The winners and losers in these times of transition

Although nervewracking and painful at times, the repricing of too-cheap assets and disclosure of losses was long overdue. But which investments will prosper - or founder - in this new environment?

Every six months the Bank of England publishes a Financial Stability Report. This event normally passes relatively unnoticed, but after the traumas of the US sub-prime mortgages and the collapse of Northern Rock, the edition published on October 25 was an exception. It constituted the most bearish commentary on global markets to come out of any major central bank.

It provided an initial assessment of the causes of the recent financial turmoil and the prospects ahead. The causes can be summarised as follows. Many low income Americans had been induced to take out mortgages with attractive starting rates. At the same time, investors bought bundles of debt (asset-backed securities), including these sub-prime mortgages, which offered an attractive yield. However, when US market interest rates rose, low income borrowers faced sharp increases in repayments and many defaulted. Consequently, the asset-backed securities plummeted in value.

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Brian has contributed to MoneyWeek with his expertise in investment strategy, for example how to quadruple your dividend income and how to navigate through the stock market in the 2008 financial crisis. He’s also touched on personal finance such as the housing market and the UK economy.