Recently I was reading an Article that was talking about venture capital funds and their need to rapidly invest or return big sums of money that they have sitting in their bank accounts. The VCs apparently either have to invest the money (about $25 Billion) OR return the yearly management fees on the money (about $3 Billion). The catch is that the money doesn’t have to be invested wisely or responsibly, it just has to be invested. The theory then goes that this will lead to another boom similar to, but perhaps smaller than, the 2000 boom.
Whether this will happen is difficult to guess, but a thought did occur to me as I was reading the article. Booms, bubbles and bankruptcies can be a way of comercially funding things that need to be built but aren’t, strictly speaking, viable in a financial sense.
There are lots of examples of this, the internet infrastructure is one and the British railway system is another. In each case investors were enthused with the idea that vast fortunes could be made in the chosen area, the investors where driven into an investment frenzy and the infrastructure was constructed (typically at vast expense). The bubble then collapsed, but crucially the infrastructure was still there and still usable. A bit of restructuring and some fiancial fiddling and now there is lots of shiny new stuff.
The investors of course have lost their money by this stage, but hopefully the more speculative investors have sufficient reserves and everyone should always be following the key rule:
Never invest money in a risky venture that you can’t afford to loose
I suspect that this topic has been written about already so I’m currently doing research to see if there are more examples of it.