The biggest missallocation of capital currently happens amongst the normal people aka. tax paying citizens that do not grasp the real terms of inflation. Therefore they also dont understand the compounding effects this has to their capital that they deposit to the bank or hold in cash. At least with some exposure to investments there would be a possibility to counteract this (ex. gold, stocks etc.) but the financial illiteracy of the masses leads to the biggest missallocations of purchasing power and wealth referred to as the silent robbery.
Putting your hard earned labour and earning currency (aka dollars) into a bank account with no interest rate, a 3 -5 % devaluation on your money each year, and the banks without you knowing signing the bail-in law. They can take your deposits anything they wish due to banks becoming insolvent. The biggest scam and theft of all time.
The Train To Nowhere
Here in Los Angeles 12 years ago the people were sold on a high speed train that would link Northern California with the South. While the people could not see the value in it, we were told that it would create job, have matching funds from the government, and was vital and necessary to the growth and future of California. The vote narrowly passed by the votes of a few deceased Democrats and the bond was struck. The Process began as the government hogs put together studies and traveled the world to find the best train and feasibility for the peoples 10 billion dollars and the “matching” federal funds. Fast forward 12 years to 2012 and amid the financial crisis while half the population are not working and are on unemployment Not a single cross member or steel rail has been laid. Not an engine, nor engineer, nor Stuart trained… and all the money is gone. So they want a new bond we will be voting on in November.
Not much research needed, at least 50% of what norwegian state and counties invest in and build. Lately counties have wasted money on swimming halls competing with eachoter, using more money than they have, always blowing the budget and having troubles with building quality.
Recently Hertz Rent-a-car filed for bankruptcy and then proceeded to propose a sale of $500 million additional shares of stock, which are actually worthless because the company is …BANKRUPT! The stock price dropped from under $3 to @ $1 when declaring bankruptcy. Then the $500 million stock offering was proposed. Incredibly, the stock price went from approximately $1 on 6-4-20 to over $6.50 by 6-9-20, then back to $3.10, which was above the pre-bankruptcy price. This was apparently fueled by momentum and day traders and ultimately the Fed being the “buyer of last resort”, not financial fundamentals. This is obviously a mis-allocation of capital because it pumps a half-billion dollars into a company that is bankrupt, ultimately transferring wealth from day traders and taxpayers to Hertz’s creditors.
Here in England we invested into a new High Speed train called the HS2. Even though it’s a slightly out dated concept, it looked good on paper. Due to massive logistical oversights and other political and financial problems, the project is now heavily over budget. With the added Covid-19 situation causing problems in every sector, things are looking even worse.
Malinvestment, the billions spend in bailout money in the EU. Most of the money will go to bankrupt banks, high debt companies, to enhance policies like the free money to everyone for staying at home, which will only be used as political marketing to be re-elected instead of fixing the job problem. Capital should be deploy to productive companies, that would require more labour to increase production. Or could be use in research and investigation for public health systems…
The federal reserve printing fiat money and causing debt bubbles and inflation. decreasing the value of the currency everyday. using taxation and inflation to rob the population of wealth. only a few people dictate the monetary policy for the nation and global economy.
Bitconnect was definitely a malinvestment because it was a multilevel ponzi scheme. Their so called trading bot was supposed to guarantee the investors daily profits but at the point where investors started to question the loan platform and price started to decline, the criminals sold everything and went bust.
Central banks printing money to buy assets and bailing out airlines, hotel industry is an example of the misallocation of the capital
Or all the malls being developed when most purchased are moving to ecmmerce
“Tax payers money!!!” bailing out failed companies. Failed companies being bought back by a government that sold it in the first place.
“The Great Debasement,” debasement policy enacted by Henry VIII of England removing actual value from currency. This new fiat currency depreciated in value as precious metals were inappropriately invested on person gains and foreign wars, resulting in negative economical growth. This was a gross misallocation of capital driven entirely by greed.
The ‘Australian Dream’ is to own your own home. Now some folks were not able to save a deposit or did not have the income to service a loan. So the government steps in to ‘help’ put the dream within everyone’s reach. They do this by providing a first home owners grant of $7500 and allowed banks to accept a smaller deposits. The market prices this in with interest and house prices rise in excess of $7500 and so now people who found it hard to buy a house thanks to the help of the governement houses are actually more expensive. Not to worry the governement also helps investors who provide rental properties. How? By allowing losses on rental properties to be deducted from income so as to reduce tax. So now folks are lining up to make a $1 loss so they can get $0.30 back on tax. Sounds awesome. Any moron can buy a property that loses money, why are we encouraging that? In effect the governements ‘good intention’ has resulted in the worlds greatest housing bubble. Pity its also quite fragile. As soon as people lose their job and can’t pay their mortgage or rent the whole scheme breaks down with big knock on effects to the huge amount of builders that were employed building these houses and appartments that weren’t really needed and had become increasingly less affordable.But if the market is allowed to correct a large portion of the population are going to end up underwater, i.e. owe more than the real value of the property. Solution? Crank up the money printer and keep the party going until the next election. Good news is that the loans are dollar denominated so if there is inflation you’ll be paying back yesterdays loan with tomorrows worthless fiat.
