Activity Lesson 4

Bitcoin Monetary Revolution
#808

Homework.

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).

Leham Brothers !

Filed for bankruptcy with 639 billion dollars in assets v’s 619 billion dollars in debt although they were ‘cooking’ the books for years….

They entered into repurchase agreements with banks in the cayman islands

The company would sell toxic assets to the bank with an agreement to buy them back at a later date.

In three transactions Lehman hid 38.6 / 49.1 / 50.4 billion dollars in the caymans.

The repurchased agreements were marked as sales (not correct) - these were listed as loans to the company making Leham seem like they were tens of billions of dollars healthier than they actually were to defraud investors, analysts, and the public.

#809

One example of malinvestment could be the Dutch tulip bubble.
During the 17th century Investors started to create a huge buying pressure for purchasing tulips from the Netherlands. The average price of a single flower sky rocketed and exceeded the average costs of some houses in some cases. Price collapse after a huge sell off and many companies and investors lost all of their money or went bankrupt. I personally think this is a great example of malinvestment since tulips miss all the qualities we studied earlier as a store of value.
Is not durable
Is no value dense
It doesn’t maintain his purchasing power
Is not liquid (no constant demand)

#810

An example that I see everyday where I work is individuals keeping very high balances in their checking and (extremely low interest) savings accounts. The bank encourages them to keep their balances high to avoid fees, and they comply! I see people with hundreds of thousands of dollars in their accounts losing value over time because they think it is a safe place to keep their money.

#811

In my country Serbia our govement sell all companies to private people, and we almost dont have any public institution. And every year we are losing more and more money and dont upgrade and economy tree or infrastracture

#812

I think an excellent example of a malinvestment would be the World Islands of Dubai. The three hundred artificial islands were created in the idea to own part of the world, own a country, targeting the extremely wealthy pitching a fantasy that could be come created on these islands. Soon came the 2008 financial crisis and halted all construction on the islands, interest to continue never really continued on a large scale with only a couple islands ever having anything built on them. According to reports, once the construction stopped, Dubai World, a government investment company was in debt around 60 billion. These islands were paid for with debt and have very little promise for any return on investment. It to me seems like a crazy long shot pitch to the wealthy and even though it had promise early on, It’s clear than now that this was a malinvestment that acquired 60 billion in debt.

#813

I just finished reading a few of the replies on this thread and I must say that I am very unfamiliar with the specifics of spending on a global or even national scale. But on a much more local scale, my investment in buying a subscription to Hulu was a malinvestment for sure. I already have Netflix which is more than adequate at supplying movies, TV shows, etc. Spending money on Hulu was a wasted effort because I could never find anything on there that I wanted to watch and if I did, I would have to pay more. Netflix rules!

#814

2008 Mortage Backed Securities. Originally thought to be a good and safe investment, these bonds were rated very high by rating agencies and were being bought up by financial institutions. They failed to verify the truth within these funds and thus created a huge housing bubble that would eventually come crashing down. Once they realized it was inevitable to reverse what they did - they bet against the entire bubble. total misallocation.

#815

California’s SB1 is an infrastructure bill that is also known as the Road Repair and Accountability Act of 2017, ad it’s objective is to use $54 billion dollars to use over the next decade to fix roads, bridges, and freeways. This is a good example of a present-day malinvestment. The main reason for this is because it grossly misallocates the line share of the money to expand lanes in existing , to build more highways and streets in areas that already have them, and applies less than a percent of the funding to provide maintenance and development for walkways and bike lanes. This is another exercise in insanity as decades of continual expansion and development of more pathways for vehicles have not solved the problem thereby only incentivizing more people to drive while discouraging the use of bike riding and walking within communities. This is only a band aid and solves nothing as the last 50 years of highway and freeway development has proven; building more lanes only encourages more driving which creates more traffic and traffic jams and pollution. This money could be spend wisely through good urban planning investment for creating and developing cities and towns which foster an environment for encouraging walking and bike riding thus making people feel safer for performing these 2 activities and creating a healthier population and environment.

#816

I would say Sonos, expensive tech, high cost to make their company function, but their return has been real low. they don’t even own the tech of their product. they hyped their stock when it first came on the market but has never seen the same price since opening day.

#817

I’ve heard before that meat is heavily subsidized in the US, Google results seem to say this is in the many billions of dollars per year.

