drops by 10 percent, Goldman will be repaid the full $9.6 million
by the city. If recidivism decreases more than that, Goldman could a profit,
capped at $2.1 million. However, Goldman would lose up to $2.4 million, if
recidivism does not fall at least 10 percent.
Goldman has used its own money to finance the programs. But
now, it and other firms are coming up with ways to turn these types of programs
into investments for its clients. JPMorgan’s nearly $100 million fund works
because the Gates Foundation is offering to pay to protect investors from the
potential downside of investing in some risky new drugs and vaccines.
“At the outset of the investment, you are underwriting both
sides of the ledger: the financial side and the social side,” Ms. Glen said of
these new bond products.
Still, Ms. Beck says that to expand such a program broadly,
an exchange needs to be created to allow investors to trade these instruments.
That way, they could hold the most successful ones and dump the duds.
She says the current spate of “impact bonds” aren’t really
bonds; it’s a misnomer. From a technical perspective, she said, “They are
really just multiparty contracts with contingent payouts.”
She is developing ways to create a common system to develop
social impact bonds that are, in her words, “real bonds.”
Of course, her idea may be ahead of its time. When she was
researching her idea, she came across an article from 2006 about a plan to hold
initial public offerings for nonprofits. Still, she asked, What if?
WHERE
TO NEXT? - Obamas Might Stay in Washington After Presidency
Ends, by then, their eldest daughter Malia will be in college, and their
youngest daughter Sasha will still be in high school as a sophomore. 'So we've
gotta ... make sure that she's doin' well ... until she goes off to college,'
the president said. 'Sasha will have a big say in where we are.' ... If the
Obamas do stay in Washington and maintain a residence in the city, President
Obama would be the first president to do so since Woodrow Wilson. In fact,
Wilson, who was partly paralyzed from a stroke, is the only former president in
U.S. history to maintain a residence in Washington, D.C., where he stayed until
his death three years later. ...
Obama hinted that separating Sasha from her high school
friends might be asking one sacrifice too many. ... Obviously they -- and
Michelle -- have made a lot of sacrifices on behalf of my cockamamie ideas, the
running for office and things,' Obama joked.
TOP
STORY: NUMBER OF BANKS HITS LOW SINCE DEPRESSION - The
number of banking institutions in the U.S. has dwindled to its lowest level
since at least the Great Depression, as a sluggish economy, stubbornly low
interest rates and heightened regulation take their toll on the sector. The
number of federally insured institutions nationwide shrank to 6,891 in the
third quarter after this summer falling below 7,000 for the first time since
federal regulators began keeping track in 1934, ... The decline in bank
numbers, from a peak of more than 18,000, has come almost entirely in the form
of exits by banks with less than $100 million in assets, with the bulk
occurring between 1984 and 2011. ...
The falloff is raising alarms among boosters of community
banks, who say such lenders - which represent the vast majority of U.S. banks -
are critical to the economy because they are more likely to make small-business
loans. The number of physical bank branches in the U.S. is also shrinking. From
the end of 2009 through June 30 of this year, the total number of branches
dropped 3.2 percent, according to FDIC data.
FAREWELL
GOVERNMENT MOTORS - The U.S. government ended up losing $10.5
billion on the General Motors bailout, but it says the alternative would have
been far worse. ... Treasury ... sold its final shares of the Detroit auto
giant ... recovering $39 billion of the $49.5 billion it spent... Without the
bailout, the country would have lost more than a million jobs, and the economy
could have slipped from recession into a depression, Treasury Secretary Jacob
Lew said ...
Since leaving bankruptcy, GM has been profitable for 15
straight quarters, racking up almost $20 billion in net income .... It also has
invested $8.8 billion in U.S. facilities and has added about 3,000 workers ...
The auto bailout was part of the Troubled Asset Relief Program, with the bulk
of the money going to financial institutions. Treasury said it spent $421.8
billion on bailouts and so far has recovered $432.7 billion, including the loss
on GM.
MORTGAGE
DEBT RISES - The US has reached an important milestone in its recovery
from the financial crisis after the first rise in outstanding mortgage debt
since the beginning of 2008. After reducing debt for 21 consecutive quarters,
US households increased their net mortgage liabilities at an annualized rate of
0.9 per cent in the third quarter of 2013 ... The rise in mortgage borrowing is
a sign that US households are making progress in their painful deleveraging
after the financial crisis, and may be better able to increase their
consumption, supporting economic growth next year.
