Now, credit will be more expensive for those who get it, will tend to be offered to those who need it less, and the amount of equity borrowers put up will have to be higher. The self-perpetuating cycle that drove prices up will drive prices down.
"Securitisation markets, as opposed to central banks, have been the major source of liquidity," said Lena Komileva, economist at Tullett Prebon in London.
"The danger is that the credit crunch ... will become even better entrenched in 2008.
"You can't have asset prices at historical levels, i.e. where equities are now, against a backdrop of lending constraints and deteriorating economic fundamentals."
There has been a strong correlation between the growth of securitisation and the growth of overall money supply in the economy, according to Meyrick Chapman, fixed income strategist at UBS in London. With securitisation down, it is reasonable to expect money supply to fall as well.
"If you sink broad money, you get a recession," he said.
It's also important not to look at the securitisation and banking funding crunch in isolation. They are part of a process of inflated assets deflating which started with American subprime lending but did not stop there and will continue to spread.
"Collateral quality looks set to deteriorate on a broader scale," said Komileva.
"If 2007 was the year of fairly narrowly defined problems in subprime, 2008 is the year that collateral problems spread."
Moves by central banks to lend against a wider array of capital have helped banks out of their immediate bind, allowing them to finance securitisations that were tough or impossible to sell through such loans. But banks are very unlikely to carry on making new loans with central bank finance.
So how is the mess resolved?
Both Chapman of UBS and Pimco's Ravano see sovereign wealth funds, which control more than $2 trillion in assets on behalf of state investors, as potential new buyers, but also agree that they are unlikely to ride to the rescue in the near term.
The most likely outcome is that the price of funding will have to rise considerably, and deals will be less complex. The longer it takes, the worse it will be for markets and investors.
The credit crisis will get worse before it gets better.
(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)
