Okay. Well, I'm very happy today to have Georgia Levenson Keohane as speaker for our financial markets class. Thank you for coming. This course I've always thought is different from many other finance courses, in that it emphasizes social purpose. Often, finance is described as a way to make money, but it doesn't have to be for yourself or it can be for a broader purpose. In fact, normal humans are not explicitly exclusively selfish. So, we have here someone whose life exemplifies what I'm trying to get across. Georgia is executive director of the Pershing Square Foundation, which is a family foundation in New York City that has purposes other than maximization of anyone's fortune. She's also connected with the Columbia University program and social enterprise. But what brings her here most directly is her recent book, Capital and the Common Good which is all about innovative technology in finance. So, what is finance about? It's about incentivizing people, it's about managing scarce resources that they're used effectively. It's about conveying information and making them information credible and universal. All those things are technology. I think her book is a wonderful example, a wonderful treatise on how that is done. So, I'm going to leave it now to Georgia. And then at the end, we'll have questions for about 15 minutes at the end. Okay. All right. Thank you. It was a treat to come back to Yale and to New Haven. I was an undergraduate, I graduated in 1994 and did a second tour at Yale New Haven and my husband was on the faculty here at SOM. So, both my kids were born here. So, lots of connections and I love to come back. Particularly, thank you Professor Shiller for having me and for inviting me to be part of this financial markets course. I was thinking as I came up this morning on the train of a conversation we had. I brought the book actually, last November, so just over a year ago when the book came out and Professor Shiller very kindly agreed to do sort of a fireside chat with me about the book to say, what do you mean by Capital and the common good? What do you mean how innovative finance? And how can be as finance to tackle the world's most urgent problems? And we had scheduled a conversation that actually took place I think about November eighth or November ninth. So, it was right after the election. And I think we were all a little dazed and confused and we did a pretty good job staying on track on that evening. But indeed, I think it's been in some ways a dazed and confused and a little bit of a bewildering year since then for all of us. And I think therefore all the more reason to think about creatively about how we solve and address some of these tackling problems. I will say a few weeks after our fireside chat, Bob Shiller very kindly referenced the book and in one of his opinion pieces in The New York Times where it served an open letter to Donald Trump in the new where the incoming administration that we imagine might be a business friendly and a markets friendly administration to say, here's some interesting policy ideas that reference finance and reference markets for public good. And I think even the dismal science and the dismal scientists in those days were hopeful, I think we all remain hopeful. But again, it's been an interesting year. And I guess as I came back to campus today, all I could think was how fortunate really all of you are to be spending this year and these years I think here at Yale. Where you have the chance I hope in a very safe and welcoming and open environment to just soak in the knowledge, just soak in the training, just soak in the skills. But I think also really buttressed by faculty and friends and mentors like Bob Shiller who encourage you to take that learning and that knowledge and really think about how it's applied in the public sphere. And I think that that's exactly what we're going to discuss today. How finance and sometimes are really sort of plain vanilla tools that equity insurance et cetera. How we can really think about harnessing these for public purpose. Before we get into too many of the case studies and I have the case studies you find interesting. And again, we will save some time at the end for Q and A. But before we really get into some of the definitions in the case studies, I'd like to do a little bit of a thought experiment. So, I'm going to ask all of you to think about how you got here this morning and how you got here today. And I don't mean literally. I sort of came back through campus and I guess my route here would have been from old campus or from Branford through Cummins and grabbed a muffin or something. I saw that Cummins which I guess is no longer called Cummins, it was closed. But I guess some of you from the newer colleges also may have had a less of a climb or less of a journey, but so it don't mean literally today. I mean what it took for you to get here? What it took for your families what it took for your communities to send you here? And all of you today really represent in many different ways an investment in our future and a bet on our future. And it's a bet your families made, it's a bet your parents have made. It's a bet your communities have made, it's a bet your high schools made, it's a bet this university has made, it's a bet that the federal government has made. And the reason I mentioned that is because you might not think about this, but there are actually a number of very interesting innovative financial instruments that have helped people make that on your future. So, what do we mean by that? Well, some of you, your parents or families may have used 529 accounts to help them and to help you save for college. They may have been putting money to 529s instead of their own 401k, their own savings for the future. They may have had other savings instruments. They may or may not depending on where you lived and where you grew up. Some of you may have lived with extended families, some of your families may have rented. Many of your families actually paid for their homes with mortgages. And with those mortgages really represent our contracts with your future family selves. So, mortgages are essentially saying we are borrowing from our own future to secure an asset, for many of our families it's the most valuable asset we have. And we can't really pay for the whole thing upfront, but we can pay in small bits over time. When you arrived at Yale, you arrived probably pretty healthy. That doesn't just happen. That's because of a lot of pretty inventive health insurance. Either that a school provides or your family provides. And when you got here, many of you received financial assistance from the school. For many of you, for most of you that was from very generous grants that no one has to repay. And let's be clear, all students who are at a place like Yale are receiving some kind of financial subsidy because Yale charges tuition still below cost. But for many of you also it meant publicly subsidized loans or you had to go, that your families had to go to the private markets for loans. And again, that student aid is you borrowing from your own future and your ability to repay in the future for an investment in your human capital today. So, your bets on the future finances help. No pressure. But I ask all of you as we talked today, and even as you leave this classroom to say, okay, I'm going to broaden that aperture a bit. And I'm not going to think about myself, and I'm not just going to think about my family and my immediate community. But are there other ways that I can start to think about some of these financial instruments that we don't actually think about, but they didn't just appear, they were designed by policy specialists, they were designed by financial engineers? Are there ways that we can really think about those truly harness them in ways that help us grapple with some pretty onerous and pretty challenging conditions out there, climate change, health, economic, inclusion and maybe even issues of social justice? So, can we think about finance in ways that help us really sort of work towards a much broader shared prosperity? So briefly, as Professor Shiller said, I come today with a few different hats. I did leave my 194 hat at home. But one my other hats are theory and practice. So, practice. I've spent most of my career since my