BIRTHDAYS
THIS WEEK – Birthday wishes and thoughts this week to: Benjamin Bratt
(50), Chris Evert (59), Al Kaline (79, Brad Pitt (50), Keith Richards (70),
Cicely Tyson (80).
2013
TIME PERSON OF THE YEAR: POPE FRANCIS - TIME names Pope Francis the 2013 TIME Person
of the Year. TIME Editor Nancy Gibbs, who met Pope Francis in Rome last week,
writes: 'Rarely has a new player on the world stage captured so much attention
so quickly-young and old, faithful and cynical-as has Pope Francis. In his nine
months in office, he has placed himself at the very center of the central
conversations of our time: about wealth and poverty, fairness and justice,
transparency, modernity, globalization, the role of women, the nature of
marriage, the temptations of power.... He is embracing complexity and
acknowledging the risk that a church obsessed with its own rights and
righteousness could inflict more wounds than it heals.... For pulling the
papacy out of the palace and into the streets, for committing the world's
largest church to confronting its deepest needs, and for balancing judgment
with mercy, Pope Francis is TIME's 2013 Person of the Year.''
N.R.A.
POWER - Inside the Power of the N.R.A.: It has been a year since
the Newtown's shootings, and federal gun laws haven't changed. Here is why: Even
as the votes in the chambers still favor the N.R.A., gun-control advocates have
some cause for optimism. Time does not seem to be on the N.R.A.'s side. ... Between
1977 and 2012 the percentage of American households possessing one or more guns
declined by 36 percent. ... The N.R.A. is all too aware of the headwinds it
faces and has ramped up its efforts. In recent years, it has targeted young
military veterans by offering them a free introductory 'Life of Duty'
membership. It also works extensively with the Boy Scouts, David Keene
[recently retired NRA president] told me, 'to try to get kids in the city to
hunt and fish.' The N.R.A.'s signature method of recruitment, however, is to
play on the fears of gun enthusiasts with over-the-top claims that President
Obama and his administration will not rest 'until they've banned, confiscated
and destroyed our guns' ...
Over time, this tactic could prove to be a losing one . Just
as Tea Party rhetoric has hurt the Republican Party among young people and
Hispanics, the N.R.A.'s seeming capitulation to the smaller, no-compromise gun
groups risks turning off whole swaths of mainstream gun owners who may be more
concerned with the job market and the cost of college tuition than with the
prospect of a national gun registry. For now, the matter of universal
background checks joins immigration reform and same-sex marriage as issues in
which Washington Republicans lag behind nationwide public opinion. And so the
more competitive gun-legislation battles have begun to take place at the state
level. ...
The N.R.A. has had this issue to itself for a generation,'
Mark Glaze, the executive director of the Bloomberg-backed Mayors Against
Illegal Guns, said ... On the subject of the Manchin-Toomey defeat, he said:
... 'We might have started advertising sooner and more broadly. We might have
paid millions rather than thousands of dollars to ship telephone calls into
offices. But it's entirely possible that none of that would've made a
difference, because you're at the early stage of a process that has several
stages.
BUSINESS
WEEK COVER, THE NEW GENERAL ... As Mary Barra takes charge of GM, the
inside story of how the automaker came all the way back," by Tim Higgins
and Bryant Urstadt : "GM is looking stronger than it has in decades. It's
in its third straight profitable year and feasting on the fruits of bankruptcy,
which in its case include lower labor costs, less debt, and the elimination of
weak brands and redundant dealers. ... Warren Buffett has been buying the
stock. China, where Buick is a status symbol-it was the ride of China's last
emperor-is now the company's biggest market. And GM is no longer 'Government
Motors.' On Dec. 9, ... the Department of the Treasury, which had been selling
about 1 million GM shares a day as the year was ending, declared it had sold
the last. The federal government will recoup about $39 billion of its $50
billion investment.
"Supporters of the Obama administration's decision to
take over GM ... contend that the jobs saved at both the company and its huge
network of suppliers more than repaid U.S. taxpayers. According to the Center
for Automotive Research in Ann Arbor, Mich., the takeover preserved 2.6 million
jobs in 2009 at automakers and companies that depend on the industry. The
center calculates that a collapse would have eliminated $284 billion in
personal income in 2009 and 2010 and cost the federal government $105 billion
in unemployment benefits and reduced Social Security contributions. GM says it
has invested $8.8 billion in U.S. facilities since 2009 and created 25,500 jobs
for new and existing workers."
GOLD
KEEPS TANKING - Bloomberg: "Investors are dumping
gold-backed exchange-traded products at the fastest pace since the securities
were created a decade ago, mirroring the steepest price drop in 32 years.
