Next big thing will elude credit markets

Way back in the 1990s, a group of so-called specialty finance companies cropped up. They basically made home equity loans to people with poor credit ratings. The loans were then securitized and sold a bonds. Soon enugh, delinquencies mounted to the point that the machinery stopped working. Warehouse credit lines from investment banks were cut. Bond buyers balked. And these companies went out of business. But they set the stage in some respects for the bigger subprime boom that would follow in the 2000s. But now that is fizzling out. And as of right now, it is unclear what, if anything, is the next big product, and I doubt it will materialize next year. Synthetic CDOs that invest in a portfolio of total retrun swaps? I'm sort of kidding. It looks like 2008 will be a dig-out year at all levels (credit rating agencies are in particulary deep hole). The massive CDO machinery may never be the same.

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