Malinvestment: putting money in savings account against current money printing policy.
A Good example of malinvestment for me would be the investment of AMC Cinema that invest massively buying competitors and outifitting a big numbers of cinema then due to the pandemic the company is almost bankrupt
Chinese Economy
In China, the authoritarian structure in which the commanding heights are run from Beijing makes for capital misallocation (malinvestment) on a scale of the Great Wall.
For example: China bulls have long feted the country’s top down authoritarian structure as being able to “get things done.”
What this means is that Beijing can approve mass infrastructure projects at the snap of a finger.
What it also means is that, within the context of a rigid and opaque governing system, China has greater ability to do economic damage to itself (through epic malinvestment) than perhaps any Western democracy that has ever existed.
NOKIA - nokia with their smart phones chose a operative system that didnt really work out with general public and got left behind. Probably if they have had chosen android they would still be competing .
Malaysia and car taxation.
Imported cars are taxed at least 200-300% compared to the initial cost.
i.e. BMW might cost $30k in the USA but in Malaysia, the price would be $90k
The government decided to do this to limit the competition to local car manufacturers.
People only bought local cars due to the cheaper cost even though the quality of the cars were severely lacking compare to imported cars.
One of Malaysias main car manufacturer went bust recently and 49% of the company was bought over by a Chinese company.
So much for national pride
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Having money in fiat currency in the bank is a malinvestment based on the expanding money supply, this slowly decreases the purchasing power of money.
In Chile, there are companies called AFP (private companies). Every citizen has to pay 10% of their monthly salary. That money goes to them, so they can invest with your money. If a percentage of that money is lost in a bad investment then you lose, but if they make a profit with your money you get a really small percentage of that good investment because the major part of the income goes to them (this is not regulated, we don´t know how much money they earn), besides you have to pay them every month for making business with your funds. Then when you reached the age to retire they calculate your monthly payment by the hope of life (120 years), this is crazy no one leaves 120 years. So finally you receive a small amount of the money you saved during all your life working.
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Bear Stearns is a good example of an investment firm that failed in 2008 as part of the global financial crisis.
As investor losses mounted in those markets in 2006 and 2007, the company actually increased its exposure, especially to the mortgage-backed assets that were central to the subprime mortgage crisis. In March 2008, the Federal Reserve Bank of New York provided an emergency loan to try to avert a collapse of the company, but the company could not be saved. It was eventually sold to JPMorgan Chase for $10 per share, a price far below its pre-crisis 52-week high of $133.20 per share.
In 2008 when the markets froze AIG were unable to meet their off balance sheet commitments in the form of derivatives and went under. What followed in September 2008 was an [$85 bn bailout]
AIG grew for the sake of growth, without regard for profitability, and its financial products businesses spun out of control. Clearly, risk management controls disappeared or were weakened.
Ghost Cities - Predominantly exploited in modern times by China, this concept isn’t a new strategy for countries. However, the difference is the speed and precidence with which these appear under the chinese regime. Entire municipalities numbering as high as 50 by one article’s (https://allthatsinteresting.com/chinese-ghost-cities) estimates. These have been made in order to add an artificial boost to china’s GDP in order to maintain relatively competitive face in the global economy. Labor, resources, etc are all put forth as a part of the bottom line and towards china’s GDP with one fundamental flaw - theres no effing people in them.
How about the PPP loans and SBA loans (many loans during the corona virus). The idea is to support these companies in times of economic need. Unfortunately, however, there are many companies that need to go bankrupt, especially the ones that were not making a profit before the pandemic (when the economy was healthy). These loans disrupt that process and can be considered a malinvestment.
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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 Irish property bubble - In 2006, more than 20% of the Irish workforce was employed in the construction sector, the sector made up almost a quarter of G.D.P. Banks lent 40% more to property developers than the entire Irish population. When house prices fell around 50% a few years later a lot of the estates were abandoned.
A study in 2010 showed that less than half the houses that had planning granted at the time of the crash had been completed, many remained part completed and construction had almost completely stopped in Ireland. The country now had more house than people to live in them.