Yale undergraduate days in the world of social change and community in economic development pretty broadly defined. Sometimes in the private, sector sometimes in the social sector. Currently, I am executive director of the Pershing Square Foundation, which is a foundation that uses both grants and impact investments to address issues of health, education, economic, development, social justice. Very happy to save some time at the end to talk to you about both our grant making and our impact investing strategies. But I also teach in the Social Enterprise Program at Columbia Business School and have written a couple of books. One on social entrepreneurship, and one, this one, on innovative finance. I came to the idea of innovative finance of thinking about using financial tools and financial instruments broadly speaking to address issues of public and public purpose. As I was just finishing the previous book, the first book on social entrepreneurship, and this was about fall 2002. I was in New York City, and that first book on social entrepreneurship was really and much more about iconic change makers people like Wendy Kopp who had founded Teach for America or Muhammad Yunus who had won the Nobel in Economics for his work in micro finance, Bill Drayton who had founded Ashoka, but it was really more about those people we think of these larger than life change makers. And I was in New York, it was during Sandy, big hurricane shut down the city. And I'm a lifelong New Yorker, born and bred. And it was really when the first time in my life that I'd seen the city actually come to a complete halt. So, the city was really paralyzed in part because the subways and the buses, the mass transportation system which is really the artery and the lifeblood of the city was actually shut down, and it's extremely rare occurrence. What was more remark actually was how quickly the MTA got the subways and buses running again. What I subsequently learned that some of the unsung heroes of Sandy and that natural disaster are actually not these larger than life Wendy Kopps folks that you sort of read about and you hear from a conferences, but are really the risk analysts in the bowels of the MTA who discovered that with five billion dollars in damage because of the storms to the tracks of the subway. So, the subway was flooded, 100 year old wiring is completely corroded. With that degree of damage, the MTA found itself uninsurable in the traditional insurance markets. And without insurance that meant they couldn't get the subways and buses up and running. And what the folks there did was extremely creative and extremely entrepreneurial and extremely innovative. And they said, you know what, we need to be a little bit untraditional about how we think about insurance. And they went to something called the catastrophe bond markets which is typically used to re-insure insurance companies have typically been used really to protect and ensure private property not public infrastructure. They went to cash rebond markets and pulled like a municipal finance first. I think this was very creative and innovative and led me to think wow. You know maybe there are other people who are thinking really out of the box about ways to take really sort of age old and traditional financial instruments and products and apply them to new circumstances. So I started to look at things like vaccine bonds and green bonds, which aren't always all green, and social impact bonds, which aren't even bonds, and a whole range of financial instruments. And this started to become a book. People became more excited in some ways that took on greater urgency because at the time, global leaders were beginning to meet at the UN to articulate what would become the Sustainable Development Goals. The sort of 17 very bold, very audacious goals and healthy economic development inclusion, infrastructure, etc. And the more countries begin to speak and sort of announce and commit to these goals, the more they realize that actually, all the public assistance, all the sort of public spending, and development assistance and all the philanthropy in the world will still leave us a couple of trillion dollars short of the money and the investments we needed to achieve these goals and therefore, we needed to go to the capital markets and try the crowded, more private sector dollars with things like green bonds, with things like cap ones. But the more I looked and the more I really thought about it, the more I analyzed and I can give these are the examples that would get to the more I realized that actually, innovative finance is much more about better money, and smarter money than it is just about more money. So it's not just about crowding and more capital, it's smarter capital. And what I mean by that is what Professor Shiller alluded to was, ''Can we really think about innovative finance as a way to give people the security, the motivation, the incentives they need to take risks, or to make longer term decisions, to have long views and long horizons, to invest in prevention, for institutions and governments to invest in really evidence-based policy?'' and maybe valued that that's what innovative finance is all about. So a quick word on definitions before I get to some of the examples. I sort of want to address head on the difference between what I would call innovative finance and financial innovation. So if you're taking this class, it seems to me already that you are interested in finance. And you already actually know a fair amount about finance. But as you're also well aware, sort of within the academy but also, beyond academia, finances is a very political and complicated term in industry and concept. And as I wrote the book, I sort of encountered really two camps. There's one camp that sort of really tends to fetishized finance. And as I talk to friends and colleagues who work in financial services, they say ''What you talking about isn't all finance for good.'' I mean isn't that what finance is? And on the other end of the spectrum, at the other extreme, there are folks who I think who really have come to be very wary and very skeptical, usually justifiably but sometimes even have a more demonizing view of finance and say, ''You know what, we're really concerned about the financialization of the economy.'' And I think what that means is that people are legitimately concerned about privatizing everything, which is different than finance. But they also are very concerned about sort of financial innovation, and financial and engineering unchecked. So in 2008, in the wake of the financial crisis for example, Paul Volcker, the former Fed chief very famously said, ''The only really useful innovation in finance has been the ATM. After that, were done. '' And you can see really what he means by this is that credit default swaps, subprime mortgages, a lot of the fancy engineering, that we saw in the lead up to the financial crisis, really can sort of get out of control and cause dramatic instability in the system and bring down the system. And so again, for the purposes of this discussion, and when you write the book, you get to define the terms. Financial innovation, I tend to think of as sort of engineering that's really strictly designed to improve market efficiency and to increase profits, and that could be things like speed trading, or subprime mortgages, maybe even payday lending. I mean those are really engineering for engineering's sake, whereas I'd consider innovative finance to finance that's deliberately intended to solve political and market failures and problems to help serve the poor and help meet the needs of the underserved. So we'll see today that things like microinsurance and agriculture are pay-as-you-go financing for solar electricity or ways to make public transportation more affordable. So again, it's a little bit of tautological definitions. I sort of wrote the book so to find Innovative Finance is Something For Good. But I actually think that that's better for the term. Okay. So now, finally, my kids are a little bit addicted to each queus. They say, ''Let's get down to the new ingredient. Get the show on the road. '' So we're doing it down. We're going to do that with some examples. And again, I'm going to sort of plow through these and then keep some time at the end. And happy to sort of talk