Zillow
Zillow had raised raised $87 prior to going public, after that they raised over $528 million. They did that without ever making any profits. Even making losses of $250 million. That is a clear example of malinvestment.
Savings and holding fiat is a malinvestment, $100 in 1913 would only be worth about $3.87 today.
In Mexico in 1994 there was a huge crisis, to balance things out, the government reduce 3 zeros (crashed all the savings/purchasing power) from the peso and the government bail out the banks, and made that debt public, this debt is still being paid and growing.
A costly desalination plant was built in South Australia about ten years ago and to this day remains not in operation due to the fact that there was no need for it. I believe it was more than a billion dollar project and if only a third of this amount was used to improve existing water resources, it would have been more productive and more sustainable. This is a projects that belongs to the commonly branded as white elephant.
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Answer:
The Fed started buying government and mortgage bonds in the course of the financial and economic crisis 2008/2009. As a result, the Fed’s balance sheet expanded from $870 billion in September 2007 to a record $4.48 trillion in November 2015.
From this example, the Fed deem buying mortgage bonds as they are low cost of credit which result in an unsustainable increase of money supply.
This is simply misallocation of capital as it doesn’t help the general public. Instead it drives down interest rate which should actually be deternine by the demand and supply of savings. With the articificially low interest rate would result for bringing savings, investment and consumption into lout of proportion. This causes insufficient resources to realize all investment projects. In essence, the entire economy is on borrowed time.
I have two. A property company called INTU purchased 25 of the largest shopping malls in the UK, they filed for administration last week, however even before covid they were struggling. Shops rentals are already inflated, the high street has been suffering since 2010, changing habits, online shopping ease and opportunity mean that the attractiveness of malls is in terminal decline. Add the fact that parking charges are high, bankruptcy in retail high and the experience offered in the malls is highly standardised, dull and lacks imagination, there is just no footfall. If anything rents would have to fall massively to make these retail stores profitable again. So, it was a very unwise investment. To make it work INTU would have needed ideas on how to revive the declining appeal of malls and they basically had no ideas.
HS2 is a UK government high speed rail project, very controversial. It’s a mal investment as by the time it’s completed the technology will be out of date, plus if the government falls, a new government may scrap it, plus with new technology making the need to travel to London less, why would the fast commute from the North even be needed. It doesn’t seem to fit in with agenda 2030, which discourages these commutes and encourages localised working.
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I totally agree with you. Remember that NHS data base thing that they spent 1 billion on and it had to be scrapped as it was unfit for purpose. What about the nightingale white elephants and all the ventilators Agree about the fake pandemic. Remember when they stockpiled tamiflu, another mal investment.
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Research an investment (could be a public company, private company, government agency, infrastructure project, etc) that you believe meets the definition of a malinvestment (past or present) and argue why you think it’s a misallocation of capital (3-5 sentences).
The “platinum” savings rate at Bank of America which yields 0.05% APY… yeah, tell me how that’s going to protect anyone’s wealth. It sounds more like, “losing your money safely” than anything else. If someone is just planning to simply hold some wealth to maintain its value, then at least gold could protect against inflation which the savings account wouldn’t do at all.
I would argue that the current state of the stock market is a mal-investment. With the outrageous amounts of money printing propping up big business and keeping the stock market high. Anyone who is continuing to put their money into the market via 401k’s or through other brokerages are mistaken to believe because the stock market remains high that means the economy is strong and stable. With excessive quantitative easing, zero interest rates, massive unemployment, overpaying unemployment benefits, small business loans that will default due to many businesses closing . The stock market investors especially retirement age are in great danger of their funds being almost completely liquidated when the bubble bursts. Lets not forget the huge pension crisis that is a mal-investment on its own.
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Lol dont get me started!..what about the daily mail running a campaign to provide nursing homes with ppe. Then patting themselves on the back for providing equipment that these privately owned companies should have been providing for their staff. Its almost like these people have no conscience. 
The telecom bubble in late 90’s. The companies took on huge debt to finance the infrastructure. By 1999 the growth in capacity vastly outstripped the growth in demand. When financing became hard to find as the bubble burst, the high debt ratio of these companies led to bankruptcy.
One sample was ENRON. Donal Trump and his rip off schooll. And the FED.
One example of malinvestment that I can think of is the building of a sports stadium in Toronto. The stadium did have some private funding but was primarily funded by two levels of government – provincial and municipal. The initial cost was to be C$150 million but was greatly underestimated, with the final cost coming to C$570 million – almost 4 times the initial cost estimates!! (Governments can be, and almost always are, very inefficient). The following election resulted in a new provincial government, and with political pressure regarding the stadium’s cost overruns and debt, the stadium was sold to a private consortium of companies for C$151 million.
