The Enron scandal is the definition of malinvestment in my opinion. The executives fooled the general public, investors and regulators by hiding mountains of debt with fake holdings and by cooking the books. Its price per share went from $90 to $0.26 overnight.
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After some thought and a handful of keystrokes in the search engine I decided to speak on something I am a bit passionate about, higher/ university education. I personally feel that unless you intend to study something that is so specific and hands on, becoming a doctor for instance, a university degree in this day and age is a bad investment. Given the vast variety of online courses and even YouTube for that matter where one can attain so many skills and and an endless amount of knowledge at a small fraction of the cost, if not free, why invest oneself into that level of debt. It can be argued the interaction one gets at a university is priceless. Fair enough but, online chats, blogposts and even seeking out like minded people in ones community can suffice for that.
I learned music production and compositon, film editing (hanging around at friends music studios and active film makers) and now this course and other coding resources online and books overwhelmingly for free or for a very very minimal cost (cost referring to this course and some books).
I am mainly speaking of the USA but I know there are other places where the price/ investment is heavy on the account when realistically it can be so much more affordable especially for the majority of the group who are simply trying to get started with their life as an adult.
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The latest stimulus bill has a number of items in it that make this introduction of monies a malinvestment. One number to pick out of the line up is the $170 Billion to schools. The fact is that the lion share of these monies will wind up in the pockets of few and most importantly will not benefit the people who inhabit schools, our children. There are 170 million better ways to use $170 billion for the benefit of our children, who are our future. No accountability when government hands out most of these monies.
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Investing in Finance giant “Greensil” would have been a malinvestment, as they declared bankrupt recently.
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Airliners
They have historically lost LOTS of money. They earn little to no profit due to the extremely high costs of operation, variability within the services and strong price competition. Outlier factors such as a pandemic have put a gigantic strain on airliners. The list can go on and on, but it’s not hard to point out why this business model is difficult to keep afloat.
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In 2021, of course, the GME stock. (Luckily, I didn’t touch it.)
GME stock is driven by the Wallstreet bets group in reddit. The stock is very volatile, many lose their money because of this.
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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).
= Kingfisher Airlines. Took a loan from IDBI bank for kingfisher Airlines and siphoned it to his F1 company. Escaped from the country to the UK which has become a safe haven for such fraudsters.
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To be honest, I am not sure if I understood it correctly. The variety of answers here in the group also does not give me clarification.
Are Deutsche Bank and Wirecard examples? I am actually not sure if I understood all the connections and I feel this course is too broad and shallow to let us talk about topics like this if you have no previous knowledge.
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The US housing bubble of the mid-2000s is an example of malinvestment. Sustained low interest rates by the Fed led to a surge in housing prices and home owners taking out increasingly larger mortgages, which ultimately crashed by 2012 and home owners were unable to pay their mortage debts.
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Tokyo Prefecture invested huge amont of money for Olympic and especially reconstructed roads for Marathon event however after finishing this construction Olympic committees change the city from Tokyo to Sapporo for the Marathon event. Governer wasted so much our tax for nothing.
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I immediately thought of the dotcom bubble in the late nineties.
You have no plan? Here’s a million dollars.
Nowadays you get the same feeling with some NFTs on the art market: 7 million for a reproducible pixel image? Time will tell whether it was a good investment or a malinvestment.
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Demonetization on 2016 in India can be classified as a malinvestment. This demonetization of 500 and 1000 rupees notes where said to be a step towards eliminating black money ( non-taxed cash ) and the new 500 and 2000 notes introduced will stop counterfeits. But 99.3% of the old notes were deposited back to the banks making it a failed attempt at removing black money.
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Thinking of something not already noted, I’d have to suggest Bitclout to be a malinvestment as it is not only tied to NFTs based on scraped celebrity social media posts (w/ or w/out permission), but bitcoin moved to the site cannot be removed. If Bitcloud goes under, what happens to all that bitcoin? “It’s a TRAP,” and a potential tool to undermine Bitcoin and blockchain.
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I am from Romania - and in 2018 the Church began building a Cathedral (they have the ambition to make it enormous). The new cathedral in the center of Bucharest is bigger than the “Saint Isaac” Cathedral in St. Petersburg and the “Jesus the Savior” Cathedral in Moscow. The government has contributed with more than 82 million euros and the Capital City Hall with more than 18 million. The problem is that in Bucharest there are more than 300 buildings with very high seismic risk which need to be repaired as quickly as possible. And they are not repaired because the authorities claim there are no funds. I believe that investing in a cathedral we do not really need at the moment is a misalocation of capital, as the issue of repairing the old buildings that risk to fall down in case of an earthquake is far more important than building a cathedral. Moreover, the pragmatical reason of repairing damaged buildings is stringent, whereas cathedral could be built later, when all other problems are solved.
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In Czech Republic government rent supersonic aircraft - Gripen. It costs 65mil euro/year. I don’t think that this is needed as we are in NATO and some protection can be provided simply by anti-aircraft missiles.
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A similar debt bubble to the housing crisis that is rising is the debt bubble for car loans. Like housing loans, these car loans are being bundled and sold as securities. Banks are able to eliminate their risk of high car loan default rates by passing the risk on to investors in the form of securities. Likewise, the incentive to give a car loan to anyone with a heart beat has increased substantially because the risk is being removed from the car salespeople and the banks that offer up the capital on the loan. Same tricks, different day!
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Here is an updated reply as I feel the original post was not a good one. Buying a house is not necessarily an investment and therefore, a bad example of malinvestment. :
The fracking industry meets the definition of malinvestments. It is an industry that has been booming massively since the housing bubble of 2007 due to Quantitative Easing and Zero Interest Rate Policies, which render possible fracking ; a highly capital-intensive venture.
Without very low interest rates instituted by the Federal Reserve, such ventures would not be possible. Even though, fracking’s job creation numbers are high, the fact that the activity is inevitably unsustainable only makes it look good artificially.
Investing in fracking would then be considered a malinvestment.
OP : Buying real estate in the current housing market conditions here in Canada is, seemingly, a malinvestment.
The price of houses has increased enormously in 2020, due I believe to very low interest rates. There are bidding wars on just about every house that hits the market, where they end up getting sold 20-50% higher than they would have a year or two earlier.
Such inflation will certainly lead to a bust when interest rates begin rising and where overextended parties will not be able to deal with an increase in their mortgage payments, coupled with decreased demand from buyers.
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I think that mainvestment is government investing money in universities. In Latvia there are a lot of places on budget groups where you can basically study for free. I studied Chemical Engineering. We had 80 budget places, and we had to study for 4 year, but after 1 year we were only 20 students there left (because it is not easy to study chemistry). But government pays all study fee for 4 years when we start to study. So basically government was paying 3 year study fee for 60 students for nothing. And that is where our tax payer money goes - totally wasted.
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The first thing that comes to mind is the huge investment in Myspace and hi5 right before the emergence of Facebook.
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The government[quote=“Arami_Alfarhani, post:1, topic:15696, full:true”]
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).
[/quote]
The government buying corporate bonds, bailing out banks, buying privatized projects such as pipelines and turning them into inefficient government owned and ran entities.
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