An investment that is absolutely widely considered a malinvestment is the protocol “DOGECOIN”. This coin does not have any big whale investors and relies on advertising like crazy and investors are run by volunteers. So it is run based on pure hype and gamblers in the crypto space. One would say that many investors have no idea what the money is being invested in because DOGECOIN is not a revolutionary coin like ethereum or monero; Even the developer of DOGECOIN says his crypto is a joke.
Saudi Aramco. The company was over-valuated at the time of the IPO and they reached they peak of crude oil extraction a long time ago. A ressource that many countries try to get rid of during the next decade.
For me would actually have to be the US or any govt borrowing money from Central Bank because the Central Banks can manipulate interests rates and create illusions of wealth. Also, the govt that borrowed the money would have a hard time keeping up and paying it off, just like its it today. Finally, fractional reserves by banks whereas they loan out 90% of what they actually have and cannot backup the loans. At some point the system will collapse!
Wirecard - Fraud, started already 10 years ago, no one reacted, politics, banks everyone involved - 1,9 Milliarden Euro just disappeared. Even BAFIN employees were involved in buying and selling - no one ever controlled anything
Mortgage bonds just prior to the financial crisis. They put sub-prime loans into the mortgage bonds which were then repackaged into collateralised debt obligations (CDO’s) which collapsed when the loans couldn’t be paid.This caused the financial crisis.
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).
The United States gives money through congress to Foreign entities: NGO’s, Corporations, and Governments. There is no oversight on how it is spent and documented. This is the principle way that U.S. politicians launder, steal and pay to enslave humanity.
Investors with low credit scores were able to borrow easily prior to the global financial crisis. They were able to borrow with no down payments and claim high incomes without being required to provide any documentation and proof. When the market turned, home values were lower than the mortgage that was owed and capital was lost.
Fracking is an excellent example of malinvestment. Fracking is not profitable at an oil price of $50 a barrel. Fracking is only sustained by a market investment of naive investor and global oil reserves. At the same time, as is the case of every malinvestment example on this page, some people become extremely wealthy form their investment into it.
My city’s public transit system is a prime example of a malinvestment! Proposed multibillion dollar transit construction projects are debated repeatedly for decades, each time it’s brought up with city counsel, it costs the city millions in tax payer dollars. And each time it’s agreed upon and passed, a few years later the topic comes up and in the end, we’re over 20s years later and still NOTHING has been built!
On top of that, the existing transit infrastructure employs VASTS number of workers who literally do NOTHING but waste time and resources while at work. I have first hand worked (as a sub contractor) at places where all the workers either play ping pong, sit on their arses at a table, or in an idling truck playing on their phones, then for coffee break, then back to their phones. I do not understand how all these people don’t lose their minds from boredom, the daily grind of doing nothing, learning nothing, thinking nothing. Their annual pay? In the 6 figure ranges. It is mind boggling and infuriating to think about.
The federal reserve buying corporate bonds in response to the effects of COVID. This is just and insane run to add on the ongoing money machine inflating the market. Money Machine go double brrrr all of 2020
Thames Tideway Scheme - UK https://en.wikipedia.org/wiki/Thames_Tideway_Scheme
I believe this sets a good example of misallocation of funds and malinvestment. The project costs were forced entirely on customers, while profits and tax breaks in corporation tax ensured all shareholders benefited from the project.
SATA AIRLINES
Sata is a portuguese airlines company, which year after year is managed by unskilled managers, and acummulating loss after loss. Portuguese government is always injecting funds to recover it, but in my opinion there’s no business plan, so it’s just feeding the fire.
Not completely a malinvestment, but current Hungarian prime minister, Viktor Orban is known for spending government money on building and improving soccer stadiums. While soccer is a great sport, that money could be invested in lot more worthy causes. Especially with the state that Hungarian soccer is. Here is a quick read: https://www.nytimes.com/2019/10/26/world/europe/viktor-orban-soccer-health-care.html
The stock market at the time of writing this is artificially inflated. Money is flooding into it because the Federal Reserve is propping up the underlying companies. However, if this investment represented reality (which is eventually will have to) the stock prices would plummet
I would say Blockbuster was guilty of Malinvestment. They had a total monopoly on the movie distribution industry and should have had a leg up on streaming video, yet they let netflix eat their lunch. Blockbuster continued to concentrate on expensive brick and morter operations while Netlix continued to invest in their online streaming and mailing business that was low cost and more convenient. Blockbuster even missed out on a chance to buy netflix while it was a small company relative to blockbuster. Eventually Blockbuster couldn’t compete and went bankrupt. This is a lesson that companies should continually try to stay ahead of the shifts. I think this is a lesson Disney learned well and why is launched disney plus.
The US Government has for the first time in history is buying up corporate bonds to the tune of $250 billion+. This is a massive misallocation of capital as it will prop up companies that SHOULD HAVE CLOSED instead of letting the free market decide the winners and losers. In addition, the trillions being “printed” by the Fed Reserve will devalue the U.S. Dollar at an exponential rate…ultimately leading to the collapse of the stock market and likely the U.S. Dollar as it stands today.
S&P 500, Nasdaq etc all today at the time of writing are hitting new highs, all because of virtually 0% interest rates around the world, most central banks are letting the money printer go ‘BRRRR’. The FED seems to believe that some companies are “too big too fail” - hence their recent purchases of all assets, I believe they are potentially looking at buying “junk bonds”, but as all free market capitalists know, when a business fails, someone who actually knows what they are doing will fill the role of that company.
EUR (or any fiat currency for that matter). Return on investment is very low or negative when kept in some bank accounts, while the supply accelerates each year resulting in (rampant) inflation.
@Arami_Alfarhani not sure if this counts but the Bailout of the Banks in 2008. Our banking system, the world’s yet more specially USA’s, failed from malfeasance and undue trust. Had it not gotten bailed out we could’ve started over . And made a stronger sturdier economy.
In Hungary the foreign currency loans were very popular in the 2000s, especially CHF loans. There were of course many factors in this case, but the CHF value has decreased significantly to EUR and many of the people with CHF loans are indebted (around 2008). It was very risky, also the banks did not give a correct explanation about possible risks. On the other hand, everybody thought that this is a very good option and lower interest rates should be paid to the banks and not really cared about the risks.