about these examples, other examples, the work at purging, etc. So I ask all of you to think about how you got here this morning. I'm going to start with an example, that relates a little bit to how I started my morning and how I got here this morning. And my morning started before I got on Metro North. I had to hop in the subway. And no, this is not all talk about the city subway although it could be. I happened the subway and I swiped my MetroCard. And as we know, every swipe of the MetroCard costs $2.75. So if you're a daily commuter, and you're taking two of those trips every day. So perhaps up to 500 times a year. $2.75 can add up very quickly. It's very expensive. Fortunately, for me and for others, my children have had free MetroCards because they're subsidized by the private schools. And the seniors have also free or very discounted MetroCards. And I have a monthly MetroCard, which means that, in aggregate, I'm paying a lot less than the equivalent of 2.75, right? And that's good news. The bad news, the not so good news, is that that monthly MetroCard costs me 121 bucks upfront every month. And it turns out that that $121 upfront every month is cost prohibitive for many New Yorkers, millions of New Yorkers in fact. So that means that the 75,000 students in the CUNY system for example, using higher education in the City University, more than half of them live at the poverty line. And because of the way poverty and low income populations in places like New York are not distributed, most people are not living in the inner city. They're living spread out, which means that they also commute. That commute becomes very expensive when you can't afford the discounted MetroCard. The same thing is true clearly for millions of low income New Yorkers who need to commute. So it's estimated that in aggregate, New Yorkers are overpaying $500,000 a day because they can't afford the upfront costs. And this seems like something that's quite easy to fix. Maybe the MTA should address it. They haven't. So interestingly, there are FinTech startups that are sort of social enterprise type startups that have started to address things like this. So one of them, like back end in Avi Karnani, its called Alice Financial. And obvious insight was that given mobile technology and a small float. He has a for profit. He could basically charge people a little bit more to pay him weekly. So probably about $30 a week rather than the full upfront cost. And his float that he charges, which is very small, allows him essentially recirculating, allows him to serve more people. Now this is not just a problem in New York. This is a problem. This is a problem in most major cities and as financial forces work around. But it's really solving a major problem with essentially layaway financing, right? Not new, something that we're all familiar with. But he's actually intentionally designing it for good. I came to the Alice Financial example. And I came to this, not because I ride the subways a lot every everyday but because when I was writing about innovative finance, I could not skip over the pace of revolution in Kenya. So that's a story that if you're writing about the intersection of technology and finance you start with. And I think most of us know that story. So 2007 or so, Safaricom, the telecom company, comes to Kenya, where maybe 75% of the population doesn't have a phone and is certainly unbanked. Fast forward 10 years, now about 80% of the population in Kenya has a mobile phone and using the M-Pesa platform. Pesa is Swahili for money. People are also now enough banked. They have access to the digital payment platform, and by some estimates, 40%, 50% of the Kenyan GDP is flowing through the M-Pesa platform. Kenya's M-Pesa have clearly led the way, other companies have followed, other countries have followed. Were a little bit of a laggard in the US, but we're catching up. What's interesting to me about the M-Pesa story is that while 80% of Kenyans are effectively now banked in some capacity, because of the M-Pesa technology, about that many are also still living off the electrical grid in Kenya. And two billion people, by the way, globally are not on the formal electrical grid. So what does this mean? This means that they are relying on other sources of energy, that are often very expensive and noxious, and, in some cases, toxic. So for example, people are using single use lead batteries or they're using candles, or they're using lanterns or they're using diesel generators. Often, what they're using is kerosene. Kerosene is very expensive, but you can buy in small quantities to make it a little bit less expensive per use. But over time, it's a huge expenditure. It earns. It poisons. It's a major contributor to global warming through CO2. So all around, kerosene is a really bad source of energy. And of course, if you're a Kenyan household, you're spending more than $200 a year which most are on kerosene. You know, it makes perfect economic sense to install a solar panel but only cost a $199. Again, it's the Alice Financial problem. Its the MetroCard problem. Most of those families do not have $199 upfront to make the investments. So people know it makes sense. It's not that people are making bad decisions. They just do not have the upfront cash for car. Again, entered into the Kenyan market and now we're seeing a proliferation of these companies like M-Kopa. Kopa means borrow in Swahili. As you all see Swahili is effectively the language, the lingua franca of innovative finance. And what M-Kopa does, is that not only installs a solar panel in your in your home, but it installs an electronic payment and tracker, so that you can make essentially layaway pay-as-you-go payments for the solar panel in small increments over time. Again, layaway is not new, pay-as-you-go is not new. What's new, and what's innovative is the application to alternative, and ultimately more affordable energy sources for families who wouldn't otherwise be able to make them. Now, M-Kopa has led, but there are many other companies, and countries that are following suit. At Pershing Square, we are invested in a company called Angaza. We're invested through a fund called the Social Entrepreneurs Fund, that makes these kind of investments on our behalf. And because of companies like M-Kopa and Angaza, adoption rates for solar are estimated to be probably have accelerated maybe four times faster than they would have otherwise. And you can imagine once you start thinking with this lends about pay-as-you-go, that it doesn't just have to be solar. This could be and we're seeing for water, for health services. There are books that schools are downloading and paying per chapter. You could really, it begin to explode your mind a little bit about all the goods and services that are now suddenly available, when they wouldn't be otherwise because the upfront cost, was too high. What I only really recently started to understand, is that in some ways to me, the most exciting, the most interesting part, is that through companies like Angaza, families for the first time are not only moving out of energy poverty, so they're finding better sources of energy. For the first time, they're actually able to establish credit histories, because there is documentation of their payment, and repayment schedules that shows that they are extremely consistent and shows they're credit worthy. So, suddenly, they can begin to move up the credit ladder, and now just be eligible to finance things like solar. These families don't necessarily own, like they typically don't own their homes. So, this credit history, in some ways is the most valuable asset that they could possibly own. You move up the credit ladder, and suddenly you're eligible for financing for all types of things, a home, your child's education, et cetera. So, again, in this intersection of technology, and new forms of finance that ushers in, is very interesting and has in some ways, huge and exciting potential. I know the next question is or at least the question in my mind, when I, this is a very techno-optimistic, and kind of techno-utopian view of the world, and aren't these really just about technology and not necessarily about finance. I mean, why is the book, why isn't it called Innovative Technology? And I think that's a fair question. And as I started to