There may have been some need for this in the past when malnourishment was a problem, but it is well known today that plant based diets can be very healthy and even recommended to a lot of people.

This subsidizing is a malinvestment. It keeps the market from paying the true price of meat, this introduced inefficiency in the economy. There is no real need anymore for this, it would be better economically to let the market decide the price of meat.

#818

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 2008 housing bubble: The liquidation of malinvestments falling housing prices and bad loans caused problems in the banking system. Defaults and investment losses threatened the solvency of banks. The solvency problems triggered a liquidity crisis in which maturity-mismatched banks had difficulties rolling over their short-term debt. The governments injected capital into banks while guaranteeing the liabilities of the banking system. These government injections were financed by an increase in public debts.

#819

In order to acquire the exploitation rights of the 2012 London Olympics, the managers of France Télévisions paid some €50 million.
The problem is that this sum does not give the exclusivity of retransmission to the public service, since TF1 has acquired the closing and opening ceremonies as well as summaries of the live broadcasts… This exclusivity will therefore not serve much purpose.
For the record, the 2008 Beijing Olympics cost “only” €44 million…
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#820

An example of malinvestment is the rise of renewable energy subsidies across the US, particularly in Texas.

Occurs when the government provides incentives to certain activities, businesses, or industries, as investors become over-eager to invest in them.

In the end this incentives impose huge costs on the taxpayer.

#821

in my opinion World Island project in Dubai is malinvestement. It costed 14 billion dollars.
it left decaing for more than 10 years now. biggest jobs was done, it was only to keep it maintainted, before its too late.

#822

A malinvestment would be the US military budget, which is larger that the next 20 military combined. Many of those other 20 countries are allies, and the nearest “enemy” is thousands of miles away from US shores. That level of defense is not necessary considering that the border countries are allies, and the US is currently experiencing crumbing infrastructure, such as bridges, highways, electric grids, etc.

#823

The subprime mortgage-backed securities that resulted in “The Great Recession” were possibly one of the biggest, most significant mis-allocations of capital in recent memory.

Following on from 9/11, US interest rates were incredibly low and as a result many banks began offering subprime* mortgages that were based on the presumption that interest rates would stay low and house prices would only increase.
At the same time many financial institutions began aggressively marketing new, mortgage-based securities, many of which were backed significantly by those subprime mortgages.
However, as the Federal Reserve began cranking up interest rates, almost all of these low-credit, high-risk lenders were foreclosed on, resulting in a domino effect, first toppling the US housing market, then the US credit market, then the wider US economy, it even triggered a global financial crisis that the impact of can still be felt today.
Thanks to this irresponsible and short-sighted attitude adopted by bankers, paired with a lack of government intervention, these subprime mortgage-backed securities were allowed to proliferate and ultimately contributed to a global credit crisis.

*(Subprime lending is the process of lending to low-credit, high-risk borrowers, typically accompanied by above-average interest rates.)

#824

The 2008 USA housing loan crash is a prime example of malinvestment. Home loan credit was too easily given, and at too high values and volume, to people purchasing housing. The loan applicants often only had to qualify for the initial teaser rate. The compounding effect of multiple foreclosures brought the market to a crash.

#825

I would argue that traditional public universities are becoming more and more like malinvestments, especially if attending puts the individual in student loan debt. The idea is that this is an investment for the individual to eventually land a high paying job and live out their dream career in moderate wealth with a white picket fence and 2.5 children…But the reality today is that the loan debt alone is crippling, many of those “high paying jobs” are changing if not dissolving entirely, what they’re getting paid with is depreciating far more rapidly than the interest on their loans, and the time they spend learning (a.k.a. being further brainwashed into biorobot zombies) all this other garbage could have been spent actually exploring what they want to do in an apprentice type situation or traveling the world, or even just gardening. Even gardening (organic, with well planned companion planting and love) has a better ROI since you’re not consuming the highest quality food in the world grown specifically for you and your family…something even billionaires cannot buy.

#826

A local cloud computing company spent millions of dollars expanding their business through making swift contracts with investors. However, in doing so, they were also granting large bonuses to their executive staff and not paying back the loans they took out to purchase their equipment. They could have avoided such a malinvestment by putting those monies back to their debts.

#827

I can think of Deutche Bank which has received a mountain of money yet continued to fire thier staff and used the funds to buy back their shares instead thus misrepresenting to their investors what is actually happening inside their business.