Enron out of Houston comes to mind. Their fraudulent accounting practices left thousands without work, pensions, or retirements and led to new laws such as Sarbanes-Oxley Act.
The subprime mortgage crisis of 2008 (housing bubble ) where banks were lending out these mortgages to people at variable interest rates who would normally have to provide some kind of proof they could repay (job or collateral) As adjustable-rate mortgages began to reset at higher interest rates (causing higher monthly payments), mortgage delinquencies soared . Securities backed with mortgages, including subprime mortgages, widely held by financial firms globally, lost most of their value. Concerns about the soundness of U.S. credit and financial markets led to tightening credit around the world and slowing economic growth in the U.S. and Europe. This led to the big bank bailouts of 2008.
I think the Wirecard situation would be considered a malinvestment. Wirecard was doing great and was great for crypto as well. It was trading for around 140 euros and was being audited by EY. Then it was found that they were missing 2 billion dollars. They said the funds were lost and in the Philippines. This was not true. There was accounting fraud, not found by EY? The CEO was arrested and they filed for insolvency. It is now trading a little above 1 euro and was lower than that weeks ago. It will go bankrupt but the positive note is that there are a lot of companies that want to buy wirecard.
US Treasury Bonds.
The interest rates are tiny! (when compared to hard money: Gold, Silver, Bitcoin) These aren’t investments, the US Government paid me a higher percentage of my salary this year in a stimulus check!
While revered by many financial advisors as a safe haven, with hyperinflation looming, it is easy to see US Treasury Bonds as a malinvestment!
The housing bubble of 2008 in the United States is an example of malinvestment.
Opportunities for new homeowners were created to obtain approved mortgages. This increase in homeownership had a positive affect on the real estate market such as home building, real estate, home supply retail outlets, along with the mortgage market. For varied reasons, new homeowners were not able to pay for these rooms, leading to an increase in foreclosures. This created a negative effect in the overall market.
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The European union subsidized in the past the production of sugerbeets. Farmers could not produce with profit without the subvention.
If the market would appreciate the product in a lower quantity, it would translate in higher prices. There was simply a overproduction which has been accelerated by European support. A tax payed misallocation.
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baling out banks (investing in them or lending to them) with the excuse of them being “too big to fail”. Also now in Corona time many companies are financially supported which would otherwise have already been bankrupt.
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negative yielding bonds -
i agree because i did such a malinvestment into Wirecard on my own 
big learning !
I’m sorry that happened to you. I heard something about a law suit against EY too.
The one of the biggest malinvestments would have to be the commercial office space particularly in urban areas across the US. Even before Covid much of the tech culture had already started to shift to at least a partially remote paradigm. However with Covid, the stressors of little to no occupancy and lease agreement defaults are eminent.
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).
US sub-prime mortgages pre 2007, were enabled by banks lowering lendingstandards.
Banks then mixed prime and sub-prime loans in a product sold on financial markets.
The risk was undervalued, and investors malinvested due to this fact.
Malinvestment in the dot-com era created a bubble in tech industry which boomed with the low interest rates and busted with the rates hike
UK Government bailing out RBS during the financial crisis of 2008. This springs to mind as RBS was in the news today announcing a name change later this year. This bank was rescued after two rounds of bailouts at a cost of £45 billion tax payer money and is still 62% owned by the public to this day.
Since 2018 UK Government is selling around £3 billion worth of shares every year so at that rate, the last RBS shares will be sold around 2025 which is 17 years after the first bailout, absolutely crazy stuff.
While some volatile assets can be good or bad investments depending on the time horizon. Some capital allocations are just inherently flawed, and that brings me to the minefield that is politics… The Swedish government claimed for years that Sweden needed a large immigration to solve the demographic challenge and to pay for all the pensions and other related expenses. Maybe their real reason to push that policy was another, from the very beginning, but that wasn’t what they told the public. Since then, all talk about the economic benefits from a large immigration from the third world has stopped completely. Seen from that economic perspective, that the proponents themselves opted on, the policy is an obvious misallocation of capital. It has been disastrous for the Swedish economy.
One investment scam that came into mind was Palm Invest…
Or taking a loan to buy a house in 2007…
Innovation Bioresearch Coin (INNBC)
Why it is a bad investment:
- White paper describes research interests in depth but mentions very little about the technology platform on which this decentralization of data is supposed to take place (only mentions that it is decentralized and is built on ETH network)
- Team Expertise is not in Tech Space (but rather, Research Science)
- Trading Volume is low ($29, 757)
- Circulating Coins = 0!!
- No Coin Market Cap Data ??
- No ratings backed by Developer Community (e.g. 0 code additions/deletions)
- Half of allocated funds in White Paper are claimed to be devoted to Tech Development, while the other half; devoted to R & D, but no programmers seem to be on the team. The Principal Investigator is mentioned repeatedly, but no one who develops the technology.
Seems to be an example of an outfit using its academic prestige to pose as a real company developing technology. Perhaps, this is used as a ruse to gain investment capital to further the existing scientific research by defrauding crypto investors.
Nikola - has no product on market with no revenue but a big rush of people buying stock.
Hertz- went bankrupt then there was a big rush from unsophisticated traders to buy up shares because they thought it seemed “cheap”.
Agreed. Also, all that stuff about using it to buy rides in fancy cars?? Sketchyyyyyyy
Microsoft’s announcement of its purchase of Skype, the Internet telephone service, for $8.5 billion. For a service that most of Skype’s users don’t pay for and generated $7 million in losses on $860 million in revenue last year.
Nobody made money on Skype; private equity firms Silver Lake and Andreessen Horowitz scored big on their 70% stake in Skype they bought just 18 months ago for $2 billion from eBay The online retailer originally paid $2.6 billion for Skype in 2005, so it’s finally getting some return on its investment.
That would seem to be a malinvestment – a stock that goes nowhere for a decade. Malinvestments refer to those projects undertaken mainly because credit was so cheap and abundant that any idea can get funding.
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