Activity Lesson 4

Bitcoin Monetary Revolution
#912

It is probably not well known in the West that one of the main economic “killer” of the USSR was the “Conversion” program undertaken by Mikhail Gorbachev in 1987-1991.

The state decided to establish the civilian productions at military plants and invested about $ 8 billion in this venture. Of course, the specialists were not asked what kind of products it is better to produce at which plant.

Orders from above came from GOSPLAN (Ministry of the Central Planning). The result was terrible. The entire system of checking of military products was broken, highly qualified personnel was sucked, the development of new weapon stopped, many state secrets were stolen and sold.

Manufactured civilian products were originally very high quality, but cost ten times more than the best Western substitutes.

To crown it all, the top managers of the bank via which the financing was carried out stole the rest of the money when the USSR collapsed.

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#913

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 Fannie Mae and Freddie Mac approved underwriting guidelines contributed to the housing market crash in 08’/09’. Capital was used by the US government to fund these loans that were very much doomed from the get go… this is an example of a malinvestment. The borrowers were set up for failure by the guidelines and terms and ultimately they could not pay. These terms made it easy to get almost anyone approved which resulted in massive foreclosures when they could not pay or refinance after the low initial interest rate term of 2 or 3 years was up.

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#914

Gold as we know is a great investment for its store of value, and we know that in Thailand gold is big. Thailands gold export numbers increased to 700% in 2020 due to the pandemic. As the apocalyptic craze arose and toilet papers were cleared off shelves, investors dumped millions of dollars worth of gold through exports. The people stood in massive lines to sell their gold that they were stockpiling. Now, this wouldn’t constitute a malinvestment unless you look deeper. The government was using psychology to persuade the Thai people to sell which a lot of them did, but now the economy is in a worse position than it started.

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#915

Answer:
Principal Protected Notes (PPNs) are structured financial products that guarantee an investor’s initial capital outlay and provide returns (less a significant return haircut and potentially high fees) to another underlying investment such as a mutual fund, interest rates, stock/bond indices or some other specified model portfolio. If these products are held to maturity (usually 5 to 10 years) the investor receives back their initial investment, even if the referenced investment portfolio has lost money. I think these vehicles can sometimes be consider malinvestments as they have largely come about as an alternative to investing in traditional fixed income (i.e. due to lower rates from easy monetary policy). Additionally, these investments can be structure in such a way, that the investment manager can decide to make risker investments to increase fees, knowing he/she will only have to pay the principal back at maturity. In such a scenario, there is a risk of locking in an invest for 10 years with zero profit. Finally, PPN may also impose significant financial penalties if the investor needs to redeem the investment prior to maturity.

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#916

The housing market crash of 2008 is a wonderful example of a Malinvestment. CDOs and synthetic CDOs turned mortgage bonds into ridiculous high stakes bets. With the corruption of the rating agencies, the bonds were a part of a fraudulent system which eventually destroyed the world economy.

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#917

History has shown that most African Government investments, past and present, are malinvestment. Examples are bound…

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#918

A very common malinvestment here in the Philippines is the sub-standard construction of infrastructures, especially the roads. So much government money is poured into it, and yet, after 3 years, it has to be reconstructed, of course, at the cost of the taxpayers’ money. If only the construction of roads is done really well, (as the current administration is visibly trying to achieve), more money could be allotted for education, and other needed infrastructures that would boost trade and commerce.

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#919

Having a large amount of FIAT currency in your bank account.
With a litlle interest as 1% a year, and the inflation over 1% you are screw at anytime
and over that they make money on your head with the loans they make to other people.
Tt is just back with basically 10 % of your amount.

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#920

Many things that are paid by our taxes are bad investments. one example is the high payment of nearly all politicians for doing not really much. But maybe thats just a point of view :slight_smile:

2 Likes
#921

Bank products like fixed deposits, saving accounts. While I worked at the bank it was very hard to convince people with large sums of money to fix a deposit etc… The return would be rubbish. On top of that if you were only liable for 50k if the bank went bust. So why should someone with a high net worth want to keep his/her money the bank? Better off finding something else to invest in. Rather have your money devaluate overtime.

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#922

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).

An example malinvestment has been the business cycle triggered by the credit expansion of the semi-public fractional reserve banking system. After the financial crisis of 2008, malinvestments were only partially liquidated. The investors that had financed the malinvestments such as overextended car producers and mortgage lenders were bailed out by governments; be it directly through capital infusions or indirectly through subsidies and public works.