Although everyone in the province paid for the stadium via their taxes, not everyone used the stadium, especially those not living in the city. Yes, a stadium is nice, but I don’t think governments should focus on such infrastructure. Instead they should focus more on essentials and less on nice-to-have extras. In my opinion, it would be far better to leave such projects to private interests, as they will be far more efficient and would not place the general populace in debt. For these reasons, I think it was a misallocation of capital.
Most recently, Hertz on the NYSE. Hertz was already declaring bankruptcy, and a lot of the uninformed public thought their stock was an easy grab at a major discount. It even pumped and day traders ran off, leaving a lot of bag holders. Being misinformed can lead to a lot of malinvestment…
There are a lot of malinvestment that I can think of,
here are some.
1.) Government Military Overspending
-what really is the purpose of having a strong military? what to scare other countries
and bully other nations?. while in the end when it comes to war
no one really wins, both sides lose, the one who really wins are the people behind
the scene who calls the shots and they are the big banks who lend the money on
both sides of the war. remember that all wars are all bankers war.
2.) Bank bailouts
- no need to explain this even further I know most of us are here in Ivan on Tech Academy because we are already aware how our traditional banking system is corrupt and rigged. That’s why for me it is a malinvestment for them to get bailouts,
its better for them to go insolvent so that people will realize what really is and how this fraudulent system works.
3.) Keeping up with the Joneses
- This is a big malinvestment that most of the people right now is not aware of.
This goes to how a person lifestyle is.
Just like you are only a person who survives working from 9-5 paycheck to paycheck
and then you will buy material things that goes beyond your means.
Like for example you will buy a very expensive wallet but with only 1 dollar bill inside of it, rather its better you buy a cheap wallet with massive stacks of cash inside of it. hehe
Just like the quotes saying “people are buying things they can’t afford, with money
they don’t have, to impress people they don’t like”.
4.) Going to College
-Traditional education right now is very expensive not just the school tuition fees
but also including the money allowances, the books and other extra curricular
expenses needed while you are a student.
and at the end of the day you will realized that a person doesn’t really need a degree
to become something in this world.
We are already in this information/innovative age where in information
is already accessible right at your fingertips then why you still need to go to college?
“Traditional education will only make you a living, Self education is the one who will make you a fortune”.
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WeWork is a great example of a private company that meets the definition of a malinvestment. It is a misallocation of capital as co-working spaces will not have a high demand after the COVID-19 pandemic. WeWork’s expenses are through the roof while the revenue is minimal. It does not have a future and those that have invested privately will be shit out of luck.
- There are many especialy in technology, example, people who buy a home, average joe, average job, not the whales! and then instal floor heating not knowing that an AC (Heatpump) have to run to keep a piece of concrete warm 24/7/365 (Netherlands). these people always complain about the e-bill but brag about it when with friends. Malinvestment because i believe that companies are selling it for money, claiming efficiency! Like green wind, solar or ground source heatpumps. Misallocation of capital, because its a waste of energy, its a perk for the wealthy to brag about! its wasting taxpayers money because all these perks have some kind of cashback from the government because you use a so called green technology that doesnt work as advertised and needs government support.
Buy old tech that doesn’t work or it is in the end of is lifetime, and still to pay for maintenance of something that should be in junkyard.
All the central banks such as the Fed reserve is now doing Malinvestment which is a misallocation of capital. The same in Australia where they buy a lot of bonds and give the Australian people stimulus packages both for bush fires and Covid-19 which later will create boom and bust. It is seen as a good deed but will affect people even worse in the long run.
In the case of the United States, the clearest example was the investments in sub-prime mortgages during the housing crisis. This was only possible due to cheap monetary policy, governments programs and guarantees, and improper risk management by insurance companies. This is one extreme of malinvestment and it shows the consequences of interest rate manipulation.
In Australia - the brand new ‘First Home Loan Deposit Scheme’
Australian Government: “The First Home Loan Deposit Scheme is an Australian Government initiative to support eligible first home buyers purchase their first home sooner”
How: “Usually first home buyers with less than a 20 per cent deposit need to pay lenders mortgage insurance. Under the Scheme, eligible first home buyers can purchase a modest home with a deposit with as little as 5 per cent (lenders criteria also apply). This is because NHFIC guarantees to a participating lender up to 15 percent of the value of the property purchased that is financed by an eligible first home buyer’s home loan”
This may encourage first home owners to stretch outside of their previously planned mortgage budget by taking on a larger loan, thus increasing their required monthly mortgage repayments, leaving them with less overall for other investments etc etc…
It’s a middle class trap