Activity Lesson 4

Bitcoin Monetary Revolution
#666

Activity: 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).

Malinvestment applies to shale oil and gas fracking industry of the United States of America. It was heralded as a technological breakthrough; however, in hindsight it was the product of cheap money as well as a broken US monetary policy. At today’s price of oil few can argue any investment in wells which require fracking is justifiable, thus being a malinvestment on the part of any lender.

Do you believe fracking for oil at today’s price is a malinvestment?

  • Yes
  • No
  • Maybe
  • I Don’t Know

0 voters

RexTillerson
RexTillerson960×673 68.6 KB

#667

ABC learning was an Australian publicly listed company. At one point they were the largest provider of early childhood education in the world. The company expanded too quickly however and was unable to keep up with it’s enormous mortgage repayments. The company ended up going into liquidation.

#668

For years Bombardier made huge profits making snowmobiles , ATV’s and personal watercraft. But with enormous funds from the Canadian government Bombardier started making Light rail transit trains , and airplanes . But in 2019 the canadian government didn’t help with the bailout. And Bombardier posted a 1.6 billion dollar loss. At which time the company decided to leave the aviation business and sold off its remaining stake in the money losing A220 . Which for many years functioned almost entirely with the help of the canadian government (tax payers).

1 Like
#669

i would say that a malinvestment would be the repo market in 2019 when the fed had to step in again with a $1.5 trillion bailout.

#670

i grew up in Belarus, and I think the worst malinvestment would be to buy belarussian ruble and keep savings in belarussian banks

#671

We are keeping zombie companies alive in Australia by keeping the JobKeeper.

It is not one or two but many of them.

Follow below article to get more details:
https://www.smh.com.au/business/markets/fears-over-the-growing-stockpile-of-zombie-companies-20200916-p55w6i.html

#672

Nikola (NKLA) - An EV car maker that has never made a single production vehicle and does not plan on doing so for roughly 3 years. In June it had a market cap of nearly $30 billion, more than Ford Motor Company at the time. Now GM has invested $2 billion for 11% equity in Nikola. All this for a company that has yet to actually make a car, is hemorrhaging money with absolutely no means of generating revenue, was down over 50% from its June highs, and now people are throwing money at it again. I suppose it is possible Nikola could pull a unicorn out of their hat and be the answer to all of GM’s woe’s… I’m not betting on it though.

#673

Activity Lesson 4

The collapsed of Lehman Brothers (Investment Bank in the USA) September 2008.

This is an example of misallocation of capital by the Lehman Brothers because of the following:

  1. The bank was deeply involved in Mortgaged Backed Securities(MBSs) and Collateral Debt Obligation(CDOs).

  2. Even though the housing market was slowing down, Lehman Brothers continued buying over $100 billion USD of real estates of MBSs and CDOs, a risky and structured sub-primed loans bundles. There was massive credit default swaps on Lehman’s debts. An attempted rescue failed by Bank of America and Barclays.

  3. As a result, their stocks plummeted to 93%. $4 billion USD 3rd quarterly loss, $5.6 billion USD loss in toxic asset write downs.

  4. Lehman Brothers, eventually, filed for bankruptcy in September 15 2008 with $619 billion USD in debt.

#674

The VA system is a good example. Administrators have big salaries and deep expense accounts, meanwhile they hire nurses rather than doctors and there are still waits of 6+ weeks for an appointment.
Like other corporations, the money does not trickle down…

#675

Investing in Stock Index at the moment. Eventhough it is growing a lot, the pric earning ratios are rediculously small. The upcoming crisis will affect companies and bank and we’ll experience a lot bankrupcies. It seems obvious that the stocks index will then correct and collapse

#676

two words:

Lehman Brothers

#677

If I take into consideration everything I’ve learned so far in the course, putting my saved money in the bank or keeping it as cash would definitely be a malinvestment. Hyperinflation, excessive printing, pieces of paper backed by nothing, this absurd fractional reserve system where you can loan out money you don’t even have, no thanks. I’d much more rather invest in something that has proven its worth over thousands of years of time (Gold), or even better - the electronic version of it, completely decentralized, with a limited supply cap of 21 million and the functionality of a currency - Bitcoin :slight_smile:

#678

Social Security. One of America’s biggest governmental “Ponzi Schemes.” Take from this generation and give it to the last generation to subsidize their retirement sounds ok but it’s one of the biggest slush funds.
Mom collected social security after dad died for years while we were growing up. Always wondered how all that money was going to be paid back.

#679

I think the most common one would be stock buybacks. Public companies do it all the time to push up the stock price. The top executives get a bigger cut of their bonus as it is tied to the company’s stock price and as such inflates the true value of a company.

#680

At present, a malinvestment would be to buy shares or any financial instruments offered by centralized platforms and keep them for the long term, such as Uber or Airbnb, or any platform that will be shadowed or killed by the blockchain technology in the near future.

#681

The mortgage / credit crisis of 2008 in the United States was a prime example of horrible malinvestment that commercial banks were executing. These actions commercial banks were taking to lend to potential homeowners that were taking on a loan that had a high probability of default due to the relaxing of requirements by commercial banks to acquire loans. For instance, these banks took a laid back approach to allowing thousands of mortgages that should’ve never gone through due to the potential homeowner’s income not being enough to handle the loan or previous poor credit history. In addition, these mortgages which were a malinvestment in the first place were then packaged up and thrown together to be sold as bonds.

#682

Enron is an example of an malinvestment due to the creative accounting that was executed between them and Arthur Andersen. This creative accounting included mark-to-market practices and SPVs which were labeled as raptors that were hiding liabilities from their financial statements.These led investors to believe a false sense of reality with Enron’s financial statements encouraging them to invest more in this company. In the end most employees and shareholders lost a significant amount of capital as a result of the scandal and subsequent bankruptcy. A proper risk tolerance investment strategy should have been followed as you should not invest all your eggs in one nest.

#683

The investment of funds in Philhealth, clearly there is some kind of malinvesments going on there, high priced goods like computers for employees around 2-3k dollars (is it a gaming pc or what?)next is the cleaning tools ranging at 100-150$ for a broom(maybe it’s enchanted by a witch or something). Spending to these kinds of highly priced goods instead of investing it researching something is not a good way.

#684

the malinvestment commun in peru is the infrastructure they hire mediocre companies tu do the job that dont last and have tu repair the same things over and over if thats the real problem not corroptiun

#685

The building of hundreds of thousands of houses every year in Spain during the property bubble is an example of malinvestment. Between 2001 and 2008 around four million new houses where built and the average number of housing units completed per year was 565,000, more than double the number constructed the previous decade. When the markets crashed, thousands of these properties remained unhabited.