Securitization is still largely dead in the water this year after collapsing in 2008. It remains one of the last important vestiges of credit destruction to bottom as consumers struggle to borrow and the demand for loans remains weak.

Securitization was popularized on Wall Street earlier this decade as a means to provide cheap and liquid financing to consumers. Basically, an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace. Securitization in the form of mortgage-backed securities was responsible for more than 50% of all U.S. mortgage originations in the post-2003 period leading up to the 2008 credit crash; supprime mortgages dominated mortgage issuance until recently and were largely responsible for triggering the Panic of 2008.

In order for domestic loan demand to improve we need to see a revival of the U.S. securitization market. Thus far, it's still largely in hibernation despite efforts by the Fed to boost liquidity in the form of TALF, or the Term Asset Backed Loan Facility program. ABS, or Asset-Backed-Securities, issuance has improved this year, courtesy of TALF. But Private credit growth is stuck in the mud and won't improve any time soon.

Net global securitisation issuance slumped by 79% from $2,138 trillion dollars in 2007 to $441 billion dollars in 2008, according to the annual Securitisation report by International Financial Services London (IFSL). Securitization issuance collapsed 91% from February 2008 through February 2009, according to Dealogic, with asset-backed issuance declining to $2.6 billion from $32.1 billion at this point a year ago. Most consumer loans, such as credit cards, auto loans, student loans and others are relatively easy to bundle and sell as securitized assets; however, the demand for these products has collapsed over the last 18 months.

Meanwhile, bank credit growth is still declining quarter-over-quarter (through June) as banks refuse or remain reluctant to boost loan growth. So while important short-term credit indicators have markedly improved this year – TED Spread, LIBOR – banks are still not lending, especially to private borrowers. It's also fundamental to point out that loan demand isn't improving, either. Indeed, interest rates at or near zero percent are at these levels for a reason.

If U.S. credit is not expanding then it's hard to make a case for a sustainable economic recovery. Without credit growth you can't have a meaningful recovery.