Ordinary investors did fairly well in 2007, but their brokers and other big financial players lost their shirts in the subprime collapse. How did that happen? The New York Times observes that “parallel markets” have developed in recent years, with stocks and bonds available to most, and specialized, acronym-heavy securities like CDOs, MBSs and SIVs available only to favored insiders.
"Financial alchemy” turned risky mortgages into seemingly safe securities, and insiders bit hard. While financial stocks were rocked (that component of the S&P 500’s fell 21%), the crisis has had relatively little bleed to non-retail areas of the economy (the S&P 500 finished the year up 3.5% overall), so high-quality bonds and commodity markets performed well. That said, uncertainty awaits in 2008.