probe further and this is something we really think through, I think at the intersection of technology and finance, we pretty quickly run into some limitations. And in some ways, I think as we think about with the power of finance, but also the bad experience. Either the lack of experience, or the challenging experiences people, particularly vulnerable people have had with finance, with financial services, even though your experience might have just been that you're with predatory lenders et cetera. The human interaction and the human component, [inaudible] and I were talking about this earlier through the need, actually have face-to-face communication with people that you trust. In some ways, we really quickly bump up against the limitations of what technology and finance alone can do. So, I call these cases a good fit where you have finance, innovation, technology, and trust. So, what do I mean by that exactly? What's a good example of a good fit? Thinking about finance and thinking about the under served by definition means that you need to visit and revisit microfinance, and where we are now today with microfinance. So, as I alluded to earlier, as I described earlier Muhammad Yunus, a pioneer of microfinance and microlending in particular showed in the 1970's, Yunus and others, that you could make very small loans to poor people who in the absence of collateral, but under the right circumstances often through joint liability were able to repay those loans. That was a huge breakthrough in showing credit viability, and in launching what would become commercialized and multi-billion dollar industry which is the microfinance industry. In the years since then, we have developed, people have continued to push the need on microfinance. What we might call microfinance 2.0 in some ways because there have been real concerns about commercialization and what happens when you introduce for profit companies into the microfinance space. But, in some cases, there have been very legitimate questions and inquiry into how effective microfinance, in particular microlending so these small loans have been and actually raising people out of poverty. So, many development economists including some really excellent ones here at Yale and elsewhere, have used very rigorous studies to say, "You know what, are those microloans enough?" And the empirical record actually is a little bit mixed on this, but I think if you look at some of the meta-studies, what we can observe is that lending may be necessary, but not sufficient to raise people out of poverty. And in fact, what people really need are broader access to savings products, to insurance products, to pensions, to some of these payment technologies that credit alone is not enough. So, as I began to explore who are some of the leaders, who are some of the pioneers in this microfinance 2.0, who are some of the organizations globally that are really successful in developing this broader suite of financial products and services. Consistently, people said to me, "You need to go see IFMR Trust in India." They are lenders to or they are microfinanciers to the rural poor. They've really done an exceptional job of creating a broad array of products and services, and they're also really thoughtful about technology. So, go and talk to IFMR Trust and find out what they're doing. So, I went and I spoke with the leaders of IFMR Trust. Parenthetically, most of them are are women and I'll come back to some of the issues related to finance and gender. But, I went and spoke to folks at IFMR Trust and I said, "I understand that you have this incredible array of services. I understand that people can save. I understand that they can use electronic payments. I understand that people get insurance for their cattle or get insurance for their crops. That's really fantastic. How did you get here?" And they said, "Well, we want to tell you how we got here because it's important and it wasn't inevitable." They said, "We want to tell you a story about a client of ours. And we want to tell you what we learned." So, they said, "We had a client. She was an agricultural worker. She worked in the fields and she used to come to us regularly for gold loans. So, what that means is that she would take her jewelry, very common practice, use it as collateral and borrow against it. Very consistent repair. So, she was a terrific type of client. And a few years in, unfortunately also quite common, she's walking to work one day, near the field, and she's hit by an oncoming truck and she's killed. And IFMR Trust discovers that she has left behind five dependents. So, her husband had left her and she has two children that she's supporting, her parents, and a sibling. But, they realize of course is that what's even more tragic is that what she didn't need were gold loans, what she needed was life insurance. That would have benefited her family and really kept them afloat after she was killed. And IFMR Trust had life insurance on their books, so they could have offered this to her if they had had a better understanding and insight into who she was and the financial needs of her family. Fast forward a number of years, IFMR Trust offerings now include all of the great products and services I described. Financial counselor, essentially a financial health community worker, who goes household to household with a tablet. Enters a home, takes in a huge amount of basic financial data, basic household information. There's an algorithm in the tablet, so no one really has to make any sophisticated decisions on the algorithm and we can get to later the problems with some of these algorithms. But, the algorithm will then spit out what would be the best products and services for this person. What makes it all work and sort of the way the alchemy works, is that you have the technology, you have the broader range of products and services. But you also have this trusted member of the community, who's going to people's homes and helping them understand and trust that these are the right products and services for them. Again, that's the sort of fit finance, innovation, technology, and trust seems to make it all work. When I came back to Columbia and I came back to New York, and was excitedly telling some of my colleagues about the IFMR story they said, "Oh, right of course, but you must know Justine Zinkin, Uptown at Neighborhood Trust". And I didn't know Justine but I sort of played along I said, "Yeah of course, I know Justine Zinkin." And then again, hopped in the subway and went uptown to a little bit further uptown to Washington Heights, where Neighborhood Trust is. And Neighborhood Trust turns out to be started life really as a credit union and is now one of the most innovative finance institutions serving the poor certainly in the New York area and even nationally. And the reason Justine has been very successful at least what I was told on the front end was that, she has really been a wizard in helping get technology companies to develop terrific technologies that serve better sort of Fintech for the underserved. So, they use smartphone technologies to let some of their very low income clients do banking. They have a whole range of savings apps on those phones that people can try to save. They have socially responsible credit cards that allow people to start to pay down their household debt. We were discussing these type of Fintech companies earlier, they're even working with employers to think about payroll technology. So, they work with employers to develop essentially software that allows people to get paid when they need the money rather than having to wait a two-week pay period. So what that means is that, if your rent is due in three days, you've worked three days, you've accrued enough money that you should be able to get it now rather than have to wait. So I said, "Justine, that's really terrific. Which of these have been the most successful? Where are you seeing the most uptake? What are people most adopting? What makes this work?" And Justine looked at me and she didn't hesitate she said, "Marisol". And of course I used to work at McKinsey and I teach at a business school, so I assume Marisol is an acronym. And I'm thinking metrics and accountability and she said, "No, no. Marisol is a lady. Marisol is a woman who lives in upper Manhattan, and is convincing