The CDO Era is over. According to SIFMA, global CDO issuance in the first quarter of 2008 came to a mere $11.7 billion, down 94% from the same time last year.
While the sudden death of structured finance may go unlamented by most, you can be certain it will be sorely missed by the hundreds of thousands of newly bereaved bankers and brokers who depended on it.
The making of salami out of hoggish assets involved serious money. During 2006 and 2007 a combined $1 trillion of new CDOs were issued globally, generating tens of billions in underwriting fees alone. When everything else is added up, from sales commissions and secondary trading to the creation of piggy-back products like CDS and SIVs, the total revenue was many times over. Compare this with equity IPOs, which raised a total of $712 billion in 2006-07 (World Federation of Exchanges data).
Clearly, structured finance was the most profitable product coming out of the great salami factories in Wall Street and the City. With the production lines now idle, there are no more financial sandwiches made; and thus, no need for bread, tomatoes, or condiments - and no need for all those deli counter employees, either.
So, what's next on the menu? After all, the financial industry is nothing if not quick in manufacturing new products out of the same pig. I believe this time it will take longer, however. We have killed too many piglets to make salami and the next litter is not yet on the horizon. The sow is not even trying her new lipstick on...