A rather prescient piece in the NYT the other day highlighted the problems in the debt securitization markets, which banks rely on to make room on their books for new lending:

To be sure, certain corners of the securitization market are percolating again, thanks to the government’s Term Asset-Backed Securities Loan Facility, or TALF, which provides attractive financing for investors who buy the securities.

Bonds backed by consumer debt — credit card debt, auto loans and some student loans — are being issued at costs close to those before the financial crisis, an indication that the market is functioning again.

But the program applies only to borrowers with stellar credit. It does not cover credit card debt or auto loans for people with blemished credit histories.

“The market is coming back, but a lot of it is because of TALF,” said Hyun Song Shin, a Princeton economist who studies securitization. “The big question is, Will the private issuance market stand on its own two feet without TALF, or has there been a fundamental change in the market that it is somehow hobbled permanently?”

The latest Consumer Credit data provided by the Fed today underscore this point, revealing that revolving credit decreased by an astonishing 13.5% in August (on an annualized, seasonally adjusted basis), accelerating an already existing downward trend.

Delving into the numbers a bit further in the second table (note these are non-seasonally adjusted numbers here), commercial banks, finance companies and the like actual increased slightly their revolving lending in August.  The culprit is the pools of securitized assets, down to $432.3 billion from $465.6 billion in Q2 2008.

As Zero Hedge noted, TALF was recently altered to an end that encourages shopping amongst ratings providers.  The big question, from our perspective, is how long into an anemic holiday shopping season will it be before TALF 3.0 is released, replete with overt accommodation for subprime consumer credit assets?