Current car loans that banks are giving are a malinvestment. Banks are willing to loan out 150% of a car’s value to a buy today. Car prices are already inflated from a shortage of new models, so banks are loaning out extra money for a depreciating asset to someone who will probably not be able to pay back the loan in full.
1 Like
In New Zealand I would consider leaving your money in the bank as an investment and getting interest returns is a malinvestment. The current return is 0.8% per annum.
2 Likes
China has experienced rapid economic growth since the 1970s. To prevent all the jobs from going to coastal cities, China built up its rural areas. Local governments tried to stimulate their economies by building more infrastructure and stimulating the property market, hoping that people in rural areas would move to the cities after they were built. Today, China has more than 50 cities that have a very low occupancy rate because very few people have moved into them, the so called “ghost cities.” In most of these cities, property prices have plunged.
1 Like
The ultimate malinvestment for the individual is definitely placing funds in a savings account with the bank. As the reading in this section demonstrated even depositing it in the future may very well bear a charge thereby reducing the wealth of the individual holding it. Currently, that reduction occurs “naturally” as a result of inflation. As the cost of goods/services increases, the previously held purchasing power of the individual decreases. The key then, avoiding bank/system fees, is to avoid these types of malinvestments (those that cause depreciation in wealth through fees, inflation, etc) and seek opportunities providing appreciating value: real estate, stocks, etc. Something that will increase in value provides the opportunity to see our wealth grow, or at least not be whittled away at toward nothing; this being the entire purpose behind the investment in the first place, seeing it grow that is.
2 Likes
this may be an unpopular opinion but the current management of stimulus checks by the government to improve the economy and infrastructure is a malinvestment. this misallocation of capital will continue to inflate the us dollar. this is one of the reason’s i am supporter of cryptocurrency.
2 Likes
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).
By investing in Kodak (it used to lead the photography market), they refused to move forward with technology.
2 Likes
A malinvestment is having all your wealth in fiat currency and not owning any BTC, precious metals and other cryptos.
1 Like
A malinvestment is the ransom of 53 million Euros by the Spanish government of the company Plus Ultra Venezolana, with the money that is destined to support the strategic Spanish companies affected by the pandemic and consequent injury to the millions of freelancers and SMEs that they have not yet received direct aid from the Spanish Government.
1 Like
Vinashin scandal in Vietnam in which a significant amount of government fund ( around 35 million US dollar) had been misallocated in dead projects resulting in the enrichment of top officials and permanent loss of public funding.
1 Like
A malinvestment would be the investment into older websites before giants like facebook and google came out
1 Like
Malinvestment- The Indian point Nuclear plant in new york city is set to shut down which will actually cause more pollution and increase the use of fossil fuels and cost the taxpayers more as well.
https://www.nytimes.com/2021/04/12/nyregion/indian-point-power-plant-closing.html
1 Like
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 of malinvestment was the United States Housing bubble in 2008. There wre too many people tat had taken out loans they could not afford. Lenders relaxed their strict lending standards to extend credit to people who were not qualified. This drove housing prices up. When people started to default on their morgages the financial system collapsed.
1 Like
carbon offset programs are great examples of malinvestment of capital.
A carbon credit is a permit that allows the company that holds it to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of a mass equal to one ton of carbon dioxide. The carbon credit is one half of a so-called “cap-and-trade” program.
this program incentivizes companies to spend capital in ways that put them at competitive disadvantage versus companies that are not hamstrung by these requirements.
1 Like
Real estate prices for home buyers and renters has been going through the roof during the past 5 years. Buying small rentals and renting them in the early 2000s was a smart investment. Over the last 5 years the housing market has become tight. In the housing market, prices have more than doubled. Buyers are offering more than the asking price to have their offers accepted. At the same time rumors of a housing crash threaten the market. Fears of all sorts of bubbles. This is the best time to cash in on inflation. Yet, if you sold your house in this market, where would you live? You would pay as much downsizing as the monetary gains from the house you just sold. What rented for $1,500/mo is now $3,000/mo if available.
Note: if you owned the rentals you purchased in 2000, rents have been forgiven since the lock downs.
All adds up to a “malinvestment.”
1 Like
Fyre Festival, it was a misallocation of capital since because it was an overhyped service that never delivered on its promises. It was missmanaged, spent far to much of its operational expenses on marketing rather than carrying out to a plan. The development plan was also not thought through and did not have room for flexibility.
1 Like
I believe the initial investments in Theranos in the mid 2010s qualifies as a malinvestment. This company intended to produce portable blood tests so people could simply get tested at home rather than have to go to a medical professional. At one point, the company was worth around $10 billion at the height of the excitement for Theranos. Not only did it turn out the integrity of these testing kits were questionable, the founder of the company, Elizabeth Holmes lied about the annual revenues for the company, inflating them from their true worth. After a series of scandals, the company would fold, leading to the founder being charged with fraud.
1 Like
A good example of a malinvestment was onecoin which was a ponzi scheme that defrauded investors 4 billion dollars. This project was based in bulgaria and was advertised as the bitcoin killer which attracted many investors. They held big events and got many large names in the crypto and blockchain world to come that help lure investors. It was described by The Times as one of the largest scams in history.
1 Like
Covid aids by government.
Companies with outdated business model get financial support by the government simply because of the many workplaces saved short term but in the long run they would die anyhow.
1 Like
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 typical malinvestment is real estate. Many people would not get a mortgage to buy a new house if the interest rates would not be kept so low because of central banks.
1 Like
Nobody hopes that I am wrong about this more than myself but I think investment into any green energy project is a mal investment. I will pick on wind in particular. These projects only continue because governments keep funding them. I come from a windy place and I had high hopes of becoming a technician servicing wind turbines while being paid for their use on my land. The entire point of these projects is stop/reduce oil consumption. If one calculates the amount of energy used to produce just one turbine, erect it and then service it you will quickly see that it will take many many years to produce the same amount of energy that was used to produce it. They all break down and need replaced long before this is achieved. Of course, technology can be improved and maybe we can one day reverse that scenario but it will take a lot of improving. Also, if climate is changing so much, how do we know that wind will keep up in the place that we spend incredible amounts of capital to place them? I could go on and on before I bring up the impact on wildlife. There is a lot of feel good hopeium involved with all of this but, in the end, I believe, that the only real answer is nuclear and greatly reducing our energy consumption. Ask Germany how well their green energy is working. Good thing they are adjacent to France.
1 Like