Almost any airline company right now. For example in my country will be expected a bailout for a “national airline company” Avianca. I bet every bond issued for this company is garbage right now, and buy shares is a bad idea and very risky . I really think this is what some economics tell a zombie company.
I would say Uber is a malinvestment. Uber emphasized growth over profit but remain unprofitable. It has a high degree of regulation and also high overhead. The Rideshare rates are subsidized To keep customers. But What if they stop Subsidizing? Can they still compete with other taxi companies and/or Lyft?
Investing into a Hotel would be very bad because of the current situation with Covid-19. In NYC many Hotels started shutting down and many hotel employees are now out of work. This would be my idea of a malinvestment because the government isn’t allowing the establishment to run and travelling is on a low trend.
The retail fallout that’s happening with brick and mortar stores. As they keep making debt, they get more and more leveraged and any rise in interest rates could destroy them.
Mattress Firm went bankrupt after being bought by holding company Steinhoff (that subsequently went bust because of “accounting irregularities”). Mattress Firm actually over-invested in growth by saturating the already saturated market with more and more stores. This model was not sustainable but they kept going in order to drive up their stock price (because look, the company is growing it keeps expanding).
I think the real estate bubble we are currently witnessing is the result of lots of malinvestment. There are just to many institutions that can access to much money to easely. It makes sense that houses in the centers of growing cities are increasing in price, but the current inflation of house prices is not a result of only that.
US Treasury bonds are a prime example of malinvestment as they are grounded in the integrity of the US dollar. In light of the global pandemic, record money printing, record debt, the value of the bonds subsequently decreases as well because the dollar is being artificially inflated.
Even if I did invest in… I understood that we have a lot of zombie start ups…
I am unsure if this meets the full criteria of what is being asked, however in the UK the government have recently established the Office of Veterans Affairs and provided it with a £5m start up fund to get it up and running, in terms of the yearly funding available to other departments this is minimal, DWP gets £173bn NHS gets £129bn and what is expected to be being achieved will take a significant amount of investment and at present nothing is being achieved so the initial investment of £5m has seemingly been wasted.
The current real estate market comes to mind here in late 2020. This market, like many others (equities) that are falsely being propped up by government and FED intervention is booming. FED Chairman Powell came out a month ago and mentioned that rates would stay low through 2022, but the inflation target would be “slightly” moved up. This news is obviously terrible for the continued purchasing power of the dollar, but because people hear that rates will stay low, folks are more likely to go out and purchase a house, or borrow money, in general, at these "historically low rates. The housing market is already overbought and turning into a bubble that was in need of a healthy correction, the FED’s manipulation of rates will soon once again prove a misallocation of resources in this manipulated economic sector. I fear 2021 may be a difficult year across the board economically because of the manipulation that has preceded.
One Coin, a pyramid scheme founded by Ruja Ignatova in 2016, would have been a malinvestment. Ignatova, self-proclaimed “crypto queen”, sold educational packages which included tokens to mine OneCoin, which were presented as a specialized cryptocurrency. OneCoin, however, was never integrated with Blockchain and could only be traded on an internal, members only marketplace, OneCoin Exchange, or xcoinx. This marketplace enforced daily selling limits rewarding those who had purchased larger packages, and was shut down without notice in January 2017. Ruja disappeared shortly thereafter and has been on the run from law enforcement ever since. Although her whereabouts are unknown, authorities pressed charges in her absence for wire fraud, securities fraud, and money laundering. Those who misallocated capital in OneCoin could have avoided the loss by simply engaging in due diligence, which would have shed light on the glaringly suspicious nature of a cryptocurrency not integrated with Blockchain.
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: Share buybacks from corporations and transfering cost to lower wage countries, therefore exposing to impact of highe interest rates, since lower wage countries are truly hit by inflation and stock buybacks causing lack of cash
A historic example of malinvestment was during the housing bubble in Ireland around 2006. More than 20% of the workforce we building houses. Construction swelled to 25% of GDP rather than a more normal 10% and they were building around half the number of houses as the UK despite the fact the the UK had 15 times more people needing houses. By 2010 less half of the 180,000 homes granted planning permission were completed and occupied. Clearly here the investment was irrational and chasing gains, which although no doubt made by early investors, could no be realized on the scale that took place.
Housing bubble in the USA. Saving the Banks that caused the issues was a malinvestment. Just pushing the problems down the road.
In my country our government gave over 4 billions dolars in subvention to a company called Bombardier (build plane mostly) since 1966 to prevent them from moving their factory to other country and save jobs. Recently the administrators of bombardier gave themself millions of dollars in bonus while moving most their factory outside the country. The company is still asking for more saying they will have to shut down more factories if the government does not lend them money. This is malinvestment as the company is a failure. It is only surviving because of the massive amount of taxpayer money that was given to it. It seems the governement knows this but keep giving them what they want because it has already lend them so much money that they will not recover if the company goes bankrupt. This is still ongoing we will see what will happen in the coming years.
One malinvestment that comes to mind is with the mad craze into certain collectibles. There’s trading cards, stamps, toys, etc. that people will spend on money to buy and collect. One of the crazes that comes to mind is the beany baby hype. I remember seeing local news reports having coverage of people buy up a bunch of these things because each person who invested their own capital on them was thinking over time that was their lottery ticket and FOMO was in full effect. And their reason was based on just a small handful of people who sold them at the peak of the fad and that fueled the hype train for them. And like in the stock market and crypto market, those people who bought in near the top were left holding the bags. Or in this case holding a bunch of plastic bins of beany babies just collecting dust, taking up space, and are pretty much worth next to nothing now.
Well I think the most recent fraud case with the banks was the penalty for record spoofing.
See article below.
We invested in Real Estate as rental properties in 2004 but as soon as interest rates started to rise and our adjustable rates on the property went up, our mortgage increased and the rents were not covering the mortgages any longer. We couldn’t sell the asset because everyone else was experiencing a drop in RE values due to the rate increase and some of our tenants were also getting laid off from their jobs and couldn’t keep up with rents which hurt our ability to pay for those mortgages
I think the rehabilitation of Manila Bay here in the Philippines is a malinvestment. Alloting 29 million for the beautification of it by putting dolomite sands which may probably make it look beautiful but only temporarily since it will probably be washout by strong waters every time a storm comes or pass by. It is being wash out by waves now. And the country is in big debt now.
i picked something local in my state.
the “Roe 8 development” was originally a project to upgrade the infrastructure on one of the main haulage routes in WA. After a huge initial investment the local government got caught out in a bunch of legal loopholes and the subcontractors took them for a ride. after inital allocation there were massive project delays and apparnetly even sub standard industry practices.
i belive there qas a gross misallication of captial in this project right from the start. why couldnt they have had project deadlines that were rewarded with release of capital? this is a standard practice here.
Banks in the credit crash of 2008/9 giving away money to people who had no way to pay it back.
Creating a boom followed by the inevitable bust