clients not to put their money under the mattress." That if they actually start to use some of these apps or they open accounts with us, they're not going to necessarily get deported. That there's a huge concern and fear. And that all of these technology and all of these products and services go unused unless there's a trusted individual again. IFMR, same thing as Neighborhood Trust. There's a reason for these sort of age, these financial institutions have the word 'trust' in their names. And that's because it's really critical to the process and sort of makes it all work. And we can come back to what I'm often asked, what do I think some of the most promising areas are for further work in innovative finance for sort of products and services, and give out opportunities to better serve the poor? And I think this area of financial services especially in places like the US, where we've have like $138 billion in dark products and services. So, payday lending, auto loans, check cashing, and it's not that the poor in the US are unbanked, they're just using really pernicious and expensive banking services. And so I think somewhere between non-profit and predatory, there's actually a lot of room to work with. You can make some margins and make some money and be self-sustaining, but you don't necessarily really need to exploit people. And I'm happy to come back to some of those that we've been exploring at prison because that's been a highlight of my time there. I think let me jump into maybe a third category. I think a little bit we have the sort of technology, and then the overlay of technology and human interaction. I think there are sort of many ways to slice and dice these in many categories. What I think in some way is some of the most interesting are finance and financial instruments. And these are mostly going to be types of public-private partnerships, and financing facilities that have to deal with prevention. So basic investments in prevention, and the adage that an ounce of prevention is worth a pound of cure. And if we really think about what that RLI means, I think there's a whole category if we start to use that lens of interesting innovative ways to think about finance. And I'm going to give an example from insurance, which I promise will be pretty cool even though we don't always think in insurance that way, one that has to do with debt and lending. And then I think maybe close with some related to pay for success in social impact bonds, which have gotten a lot of coverage in the press and people don't necessarily know what they are and they're certainly not bonds. What I like about these investments and prevention examples, is they hearken back to what we discussed at the outset about the mortgage or some of your student loans. In other words, they are really less about what you're financing than when, and when you're making the investments. And this has to do with what economists like to call intertemporal transfer. So the thinking about resources in the future, and trying to front-load them and use them today. So again, we talked at the outset about all the investments everyone is making and all of you and the investments in these human capital, because we think these investments now will really pay off in the future as you all sort of fulfill and realize your potential. And you know that if you move inside those investments team further down this sort of early stage spectrum so to speak, the investments can pay off even more. So for example, we know that investments in early childhood education particularly for poor kids and underserved kids, that ROI investments in early child education because they're here, can have like a seven to one return. So, really terrific. The same is also true by the way in prevention, in stopping bad things. So you can realize really good things if you do it early, you can also stop really bad things if you do it early. And that's particularly true with crises, that's particularly true with catastrophes. In some ways, we spend 40 times responding to crises and responding to catastrophes than we do preventing them. So for example, we know that investing in a vaccine is a whole lot cheaper than trying to grapple with the costs of a full-blown disease. Even when we get a full-blown disease, we know that containing a full-blown disease here is a lot cheaper and much more cost effective than when it really metastasizes to a pandemic and trying to contain a pandemic. Responding to drought is easier than when it becomes famine. Job training certainly beats mass incarceration. And even when it comes or maybe especially when it comes to climate change, for example. So, abating climate change or investing in for example, low carbon technologies, as expensive as those are, they're a heck of a lot cheaper than dealing with the catastrophic and very long term effects of climate change. Therefore, really a host of those various political reasons, for economic reasons we don't make those upfront investments. And I think I want to walk through a few examples that I think allow us, again, give institutions the incentives, the security to make some of those investments that we know are really cost effective. And again, I have a colleague who refers to some of these catastrophes, these crises in sort of loan shark. They're loansharking that they become more expensive, and they're also a serial killer because they get a lot worse. So they extort more and more money and the problems get a lot worse. So let's consider, let's make this a little bit more tangible. So, recall you guys were young, but think back to 2014 and the Ebola crisis in West Africa. So in 2014, in March, MSF Doctors Without Borders sounds the alarm. They see a handful of cases of what starts to look like Ebola. Nasal bleeding, rectal bleeding, starts look like Ebola. They sound the alarm, this is in March. The World Health Organization doesn't declare an international emergency until August. And donor countries and the World Bank, they don't really start to release funds, they don't flow an earnest until November, so eight months later. We know what this delay essentially cost approximately 10,000 lives in Sierra Leone, Guinea, Liberia, billions of dollars in GDP lost. And again, those numbers are a little bit antiseptic, they clearly do not fully capture or describe the massive human toll. It's just we can't possibly begin to estimate, but those are just put some figures on it. Now in finance, and in Wall Street, in the business world, we think about those hockey stick cards and everyone gets very excited. And hockey sticks are a good thing because we say, "Wow! This business, this company is going to grow. It's going to whoosh!" It's going to go like that. And we love hockey sticks, but we don't love hockey sticks when it's a pandemic. Again because the disease itself grows so rapidly exponentially, and the cost of abating it or the cost of containing it also do the same thing. So by the World Health Organization's own estimates, the cost to contain Ebola would have been five million or so in April, by July $100 million, by August a billion dollars. The World Bank is now trying to design and is putting in place under Jim Kim, essentially a Pandemic Financing Facility to try and think through how we can use insurance to respond much sooner once there's an outbreak. So the whole notion that you start to see a crisis that countries go to the U.N. whether it's the World Food Program or the World Health Organization, they issue an appeal. That appeal then goes to donor countries having a purchase called Too Little Too Late, whether something like insurance can short circuit that process. And this isn't just in someone's imagination or fantasy, there are plenty of examples that exist for what an insurance facility might look like. And one of them comes from drought. It doesn't actually come from pandemics. The Africa Risk Capacity, which is sort of a funny name ARC, the acronym is a little easier to refer to. Africa Risk Capacity is an insurance entity that was created in 2015 by the African Union. And essentially, it was designed to create insurance to respond to drought. So drought like Ebola, same thing, drought becomes famine very quickly, famine leads to food insecurity, which is basically a euphemistic word for starvation. Starvation is