Goldman Sachs Defies Great Vampire Squid Label


If there's one thing that must raise the hackles of Goldman Sachs CEO Lloyd Blankfein, it's the term "great vampire squid." Coined in a 2009 Rolling Stone piece, writer Matt Taibbi famously wrote: "The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

Unfortunately for Blankfein, the moniker has entered into the lexicon and seems in no immediate danger of exiting it, but if Goldman keeps doing the kind of socially responsible work that's the subject of your Foolish correspondent's less-famous article, it just might someday.

Winner take some
The New York Times is reporting that Goldman is issuing what's known as a "social impact bond" for the Utah High Quality Preschool Program in Salt Lake City. The amount of the loan is $4.6 million. If the program is successful, Goldman will make money; if it isn't, Goldman will lose all of it.

The program is designed to get out in front of childhood education problems, before the affected kids need remedial and special education services. Theoretically, this program will save the state and taxpayers money in the long run by pre-empting said services, while earning Goldman and its shareholders money. And with Goldman putting up the funding, taxpayers aren't putting any money on the line upfront.

Foolish bottom line
Consumers and businesses are becoming more and more in tune with social responsibility in the products they buy and the services they use. Thus, these kinds of investments are investments in Goldman's future as much as anything else.

This is Goldman's second social impact bond. Last year, the Wall Street powerhouse invested $10 million in a program for inmates on Rikers Island. According to the Times, there's no data available on that yet, but this second social-impact bond is another step in the right direction by Goldman to repair its image: which is good for the bank's business as well as its shareholders.

And even more important than that, this is an example of the social good capitalism can accomplish when it puts its collective mind to it. By offering people a multitude of career choices, product choices, and upward mobility, capitalism already does a lot of good. But "conscious capitalism," as Whole Foods co-CEO John Mackey calls it, goes even further: making people money while making a difference.

And social impact bonds aren't Goldman's first foray into this kind of cutting-edge, free-market economic philosophy. Goldman currently runs an innovative program called "10,000 Small Businesses," which helps entrepreneurs create jobs and economic opportunity by providing better access to education, capital, and business-support services.

The sister program to "10,000 Small Businesses" is "10,000 Women," a five-year initiative providing underserved female entrepreneurs in developing and emerging markets business and management education. And Goldman isn't the only Wall Street bank getting on the conscious-capitalism train.

JPMorgan Chase currently has five investments in its social-finance portfolio, including the African Agricultural Capital Fund and the Bridges Social Entrepreneurs Fund. Bank of New York Mellon is famous for its commitment to philanthropy. From 2010 through 2012, BNYMellon gave more than $100 million to charity through its corporate, foundation, and employee cash-giving programs.

To reiterate, Goldman will lose its entire investment if the Utah High Quality Preschool Program fails. It's true that $4.6 million isn't exactly a make-or-break bet for Goldman, but the company is still putting its money where its mouth is. And even if the bank is doing all of this for PR purposes (which I honestly don't think is the case), who cares? So long as they're doing it.

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Fool contributor John Grgurich owns shares of Goldman Sachs and JPMorgan Chase. Follow John's dispatches from the not-so-muddy trenches of high-finance and big-banking on Twitter @TMFGrgurich.The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a gripping disclosure policy.

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