Holdings in the 14 biggest ETPs plunged 31 percent to 1,813.7 metric tons since
the start of January, the first annual decrease since the funds started trading
in 2003 ... The removals erased $69.5 billion in the value of the assets as
prices fell by the most since 1981. A further 311 tons will be withdrawn next
year, according to the median of 11 analyst estimates"
COLLEGE
FOOTBALL PICK OF THE WEEK – Saturday 12/21, 3:30 PM ET,
ABC: The Royal Purple Las Vegas Bowl; #20 Fresno State Bulldogs (11-1) vs. #25 University of Southern California Trojans
(9-4). SC is favored by 6, but we like The Bulldogs to win 42 – 35. Season
to date (11-5)
SMALL
COLLEGE FOOTBALL PICK OF THE WEEK – Saturday 12/21, 7:00 PM ET,
ESPN: The Amos Alonzo Stagg Bowl, D-III National Championship Game; #1 Mount Union
Purple Raiders (14-0) vs. #2 UW-Whitewater Whitehawks (14-0). We have be saying
all year, this is the year of The Purple Raiders to win the national championship
in a wild one, 42 – 40. Season to date (10-4)
NFL
PICK OF THE WEEK – Sunday 12/22, 1:00 PM ET, CBS: Indianapolis
Colts (9-5) vs. Kansas City Chiefs (11-3). Both teams in the playoff picture,
KC has the home field advantage, 32 – 24. Season
to date (11-3)
SPORTS
BLINK - Sports Illustrated Sportsman of the Year: Denver Broncos
quarterback Peyton Manning - Cover story by Lee Jenkins: "For two decades
Peyton Manning has methodically elevated the standards of everybody from NFL
quarterbacks to video-room interns to offspring named in his honor -- one film
session, one spiral notebook, one dummy audible at a time.
NFL
PLAYOFFS - Kansas City has become the fourth NFL team ever to make
the playoffs a year after losing at least 14 games, clinching an AFC berth by
destroying Oakland 56-31. ... The NFC East and North races are just as cloudy
as ever following Green Bay's 37-36 comeback win at Dallas. The outcome keeps
the Packers within a half-game of Chicago for the NFC North lead and leaves the
Cowboys one game behind Philadelphia atop the NFC East. The Packers improved to
7-6-1 by scoring two touchdowns in the final 4:17. ... Eddie Lacy's one-yard
scoring run put the Packers ahead for the first time all afternoon.
THE
SWAMI’S WEEK TOP PICKS –
(NCAA D-I National Semi Final, Dec. 20) #15 New Hampshire
Wildcats (10-4) 17 vs. #1 North Dakota
State Bisons (13-0) 38
(NCAA Hockey, Dec. 21) #5 Providence Friars
(11-2-3) 6 at Army Cadets
(3-11-0) 2
(NHL, Dec. 21) Colorado Avalanche (21-9-1) 2 at Los Angeles Kings (22-8-4) 4
(NFL Upset of the Week, Dec. 22) Pittsburgh Steelers
(6-8) 21 at Green Bay Packers
(7-6-1) 17
Season
to date (49-44)
MARKET
WEEK
- It’s a busy Monday for economic reports, starting with the Empire State
Survey for December at 8:30 a.m. ET. At the same time, the government is set to
release Productivity and Costs figures for November. At 9:15 a.m. ET, it’s the
November read on Industrial Production. Will they or won’t they? That’s the $85
billion a month tapering question for the Fed as it gets ready to meet tomorrow
and Wednesday. Either way, it could be a volatile week.
The Federal Reserve is scheduled to celebrate its 100th
anniversary today. Fed Chairman Ben Bernanke will give brief remarks, followed
by former chairmen Alan Greenspan and Paul Volcker.
DRIVING
THE WEEK - Fed meeting starts Tuesday with announcement Wednesday at
2:00 p.m. and Bernanke's final press conference as Fed chairman at 2:30 p.m.
... Senate expected move to cloture on the budget bill on Tuesday. Could be
close but there should be over 60 votes to push the measure to final passage
... U.S. Chamber CEO Thomas J. Donohue gives his annual "State of American
Business" address Wednesday at 9:00 a.m. and will hold a presser along
with the Chamber's Executive Vice President for Government Affairs Bruce
Josten.
Next
week: a Rink Rats Christmas.
Until Next Monday, ‘Mele
Kalikimaka!”
Claremont, CA
December 16, 2013
#IV-35, 192