not only devastating to the immediate communities, but very destabilizing because people migrate. And it can be extremely challenging for entire region. Again, the typical response, Too Little Too Late, there is insufficient rainfall. Countries typically then appealed to the U.N. There's lots of sort of protracted political discussion, and the money comes both too little and too late. And a number of countries in the African Union finally got together. There have been at least three major droughts in the Sahara and sub-Saharan Africa in the last 10 years that have really been devastating. And they said, what if we essentially turns out by the way that drought among the number these countries is uncorrelated to the risk of drought. I wouldn't have assumed but the region is large enough, and the topography, the drought geography varied enough that the risk of drought is uncorrelated, which meant that it lent itself very naturally to an insurance pool for them to pool their risk. And in the first year in 2015, Mauritania, Niger, Senegal and Kenya all paid in premiums of about one million to nine million depending for up to $60 million in drought coverage, and that first year $26 million was paid out as soon as there was any detection of insufficient rainfall. The way this works among others is that it relies not only on countries paying in a premium, but it also relies on weather stations on the ground and satellite technology in the air. So as soon as there's any indication of insufficient rainfall their pay is immediately made. So that has those payouts being made very quickly, shave months off the response time. And months of the response time when it comes to drought, it's not severe and we waiting for our auto insurance to repay after an accident. I mean this is the difference between life and death, so the shaving months of the response time is huge. Today, there's about $500 million in coverage for 10 countries. The ARC is aiming for 30 countries, and 1.5 billion dollars in coverage by 2020, which should cover about 150 million people. There are a number of interesting lessons I think from the ARC example not just that it lends itself to pandemics and potentially other natural or even man made disasters, but there's a lot related to good governance. So for example, countries can't even pay in a premium, they can't even join the pool unless they have demonstrated preparedness plans. So what this means is that it's not just that you get the money sooner but the idea is to try to ensure that once you get the money sooner, it's going to be spent well. There's no value in getting the money sooner if it's not going to be spent well. It's also really worth noting, and we'll talk about this at the end in terms of not only the locus of innovation where it happens, but sort of who is in charge and who controls this. It's very important that this is an African Union owned entity. There are huge issues as all of you know in the history of development about where the money comes from, who's designing the system, and who owns it. And in this case it is an African-owned entity, which just has a huge implications in terms of sense of sovereignty and solidarity between the countries. That's the insurance example. I want to talk briefly about something called IFFIm, which is the International Financing Facility for Immunizations, which is a financing facility that really is about debt and borrowing. It has to do with funding vaccines. Again, we talked about mortgages, we talked about student loans. This is really a case about borrowing from future aid and future commitments for needs today. So IFFIm came about, the ideas for IFFIm started brewing in about 2000. We talked about the Sustainable Development Goals that countries articulated last year. Now, two years ago in 2000, the precursors to the STGs, the Sustainable Development Goals were the Millennium Development Goals in 2000. Most of those were focused on global health. So AIDS, Malaria, Tuberculosis and again, countries came together with very good intentions. The UK was among them, the US, many countries. They made these bold pledges, these bold commitments. But again, it turned out there was a spectacular funding shortfall not surprisingly that even the largest commitments of ODA systems, even philanthropy wasn't going to cover. So some bankers at Goldman Sachs in London who were really very expertise in structured finance. So they did a lot of even then mortgage backed securities. They knew how to securitize mortgages, they knew how to bundle them and they knew how to securitize them. They got together with the Treasury in the UK, the Exchequer. The UK government came to learn them and said, "Look we really want to attack these health goals, but we just don't have enough money. Help us think about our future aid commitments and how we can use them now." It turns out that the UK had made, overseas development assistance had made aid commitments have 20 years. And the US had done the same, and they were maybe 20 countries that it is very, very significant aid commitments are 20 years. And they said that's terrific, but we don't really should want the money in 20 years, we kinf of want the money now. So these folks who are very good at structured finance at Goldman's said, "Okay, maybe we can securitize all these future aid commitments. Maybe we can essentially bundle them together, and front load them, and issue bonds against them, and try to sort of harness that money today." And that's what became IFFIm. And in the year since, it didn't actually get off the ground and running till about 2005, but from 2005 to 2015 or so, they raised almost five billion dollars in what they call vaccine bonds. The reason they call them vaccine bonds is they just raise the money, they issue the bonds. You could have used the bonds for anything, you could have used this funding once you had it, whatever you wanted to, but they decided to give it to the GAVI Alliance, which is the Global Health Organization Focused on Vaccines because vaccines have very high return on investment, maybe 18 percent on the types of vaccines that they were focused on preventing diseases. But there's a guy named Christopher Edgerton Warburton, the Brit who helped design it from, said to me, "We really could use the money for anything. And so, what they're doing now is trying to imagine a financing facility based on the IFFIm model that might help with refugee resettlement in places like Jordan. And one was announced about a year and a half ago focused on child maternal health. Again, these are very complicated in structure. The transaction costs are very high, they sometimes take years. But it was a creative way of saying, "We have these future commitments, we need them today." Last example, and then maybe we'll open it up to some questions. Have to do again, investments in prevention. I want to talk a little bit about social impact bonds and pay for success financing, which is a relatively new concept, and in some ways has gotten disproportionate coverage and treatment and discussion, in the world of innovative finance. We've now passed the 100 deal mark, and in terms of number of social impact bonds issued and contracts, contracts executed in about $400 million. But again, you can see an order of magnitude. We were just talking about FM which is five billion. Social impact bonds are maybe at the $400 million mark. Each deal is about five million. So relatively small and bespoke, but I want to talk about what they are, and why I think that they are significant. Social impact bonds, not bonds, they're basically public private partnerships that exist as contracts between governments, typically local government, social service provider and an investor. And what they do is focused on prevention in some ways. What they essentially do is, allow the investor, which is often not a commercial investor, but in my experience, in the last several years has typically been a foundation. Loans money, loans working capital effectively to a nonprofit to provide some preventive service. If that preventive service works, so these contracts usually are only over a relatively short time period, maybe a year two or three. If the intervention works, then the government repays the investor. If it doesn't work, the taxpayers, the government, are off