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Credit Crunch 'Bigger Threat Than Terrorism'

Survey of economists finds rising fear of credit market collapse

August 28, 2007

“Financial market turmoil has shifted the focus away from terrorism and toward subprime and other credit problems as the most important near-term threats to the U.S. economy,” says Carl Tannenbaum, NABE President and Chief Economist, La Salle Bank/ABN-AMRO.

“However," he added, "these concerns appear to be somewhat transitory, as the five-year outlook for housing remains positive.”

But in the latest survey, conducted July 24-August 14, 2007, fewer than 20 percent of NABE members surveyed listed terrorism and the Middle East as their top concern in August, compared to 35 percent in March.

Meanwhile, 18 percent of those surveyed pointed to the effects of the subprime debacle as their biggest concern, and the related issue of “excessive household and/or corporate debt” was cited by another 14 percent.

Responding to a series of questions first asked in the August 2005 Policy Survey, more NABE members now view the recent housing boom as a credit-induced bubble. Just over 29 percent now call the boom a “serious national bubble,” compared to only 14 percent two years ago.

Virtually all of this increase came from the group of respondents who previously ascribed the trend to “local bubbles,” the group says.

The percentage citing “easier credit standards” as the number one or number two causes for the housing boom jumped to 64 percent from 34 percent in 2005.

Just over 60 percent of NABE members polled agreed that the new mortgage lending rules issued by federal banking regulators are “necessary and appropriate;” however, among these supporters a vast majority - over 90 percent - also termed the action “a little late.”

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