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Asset securitization was one of the growth industries of the great bull market of the 1980s and 1990s. The concept of packaging up loans into legally isolated special purpose vehicles and then issuing tranches of bonds based on the asset pools first arose in the 1970s but really became a critical part of the global financial system in the decades that followed. As a credit multiplier, it freed up capital for banks and enabled the growth of new lending.

The growth of residential mortgage securitization markets (RMBS) was followed by the development of commercial mortgage securitization markets (CMBS) and then auto leases and loans, credit card receivables,  and even royalties on songs and turnstile receipts for sporting venues and football clubs. The inexorable multiplication of the value of assets securitized turned into a full-scale boom (and some would say bubble) in the early years of the twenty first century. New financial instruments emerged such as credit default swaps (CDS) and then synthetic hybrids such as CDOs, CLOs and CLO-squared instruments. Structured finance evolved into a veritable alphabet soup of acronyms.

The first strains of the credit crisis were felt in the last days of July and early days of August of 2007. Asset backed commercial paper markets, an obscure corner of the inter-bank liquidity apparatus but one on which many institutions relied on for their wholesale funding requirements, began to dry up. And so began the domino effect that led to the failure of the British bank Northern Rock and ultimately the collapse of giant financial institutions. When Lehman Brothers collapsed in September 2008, it almost seemed as if global financial capitalism had met its maker. Only massive government bail-outs of the banking sector in the United States and United Kingdom averted outright collapse.

So the great lending drought was followed by the Great Recession. Secured loans dried up as banks did everything possible to reduce their exposure given their capital constraints. For a time it seemed that securitization was the first victim of the financial crisis, missing in action. Eventually, propped up by government schemes such as the TALF, the market re-emerged and the long journey back to financial health began for the sector. Securitization suffered a cardiac arrest, but the patient did not die and the market remains active.