the hook for the investment, and the investors lose their investment. So, let me make this a little less abstract. The first social impact bond was executed in Peterborough, in the United Kingdom in 2010, and the intention was to reduce recidivism. So, Peterborough, a mid-sized UK city with a bunch of pubs, cathedral and a very large prison. And the recidivism rates of people coming out of prison in Peterborough were about 50 percent, maybe 60 percent. So that means within a year of their release, people were re-offending and that were being re-incarcerated, and that rate of re-incarceration cost the taxpayers about 30 to 40,000 UK pounds sterling per year. Rates of recidivism as we know, in the US are similar, or comparable so the second SIB, social impact bond, that was transacted actually took place where the first one in the US, the second major one globally was in New York City, also focused on recidivism at Rikers Island, and involved Mike Bloomberg who wanted do the first US SIB and Goldman Sachs was the significant underwriter. And I'll get to that. The idea was, if you could reduce recidivism, you don't have to reduce it by 100 percent, so you didn't have to have recidivism rates that went from 60 percent or 50 percent to zero. But you wanted to get them down, maybe at least 10 or 15 percent. The idea being, that the cost savings to government and the taxpayers would be so substantial, that if you could somehow give people coming out of prison whatever services that they needed, whether they're related to housing or substance abuse or employment, if you could bring that recidivism rate down a little bit, there'd be huge social savings. And you could repay those savings to the investor, who had given the nonprofit the money to do the deal to begin with. Very complicated. And this has been a critique of SIBs in that, in some ways, the government should just be spending the money directly in the first place, and not having to pay premium for the investor to pay the nonprofit. But often governments, just again, because of budget shortfalls, because no one really wants to do a whole lot for prisoners, because the outcomes accrue after someone has left office for a whole bunch of political and market failure reasons, governments aren't making those investments upfront. Peterborough was the first SIB, Rikers, and Mike Bloomberg and Goldman Sachs was the first US SIB, to focus on recidivism. Today there are about 100, as I said, about 100 deals. They have unlocked about 400 million mostly from philanthropy. But what's interesting about these social impact bond case in my mind, has been the evolution. So even since 2010, we aren't seeing so many recidivism anymore, turns out that they're very complicated. The Goldman, New York City Rikers one didn't work. There have been a couple of others. There was a New York State where she invested into pershing, also proving to be a bit challenging. There have been many more that have started to move down the prevention spectrum. So we had a number that focused on substance abuse, a number that focused on homelessness, because you're treating homelessness essentially through Medicaid, and emergency rooms are extremely expensive way to prevent that, there'd be huge cost savings. But increasingly, and some of the most recent ones have been an early childhood education, and in some cases in maternal infant health. So really really early interventions. What's interesting about SIBs? In some ways, SIBs are really, in my mind, most interesting not because they're unlocking huge amounts of private sector capital. I think the hope was, at some point you'd actually have commercial investors as I said for the most part, they've been philanthropies, or they've been commercial investors backstopped by philanthropies. That was the case of the Rikers example. With Goldman Sachs, it was backstopped by Bloomberg philanthropists. They're really in some ways about evidence based policy making. What that means, is that the only way that you can demonstrate whether or not the SIB has worked, is to run something like a randomized controlled trial so you have two sets of formerly Incarcerated, one who's getting the treatment and one who's not, and you can see if there's a reduction in services. They're really all about measurement and evidence based policy making, and then government only pays if it worked. That's the standard which, believe it or not, is not always the standard in government funded social service intervention. So that's sort of one. The second is, it also tends to be a little bit depoliticized. That doesn't just mean that there's bipartisan support for these, which there are, and it's true. But it means that someone might be in office and put together the SIB deal. This is true of Mike Bloomberg in New York, this was true of Deval Patrick in Massachusetts. Massachusetts, at the state level, has done a number of SIBs. They leave office but the state is still contracted to this deal for any number of years, right. It expands beyond the politics of a particular administration, and now you hope that deals have become a little bit bigger. They are also now moving for example, the D.C. municipal government has done one on Waterworks, and so we're seeing kind of the first Green social impact bond, which looks a little bit more like a Green bond. I'd be happy to answer questions about green bonds, and what those are. And that's much more of like a 25 or 30 million dollar deal, so it's a little bit bigger, but in some ways I think that the lasting legacy of these SIBs is going to be as much about evidence at the core of public- private partnerships, as it really is going to be about large amounts of private sector capital. A few concluding remarks. That was a lot thrown at you, I hope that you have some questions. I want to point out that we started with some examples that were really much about consumer finance. We were talking about Atlas financial, or M Pesa and M Kopa and household level for financial services, and even IFMR trust, and Neighborhood Trust were really again about working with individuals and households and communities, whereas, the second category, the prevention examples were much more about public private partnerships at the sovereign, or country, or state, or local level. I think that it behooves all of us to think about ways that we can work at the local level, but also think about these as public private partnerships which is the phrase goes back to where I opened with the great and hopeful piece that Professor Shiller wrote to the Trump administration that said, how do we think about finance, an innovative finance and finance for good use of public policy, right? That these don't just exist in a vacuum, and policy does matter. The Obama administration was very good on thinking about these type of public private partnerships. There was a White House Office on social innovation that brokered some of it, USAID idea was very thoughtful. Not clear entirely where this administration is going with some of this, certainly killing or defending that consumer Finance, Protection Bureau for starters, if that's any indication doesn't leave us. We terrifically hopeful that we can look to federal policy making. That said, you know there have been some wins even recently in Congress.. Just last week, SIPRA which is the social impact partnerships to pay for results act, which is essentially been bills that have been sitting for years now in the house and the Senate, finally passed. They're hoping to unlock about $100 million in federal aid for social impact bonds for pay for success at the state and local level. And there's clearly a lot of activity globally, beyond the U.S. in places, especially on climate. And we're seeing leadership from places, countries that we didn't necessarily see it before. And things like climate, but also in the U.S. this is as much about state and much more local innovation and activity I think then it is necessarily about federal. I think what the examples also show us is that, it's sort of an all hands on deck activity. And in some ways, that can be a little bit daunting, and in some ways that should be a terrific opportunity for all of us. What that means is that, you can be trained in finance and you can even spend some time, God forbid, on Wall Street making money, but