Deleveraging
Before the credit crunch, firms and households expanded through 'leverage' - borrowing to buy assets. 'Deleveraging' is this process in reverse.
Before the credit crunch, firms and households expanded through 'leverage'- borrowing to buy assets. It worked provided asset prices rose as lenders knew they could seize and sell them should a client fail to repay interest and/or capital. 'Deleveraging' is this process in reverse.
The trigger was the credit crunch, which spawned falling prices for everything from houses and stocks to commodities.
Now over-indebted households, firms and hedge funds, many with falling incomes, can no longer find credit and are being forced to sell assets to repay even existing loans. This reinforces the downward trend in asset prices, leading to more loans being called in. The result is a vicious circle of economic contraction.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: Three ways leverage can boost your returns.
-
Hargreaves Lansdown bumps up cash ISA with £25 cashback - does it beat the wider ISA market?
Just days before the end of the tax year, Hargreaves Lansdown has launched a £25 bonus for those who open a cash ISA on its savings platform. Does the bonus make it a competitive rate, and are you eligible for the cashback?
By Vaishali Varu Published
-
FCA targets finfluencers with new social media guidance
So-called finfluencers have been warned by the UK financial watchdog that they could face prosecution if they fail to follow new rules.
By Henry Sandercock Published