Aside from the Berlin airport, there’s also a project called Stuttgart 21 - an underground train station for the city of Stuttgart - which was, back in 2009, initially projected to cost around 4.5 billion € and to be finished in 2019/2020. It is now 2021 and the project is still ongoing, with the projected costs having more than doubled, now at around 10 billion €. They plan to have the train station ready by 2025.
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Uber is a prime example of a malinvestment. It is woth considerably less than its market valuation. This is because not only does it have a low barrier for entry there is a high degree of regulation involved. It is subject to competetor attacks and is blocked in many localities by local taxi monopolies. Although a cleaver peice of software, the main reason is… it has never turned a profit and makes record losses in the billions. Yet the stock keeps rising.
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In my opinion MCI Inc. (Worldcom) was the investment that would meet the definition of a malinvestment.
As you can read in Wikipedia: “Beginning modestly during mid-1999 and continuing at an accelerated pace through May 2002, CFO, controller and general accounting director used fraudulent accounting methods to disguise WorldCom’s decreasing earnings in order to maintain the company’s stock price.” Company went bankrupt same as lot of other companies after the bursting of the “Dot-com” bubble.
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Work in progress for projects developed in a bank that is not going live. the amount of work in progress that is invested needs to be written off after some time if the decision goes towards a different developer.
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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).
A. The one company that comes to mind is Enron. Enron was cooking the books and money flowed into the Enron stock. They were manipulating the accounting by inflating their earnings and hiding their losses. The stock value was also manipulated by analysts who were asked to provide positive ratings on the stock thus have capital inflow into the stock. Their employees and other had sums of money invested in the stock until the company was no more and the stock value plummeted to zero.
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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).
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I agree with Trinity
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Public investment of tens of billions has been wasted in recent decades when political opportunism has outweighed the benefits to society. Governments promise large sums for deeply unprofitable infrastructure projects. Most is often done to satisfy some political target group, which everyone else has to pay for.
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The federal reserve, printing fiat money and buying government and mortgage bonds with said fiat currency. I am of the opinion that their fiat currency has been worthless since 1933 when we went off the gold standard. It also creates a monopoly on interest rates.
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Q1. 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).
A1. With current economic and epidemic crisis is hard to measure what is a good investment for capital. Any capital that is not invested in human survival product, company, project etc is malinvestment. With the world in a new monetary system discovery anything measured with the old system is a bad investment due to inaccurate measurement.
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This malinvestment topic will be based on 1Malaysia Development Board or 1MDB. The gist of the incident is that the ex-prime minister of the country is accused (currently still an ongoing political scandal) of having government money worth about 700 million USD channeled into his personal account and obviously this is a big misallocation of funds where tax payers money are siphoned off for personal gain, causing the general public to heavily distrust the government especially when such a high profile government personnel is involved
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the biggest forms of malinvestment i can pick out almost instantly is the sub-prime home loans culminating in the housing price crash in 2008/9. The banks and mortgage lenders were betting that the economy and traditionally safe house prices would keep going up, and the risk was that if it didn’t the loans wouldn’t be repaid. I had a restaurant at the time and can remember employees coming to me wanting a business letterhead to be able to make their own letters up to self certify to the banks at the time they where on wages far exceeding what they where on and could afford, the banks just accepted them as real and proof and of course never checked anything with the employers, there was storys of people taking loans out and mortgages against other loans and mortgages quite easily… so basically these sub-prime loans have really bad or worse, none at all or any actual credit history. No bank would normally make these loans, but greed took over and malinvestment ensued, they where making more and more commissions and money on them , so just kept on taking them… until of course what we know now the inevitable happened !
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Webvan.
Fresh groceries, from your favorite neighborhood markets, delivered right to your door!
Back in 1999, an IPO was launched with a share price reaching $26 and quickly raised $800 million, from investors, including Benchmark Capital, Sequoia, and Goldman Sachs. The idea was great, and in this day and age, it was certainly needed. The execution, however, misfired and stalled growth immediately. Losing over $500 million in the first year, their share price dropped to pennies and they filed for bankruptcy the following year.
Webvan was a malinvestment because start-up costs and partnerships were not properly taken into account.
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Where is all the malinvestment in the US economy? | GPI (globalpi.org)
Many examples in this article but I’ll just go with the hotel sector. Low-interest rates have caused massive overbuilding which is resulting in empty hotels with no visitors, causing investors to lose money.
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Q: 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: https://wiki.mises.org/wiki/Malinvestment
https://thetseconomist.com/archive/december-2016/what-caused-the-spanish-housing-bubble/
Spanish housing bubble in 2016, looks like one of the biggest malinvestment because of two reasons :
- Overproduction
They completed way more houses than they needed, so all around Spain now are ghost cities and places where they are only buildings, but not people. - Negligence
They surpassed the European standard of 5 per thousand and went overboard with 12 per thousand.
So, we can see here that it was a very bad investment and not worth it after all.
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Without researching too far I can refer to Banks in Cyprus creating a malinvestment during the property bubble in the early to mid 2000’s. During this time they were offering ridiculous loans to individuals or companies to invest or purchase property or land based on over inflated valuations (done by bank registered surveyors) knowing full well that most individuals and companies could not afford to pay back. Due to this unrealistic lending which originally creating a booming economy for many it eventually went full circle and came back and bit everyone in the back side, resulting to the country going bust and bailed out by taking everyones savings above 100K and putting the countries economy and people on their knees.
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I believe that the 2008 government bailouts of financial institutions without the CEO’s being held to accountability, imposing terms with regards to executives salaries and bonuses and paying dividends to shareholders meets the definition of a malinvestment. That capital should have been retained to increase stability of not only the institutions but society as a whole. The American financial system did not suffer any consequences from the crash that they had caused leading to austerity measures and a negative impact on society as a whole. The only good thing to rise out of the ashes of the financial crisis was the creation of Bitcoin.
https://hbr.org/2018/09/the-social-and-political-costs-of-the-financial-crisis-10-years-later
https://hbr.org/2018/09/the-social-and-political-costs-of-the-financial-crisis-10-years-later
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Almost any government program is malinvestment because decisions are always made by people who have no accountability for the result. An example is infrastructure repairs, where contracts are always given to companies headed by friends and relatives of the public officials who make the decisions, regardless of cost or efficiency.
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The city of vaughan, where i live has invested all this tax payer money into installing pedestrian pathways in natural greenspaces around the city. This project cost millions of dollars and i have first hand witnessed the destruction to the ‘greenspaces’ in which they were intending to preserve as natural in the process. The project in my opinion is a waste of taxpayer money, however here comes year end and I know in our canadian goernment structure, if you dont USE the money that is allocated to public works, you lose it. So heres the city, completing useless unnecessary and destructive tasks, all in the name of progress. Theres 0 accountability. Its a decision made by ‘committee’ and its a pure waste of money.
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Malinvestment which i can think of now is when banks offering you to put your money for APR (saving accounts). Which will give you 1% return over the year. But the same time money printing machine never stops and the inflation grows more than that.
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