also thinking about how you can take some of the tools, or the products, or the services, or the approaches that you're working on, and really put them to public purpose. I would encourage all of you, in closing then, to think about the fact that this is all hands on deck, this was certainly my experience, and I didn't think about this at the time when I was at Yale. But I would really look around at the folks in this room and in your other classes, and in your dorms and their colleges and, in your faculty allies because as I do this work now, whether it's a pershing or in other hats, so many of my allies and my work and my career have really came from my Yale experience in ways that I probably couldn't have anticipated, but I draw on very heavily now. I think again, as we think about all of our paths to social change, the opportunities that you have here, they may not fully reveal themselves may very well lie within these classrooms and within the campus. I will pause there. That was a lot. Open it up for questions. Happy to talk about some of the innovative finance. Happy to talk about Pershing Square, foundation. Happy to talk about. Whatever it is you want. At Pershing Square [inaudible] actually have not invested in them. So my knowledge about green bonds is a little bit more from the perspective of several researcher and somebody, someone who has watched the evolution at the very explosion of the green bond field. We are not invested in green bonds, although many larger institutions are for a number of reasons. I think the problem or the challenge of green bonds is exactly what you describe. So, the reason people are interested in fixed income products, like bonds in general and then green bonds in particular, is because again, I allude to that social impact bonds. We're talking about which aren't bonds by the way, they're clearly more of an equity structure but their sort of $400 million. We're thinking about fixed income, we're thinking about in the billions and, in some cases, trillion dollar market. So if you want to really think about bringing private capital to bear that sort of where the action is. The problem or the trick as you described is there aren't really standards. So, what makes a green bond? A green bond is a little bit in the eye of the beholder. So, there's no dark green and light green and greenish bonds. Like I said, they're essentially self-descriptions for bond issuances that are for environmental purpose but that environmental purpose could be almost anything at the moment. And the initial green bond movement was led by development finance institutions like the World Bank or the IMF and the IFC. In a few years ago, issuances of green bonds, which by the way this year passed like 150 billion and it was a record, 2017 was record issuances for green bonds. It's now corporates and municipal cities and states that are issuing green bonds much larger than the development finance institutions. But what does that mean? So that means if Toyota issues a green bond, who might issue a green bond to help people buy Priuses. The World Bank is grappling with hydro, big hydro, it's not a green. It's not a green. Little hydro is green. So there aren't necessarily these definitions and every financial institution and every investor is on the one hand saying, we really want to understand what these are really doing and are they really, the yields are ain't different, the returns aren't different than typical bonds. So, how are they different and is there really sort of greenwashing going on here. For example, one of the Univ campuses issued a green bond to build a parking lot like in theory was going to mean that students drove fewer cars to the university. It wasn't entirely clear how green it was. The trade with better definitions and tighter definitions comes with liquidity. So the more restrictions and definitions you have, the fewer issuances you are going to have that count as green. So that's a little bit of the tension that you have a number of councils and groups that are really pushing, I think, rightly so to say, what does this really mean and how are we defining green and is it a free for all and are people greenwashing? But, that then gets that what I sort of said at the outset, which is people want scale, right? That sort of the buzz word in this field, everyone wants scale. And the more you restrict and define and actually put parameters, the less scale you've got. So was the tradeoff. So that's a great question. So, the investors, the way they're currently structured for the most part, the investors, not the government investors, bear all the risks. So what that means is so you're absolutely right. The social service provider is doing the work. And if the intervention works, so if you've reduced homelessness or if you've improved job outcomes or placement et cetera, that's a good thing. And government replaced the employers and if they don't, the government would represent and taxpayers does not have to repay. So, yeah, you're right. The investor bears all of the risk. The nonprofits do not have skin in the game, in the sense that their performance, they are not ramune, they get the money either way. Over time, there's a sort of notion that like if a nonprofit under performs consistently, they're not going to necessarily get a renewed contract. But there are new, so I didn't talk the evolution in SIBs has not only been across sectors and it's only been an over time. People are now looking at ways. So, The Rockefeller Foundation is pioneer. A few of these are actually, I think they've gotten them off the ground where the nonprofit also has a little bit of skin in the game. So actually, they don't necessarily lose money but they are essentially paid a bump. They're paid a bonus if they perform. So try to build and precise as you described sort of, again, continue to tinker with the incentives, so that they can get it right. And if they get it really right, they essentially get paid more. They don't want to penalize them for getting it wrong. It's complicated because you don't necessarily want Goldman Sachs peering over at the social service provider and saying how many beds did you actually filled. Everyone has to stay in their lane for the integrity, the process. But people have been concerned that the nonprofit social service provider also needs to have some incentive for performance beyond sort of reputational, et cetera. Most of the work that I did outside of the US was in India and Latin America. I think, I was going to say, I think that the largest area that comes to mind is sort of an area of climate. Well, climate and infrastructure, very broadly speaking, where China, for better or worse because either there's a vacuum and/or because people can't breathe. China has actually taken a real leadership role on thinking about things like cap and trade to reduce carbon emissions. And it is sort of like stampeding forward on infrastructure. Now I think, in places like Africa, et cetera, that is not necessarily innovative. I mean they're playing from sort of the old playbook when it comes to infrastructure in terms of essentially making investments to extract resources that are essentially repatriated back to China. But I do think that they have understood that these are public private partnership. In a country like China, looks quite different than it does in the US. So anyway, but I think those two categories, China is playing much more of a leadership role than it had previously. I also think that as we start to think about, I didn't touch on and typically has about sort of crypto and bit coin and how we think about virtual currencies, I think clearly, China has more than caught up on mobile and on trading platforms. And I think that, again, for better or worse because it's not going to be regulated. But I do think that the hope is that once you start to think about some of these virtual currencies and the intersection of technology and finance that it's going to be for good, I think with crypto and the virtual currencies, we're sort of people are hoping that there are million on conferences about how you think about blockchain for good. You have to sort of hope that China will lead there. I don't know. But I think that that's an obvious area where they could. I think. That's it? All right, thank you.