China’s ghost towns and phantom malls
Chinese government owns majority of companies in the country and even though they are not profitable, they force them to make and build things by injecting money.
As a result, we can find many ghost towns and phantom malls in the country.
In Chenggong, there are more than 100,000 new apartments with no occupants
A good example of a malinvestment would be the US housing crash in 2007-2009. People were able to borrow money with little or sometimes no credit. The banks were selling loans they shouldnt have been and using and abusing certain terms to relax the loan underwriters. The result was was a housing boom held up by all the loans being approved to buyers who did not have the means to ultimately pay them. The banks balance sheets showed all these loans as collateral that were really not sustainable at all.
Chinese companies, like Advanced Battery Technologies (ABAT) & Orient Papers conspired with defunct American corporations to perform what is known as a reverse merger. Granting them back door entry to listing on the New York Stock Exchange (NYSE) virtually overnight. Using tactics such as paid guest appearances from major world figureheads at so-called “investment conferences” organized by invested parties. Lending soundness and credibility to these companies, which were in fact defunct in their country of origin. Causing the stock of said companies to soar, resulting in a spike of investments. In reality, neither of the two companies was anything related to what was on paper. When the prices of these stocks began to crash to their true value the misadvised holders were left with worthless stocks. It is clear to me a most egregious form of malinvestment. Had investors known the clear state of the companies they were going to allocate their cash and 401Ks to, they wisely may have made a better choice.
One case that comes to mind would be the case of Fyre Festival by Fyre Media Inc. An ambitious entrepreneur, Billy McFarland, had promised his customers an all-expenses paid luxurious trip to the Bahamas, filled with an unlimited supply of food, gorgeous views of the beaches and a non-stop festival. In reality, it looked more to be a FEMA-type simulation of a nuclear crisis. According to McFarland’s Wikipedia page, he had defrauded investors of a total of $27.4 million during his event management career.
Brilliant guy.
I read this article: https://files.texaspolicy.com/uploads/2019/05/29092408/Malinvestment-in-Energy.pdf. Its premise is that incentivising renewable energy (the production tax credit and renewable energy tax abatements) is costly to the residents resulting in higher taxes and difficulty in residential real estate sales. In my opinion, I may agree with the premise but I cannot defend it strictly from the article. I’d have to research further at the Mises institute or other less biased source.
The 2008 housing crash in Las Vegas (amongst other places). People could buy homes without putting any money down, loans were given easily. The increase in value of said homes was massively over-estimated. People would buy houses, sometimes several houses, thinking they were going to be rich. But because too many people did it, in the end housing prices dropped up to 60% and a lot of people never recovered their investments.
My country has decided to invest into a new block of thermoelectric plant TEŠ 6. The price of this investment has raised from initially 850 M to approx. 2 B. Politicians from left and right have been claiming that we need that facility to secure the electricity supply on the national level. The project was full of corruption on all levels since beginning. The data used to calculate the investment ROI have been faked, so that the investment could get a green light. Several investigations still going on.
We have built an expensive thermoelectric plant that uses the coal as a source of energy. The electricity that is produced has too high input costs for the project to actually generate some returns. All we have is the electricity supply, but to generate that electricity costs us more than just buying it on the international market. Plus, don’t forget about the climate-changes aspect of big investments into thermoelectric plants. Terrible!
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).
WEBVAN: I was living in Atlanta when this dotcom grocery delivery company from California tried to expand into our area. They lasted about 3 months before going under. They were competing in a a market with razor thin margins and trying to build their own logistics network from scratch. Even though ordering could be done on the internet and therefore had lots of investor capital thrown at the idea, the infrastructure was going to be too expensive to justify the costs as other companies, e.g. Walmart set up ordering websites.
I think a good example of a malinvestment would be the company Blockbuster. They were a great investment at one time but due to the oversight of technology in changing time they were made irrelevant. For them it was not seeing the potential future in internet streaming to their already big audience and customer base.
This is a topic that is pretty simple to seek out any companies especially governments says that is a actual business and they all have several mallon vestments. During this pandemic it is very obvious that governments are just printing money hand over fist, for instance I live in Canada and every single person over 16 years old got some sort of stimulus check for the last 9 months. Think about that 9 months of printing money and giving it to everybody the basically is over 16. This is malinvestment 101. In the USA, it’s even worse, as the government printed more money this year than all the money printed from day one. Now the young generation will somehow have to pay this back as we see this terrible devaluing of a currency.
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).
A malinvestment would be investing in futures for fiat dollar, since fiat has a history of failure unless you a clear grasp of the market its always going to be a bad investment which is why BTC and gold have done so well.
I would argue any investment in military, especially offensive capability, qualifies;
It sucks capital and funds from being deployed to anything that creates long-term value, and instead invests in assets that, at best, are wasted if they are never used, or worse, able to destroy lives and economies if they are used.
worst investment (trap) to work for fiat and save it. while printers brrr. and one more keep fiat in banks and let them grow while they lending your fiat (dublicate) you getting from it nothing only fees to pay to use YOUR fiat. All these things i’m still doing, but learning to reduce impact on my wealth, hoping soon unbank myself
Theranos by CEO and founder Elizabeth Holmes. A company that claimed to have invented a blood-testing machine. Investors had too much money to borrow and spend. Despite the fact that there was evidence that the machines weren’t really working.
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A typical malinvestment would be the crazy amount of shops that Crocs opened when it was at its high. Also, the investment in such a broad amount of products going further and further away from their original sandals. That money could have been invested in paying higher dividends, for example, to make the company more attractive to investors.
ZOOM itself is a malinvestment. It did a 5x in a couple of months and the whole business is relying on the current pandemic situation while the technology behind it is extremely simple and MANY other companies offer the same features.
Same goes for all the new Telehealth companies. These stocks and their “industry” will fall so hard once this is over that it will be painful for many…
A local example
An investor managed to make a loan to build a hotel, I have noticed that the workforce on the hotel was steadily decreasing, and eventually, it got left in an almost complete state.
This is a malinvestment because the funds were being used to build another project on the side and in the end, both projects have been left unfinished. If the correct planning was made most likely they could have completed both projects.
I would say that the desproportioned amounts of money spent on the army of most countries is a malinvestment. It may make sense for the big guys as the US, that can use their military capabilities as a “tool for negotiation”, but for medium or small countries that can’t use it to gain leverage on someone else I see it as a waste of money.
Port of Granadilla on one of the Canary Islands (Tenerife) built with the help of funds from the European Union is practically useless because of bad wind conditions. Ships don’t use it, according to a documentary I saw. Local professor Federico Aguilera Klink says the port is a clear example of corruption. Two similar ports were mentioned in the documentary, Arinaga and Tazacorte.