…private sector balance sheets will always fail at internalizing systemic risk. The official sector will always have to step in to help.
This is one of the conclusions of a New York Fed paper (PDF) on the shadow banking system, which provides a good overview and definition of the sector.
Comte’s thinking on religion had as its starting point a characteristically blunt observation that, in the modern world, thanks to the discoveries of science, it would no longer be possible for anyone intelligent or robust to believe in God. Faith would henceforth be limited to the uneducated, the fanatical, women, children and those in the final months of incurable diseases. At the same time Comte recognised, as many of his more rational contemporaries did not, that a secular society devoted solely to financial accumulation and romantic love and devoid of any sources of consolation, transcendent awe or solidarity would be prey to untenable social and emotional ills.
This piece from the New Statesman is worth reading in full.
During the Peterborough Prison pilot, experienced social sector organisations, such as St Giles Trust, will provide intensive support to 3,000 short-term prisoners over a six year period, both inside prison and after release, to help them resettle into the community. If this initiative reduces re-offending by 7.5%, or more, investors will receive from Government a share of the long term savings. If the SiB delivers a drop in re-offending beyond the threshold, investors will receive an increasing return the greater the success at achieving the social outcome, up to a maximum of 13%.
A colleague told me about these bonds (pdf) this afternoon. They are designed by Social Finance. Bonds with coupons linked to policy outcomes appear to be experiencing a surge in interest at the moment – note also the World Bank’s 2009 Green Bonds and US’s Qualified Green Building and Sustainable Design Project Bonds.
I like the idea of green financial products, but why stop at bonds? Going further in this direction could get us all the way to a Hansonian Policy Analysis Market.