On a smaller scale, the current inflation rate in my country is 3.5.%. During COVID-19 we saw the exchange rate against major currencies depreciate by approximately 20% in a couple of months. Interest rate in a regular retail savings account is 0.2%. Having stored in local currency in a local bank would be considered a malinvestment.
WIRECARD
The Wirecard scandal is a series of accounting scandals that resulted in the insolvency of Wirecard, a German payment processor and financial services provider that was part of the DAX index.
Allegations of accounting malpractices have trailed the company since the early days of its incorporation, reaching a peak in 2019 after the Financial Times published a series of investigations along with whistleblower complaints and internal documents. On 25 June 2020, Wirecard filed for insolvency after revelations that €1.9 billion was “missing”, the termination and arrest of its CEO Markus Braun. Questions are raised with regards to the regulatory failure on the part of BaFin, Germany’s top financial watchdog, and possible malpractice of its long time auditor EY.
Cause of the downfall: Wirecard is suspected to have engaged in a series of accounting fraudulent activities to inflate its profit. Despite allegations lodged against the company, BaFin ultimately took little action against the company before its eventual collapse, while it constantly joined in the company’s attack against critics by associating them with short sellers.
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Rather than focus on a specific company or project with respect to malinvestment, i would like to comment with respect to the Equities bubble and Real Estate microbubble that are currently brewing in today’s financial ecosystem as of November 2020.
My thesis is that at least half of all equities and index fund valuations are a direct result of malinvestment strategies purported by hedges, The Federal Reserve Private Bank, Idividual companies, speculative retail investors, synthetic assets and derivitives markets, and debt driven economies around the world.
Share prices are overvalued due to a weakened dollar. Low interest rates and cheap credit to investment banks, hedge funds, real estate speculators, and leveraged financial market players have skewed the market to be very risk on. modern monetary theory suggests that debt creeates growth through innovation and investment, and that the role of government is to provide the currency that lets the world expand in its consumption to stimulate this growth, Large Central Banks are buying up assets at a record rate, assuming massive risks of default, all the while roiling in the philosophy that THE DEBT BEING SERVICED TODAY WILL COST LESS TO REPAY IN THE FUTURE BECAUSE OF THE DEBASEMENT OF THE CURRENCY. The fallacy that is the kingpin of the debt consumption model is that the money being created to "fuel’ the economy is being invested in innovation and growth toward even greater successes and wealth that will “cover the nut” at some point in the future. The reality is that the chaep capital is going into the hands of the few, and the distribution of wealth worldwide is getting proportionately smaller.
Rahter than putting the newly created capital into the hands of the few agents of Crony Capitalism and their investment portfolios, our nation should consider ACTUALLY investing in its people and in the infrastructure for the coming decades. From an investment bubble side, we know that historically more than 80% of Traders lose money due to the Herd mentality. All of this invested capital which is being introced into inefficient companies and a bubble chasing philosophy that relies on FOMO and momentum for its promised gains would be better spent on INNOVATION. If and when a true black swan event hits the US financial markets, trillions of dollars of wealth could literally disappear overnight.
The corona crisis printing money in Germany.
They are helping businesses to be kept afloat by giving 70-75% of last year’s revenue with freshly printed money for the businesses that are getting closed during the pandemic that will probably not be enough if the company grew. The aftermath of this will be huge inflation that will affect the whole country and the company’s that were kept afloat will close with a lack of clients after the pandemic and lack of money for them to spend.
ENRON //
A company in Houston TX that hid massive accounting fraud for years.
Ultimately they lost $11B in shareholder’s money. This was the largest financial scandal until Worldcom n Lehman Brothers had their world-record Chapter 11 Bankruptcy collapses.
@LORDKALVIN
good one. v recent n also relevant to our crypto interst.
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Hell yeah, I feel this. Most of the money has been frauded anyway, taken outta the hands of ppl that needed it the most.
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US Treasury Bonds. You can only loose value over time with the small interest they bear. It is insane!