The bursting of the housing bubble caused losses for the banking system, but the banking system did not assume these losses in full because it was bailed out by governments worldwide. Consequently, bad debts were shifted from the private to the public sector, but they did not disappear. In time, new bad debts were created through an increase in public welfare spending such as unemployment benefits and a myriad of “stimulus” programs. Government debt exploded.

In other words, the losses resulting from the malinvestments of the past cycle have been shifted to an important degree onto the balance sheets of governments and their central banks. Neither the original investors, nor bank shareholders, nor bank creditors, nor holders of public debt have assumed these losses. Shifting bad debts around cannot recreate the lost wealth, however, and the debt remains.

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#923

Wow where to start? I am a fan of Dave Ramsey. I think that student loans, car finance, many types of finance loans are malinvestments. This last video on this course has solidified that path of thinking in my learning that finance almost comes out of thin air. Not only are you debt slaves to the financial institutions, but they create more wealth from what you put in. It also has the effect (like said in this video) of *false illusion of wealth *no price discovery * booms and busts plus much more. I also took a lending course at a real estate school and that’s when I really started to understand where finance originates from, and things like a warehouse line of credit. I think they know the secret that there’s nothing more powerful that compound interest

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#924

In Ontario, Canada, consumers have poured billions into conservation programs that promise to increase the efficient use of electricity and save consumers money. Current evidence suggests that these programs cost about two dollars for every dollar they save. It’s just another example about how governments waste money.

2 Likes
#925

Holding the dollar or any currency. Because it does not hold its value over time.
Does this count as a private company or government agency?

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#926

One malinvestment that instantly sprints to mind was the ICO boom of 2017. We can look back now with hindsight and we know that essentially everyone got very much carried away. It seems like the world and his nan was offering ERC20 ICO offerings, and the general populace was sucking it all hope in the quest to find a coin that would go to the moon. Looking back, the vast majority of these coins (95%) were not worth the paper that their white papers were written on, and a lot of people lost capital on worthless coins that started cheap, got an initial pump from the community, and then failed big.

It seems to me that in the space now people are being far more careful and wary of alts, especially in the form of ICO’s.

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#927

I think I can argue that HS2 (High-Speed Two- very fast rail network) that has been proposed and approved here in Britain is an example of malinvestment. It’s going to cost somewhere in the region of £100B. Very much a white elephant project; is it really worth spending that kind of money in order to get from London to Manchester in 40 mins.? Not in my opinion. Especially ripping up parts of ancient countryside in the process. CANCEL IT.

#928

First one to come to mind is Theranos. A multi-billion dollar health diagnostic company that raised 700 million dollars in investments headed by Elizabeth Holmes. It’s board of directors included former US Secretary of States, Secretary of Defense, and prominent figures of other public offices. Then, it came all crashing down when it was discovered that all of the technology, basically, didn’t work. It was just a pump scheme. Personally, I think this was partially caused by Silicon Valley virtue signalling their approval of Holmes as a successful female entrepreneur that dressed a lot like Steve Jobs.

#929

Recent asset trading has more to do with social conditions and celebrity hype more than with individual research into sound fundamentals either of the company, project or asset. The example I would like to showcase is the cryptocurrency called Dogecoin. This coin, considered a meme coin, because it features on a Shiba Inu meme, was created as a joke. Although a light hearted project with some value in its social message, it was rather obscure until some well known business mogul promoted it’s virtues and overnight millions of dollars were spent buying the coin. Considering the length of time necessary for due diligence prior to an investment decision, the instantaneous nature of the public reaction and investment actions screams malinvestment.

#930

Property where I live at the moment is going up by around 6% per year on average, Now while property is a good investment long term right now the Crypto market is a lot better place to put my funds as it is much more likely to return well above 6% in the short and long term. So I see property right now as a misallocation of my capital and a lot of lost opportunity costs.

#931

A Malinvestment is everywhere from Where I am From in Venezuela

We had a huge money printing issue, up to the point that the cash was bought and sold for more in rural areas . The value itself of the Bolivar was plunging and people saw the investment opportunity to receive the cash and pay it out digitally via a bank xfer at a higher valuation because the paper was worth more than the the currency

Read that again! lol.