I’d like to put forth the higher education/university system in the US. The rates being charged just to “educate” people are simply outrageous! What is the average ROI for those who have gone into hundreds of thousands of dollars in debt to rack up degrees that in most cases certainly don’t lead you to massive wealth? I envy the countries where education is free or at least at a cost that won’t leave its students in debt for many years. That’s why I decided to get my Master’s abroad! Apparently, the US isn’t the only country where people’s need to better themselves so that their financial futures are bright and shiny ends up costing them more than it’s actually worth. There have been reports of exponential corruption in the Chinese higher education system as well, thereby diminishing the true value and takeaway from becoming “educated.”
These statements might seem quite odd coming from someone who has taught in universities abroad and in the US for a living. I do believe in the power of education, but at what cost? Are we really getting what we pay for?
in 2008 Deutche bank created investments called “credit default swaps”, which basically took a bunch of loans that were in default, grouped them together into its own security instrument and traded them. This is insanity. My limited understanding is that you are basically pretending that these bad loans are suddenly okay because they are grouped together into it’s own security with a AAA stamp. It’s like a slight of hand card trick.
THIS is the definition of a malinvestment!
The Australian NBN (National Broadband Network), Australian internet is world famous for being terrible because successive governments botched the rollout, cutting corners and ‘saving money’ in the name of short term politics. The original plan under the previous government was for ‘FTTP’ (Fibre to the premise) connections, however the incoming conservative government decided this was going to be too expensive and modified the plan to be ‘FTTN’ (Fibre to the node), utilizing parts of the ageing copper wire network which was supposed to be getting phased out by the new technology. So essentially the further you are from a ‘Node’, the more copper wire the internet has to travel through and thus the slower your connection will be. This could be classed as a malinvestment because it defeats the purpose of upgrading the system if you still incorporate ageing and faulty components from the old system, It will just require overhauling much sooner as well as being less useful for people in the meantime.
United Airlines, Boeing, also other big airlines. For the past 10 years they focused most of their cash that sometimes was scarce on buybacks of their own stocks. Without completely weighing the risks that the future might bring, they were paying dividends and their valuations were way higher due to those buybacks.
Now that they couldn’t fly they ask government for help. The tax payer will have to bail them out. This is complete mismanagement and irresponsibility. If they were small companies they would quickly disappear.
From Investopedia…When credit is too easy to obtain and rates are low, people will overinvest. This excess investment is called “malinvestment.” There won’t be enough demand for, say, all the homes that have been built, and the bust cycle will set in. Things that have been overinvested in will decline in value. Investors lose money, consumers cut spending and companies cut jobs. Credit becomes more difficult to obtain as boom-time borrowers become unable to make their loan payments. The bust periods are referred to as recessions; if the is particularly severe, it is referred to as a depression.
With what the US Federal Reserve is doing… purchasing private bond is a form of malinvestment.
When the quarantines began, I worked about 60+ hours a week and was slightly jealous that some people were able to make more money by sitting at home doing nothing. My ex declined to go back when her job opened back up because she was making more on unemployment. And then, she lost the unemployment because of “job abandonment”. I was laughing secretly because it was poetic justice. I respect people more who work hard and consider the future, not those who make lazy decisions. 
My malinvestment contribution: I recently have been bombarded with Youtube ads for a company called Keystone Investment Club. There is a slick intro teaser where some guy in a suit talks about how the government is cheating us all, but he has found a way that we can fight the coming financial crisis and become wealthier than we ever imagined. I watched the entire 60 minute video and eventually realized he was just a guy pushing crypto and other stocks that he publishes in his newsletter, which you can subscribe to for just $997 per year. You get access to his community and his stock picks and other cliche things that I have heard from Internet Marketing hype for the last 15 years. I usually Google these types of people with their company name + scam and read the reviews, and then congratulate myself on not falling prey to their scams. Even if they are picking good stocks, the $997 price tag would seriously hurt my ability to invest in whatever they were recommending I invest in. And here is the other risk with these penny stock snake oil types… They usually will buy in while the price is low, then when the newsletter gets sent out, all their subscribers pump that stock, so it DOES go up (temporarily), but I suspect the author dumps then, and gets out at the top. So instead of wasting my money on gurus like that, I prefer to DCA bitcoin and invest in my education here at IoT Academy. I think it will pay off many times over in the long run.
1 Like