The always thoughtful Nouriel Roubini wonders, “How will financial institutions make money now that the securitization food chain is broken?”

In the good old days, you made money by originating a loan, and then collecting revenue from it, but today you make money by originating and then reselling the loan.

The resale, and the fees involved in what Roubini calls it “originate & distribute”, model generate your profit.

The kicker is that but the new model appears to have broken down:

This food chain of fees on top of fees is now broken: securitization of mortgages, that was running at the annual rate of $1,000 billion in January of 2007, was down 95% to an annual rate of $50 billion by January of 2008. So the process of generating fees and commissions is broken.

It’s really scary, because these companies, by which I mean investment banks and a lot in the way of commercial banks, increasingly look to have no business model at all. The model until mid 2007 was “make income out of securitization fees rather than by holding the credit risk”, but no one trusts securitized debts any more.

What’s more, it’s clear that the flight from these instruments is a rational act by the market. What’s more, it is reasonable to expect, even in the absense of regulatory reform, that these instruments will not be accepted by the market for the next decade, the time that lessons stay learned in Wall Street.

So, somewhere north of 20% of our financial industry has no reason to exist any more.