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Debt, Not Terrorism, Top Economic Risk

By DAN SEYMOUR,

Posted: 2007-08-27 10:55:23

NEW YORK (Aug. 27) - Bad credit has supplanted terrorism as the gravest immediate risk threatening the economy, a key national research group reported Monday.

Borrowers' withering ability to pay their bills and the subsequent fallout in the credit markets this summer topped the list of short-term risks on peoples' minds, according to a survey of 258 members conducted by the National Association of Business Economics.

NABE, a Washington-based association, said 32 percent of its surveyed members cited loan defaults and excessive debt as their biggest near-term concern.

Only 20 percent of members cited defense and terrorism as their biggest immediate worry, down from 35 percent when the survey was last conducted in March. Credit risk also topped gas prices, inflation and government spending.

"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," said Carl Tannenbaum, president of NABE and the chief economist at LaSalle Bank/ABN Amro.

The market turmoil began earlier this year, when mortgage lenders like New Century Financial Corp. and H&R Block Inc.'s Option One Mortgage Corp. unit reported their clients were missing payments on their home loans more frequently.

This led the Wall Street banks that finance the mortgage market to ultimately pull much of their money out. With cash draining rapidly from the industry, more than 50 lenders have gone bankrupt and a number of investment funds have gone under.

Victims of this flare-up include two of the 10 biggest mortgage lenders in the country and two hedge funds managed by Bear Stearns Cos.

Loan brokers say it has become more difficult for some people to line up mortgages. Subprime loans, or loans to people with spotty credit histories, have all but disappeared as lenders scale back or shut down completely.

The shakeout in the subprime mortgage market forced investors around the world to reassess how much risk they were willing to stomach. This led to an exodus of cash from investments like securities backed by home loans, short-term corporate bonds and stocks whose values were inflated because they were perceived as takeover targets.

In the past five weeks, the stock market has lost 5 percent. The dollar fell to an all-time low versus the euro. A number of companies have had to cancel bond sales because of an absence of buyers.

And, the Federal Reserve has lent billions of dollars to banks from its "discount window," normally associated with bailouts for struggling financial institutions. The Fed this month issued a statement that the risks to the economy have risen considerably and traders ramped up their expectations the Fed would cut targets for interest rates this year.

The tumult in the financial markets has led businesses to revisit their interpretation of the housing boom earlier this decade and the easy credit that fueled it, NABE said. The proportion of surveyed members who call it a "serious national bubble" more than doubled from two years ago to 29 percent, the group said.

NABE said the market turmoil is considered a short-term risk because the five-year outlook for housing is still strong. More surveyed members expect home values to appreciate in the next five years than fall. Very few expect a serious drop in home prices in the next five years.

The greatest long-term risk facing the economy is still health care costs and the medical needs of an aging population, NABE said.

Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. All active hyperlinks have been inserted by AOL.

2007-08-27 07:02:14

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171 comments

mparks3303 09:32:54 AM Aug 28 2007

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you've driking a little too much whitelighting

whitelightnfl 09:04:00 AM Aug 28 2007

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mparks sounds like Benny Hinn. "Donate to me and it'll be returned 10 fold". "A big donation and i'll pray and Heal Your"

mparks3303 07:38:34 AM Aug 28 2007

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a dividen is paid only when an investment is made. check out god's spiritual laws of reaping and sowing. you will not reap until you sow and you will reap only what you sow. use wisdom w/your money andd store up treasures in heaven too.

kell8b 07:36:42 AM Aug 28 2007

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There is no recession, there is an ethics battle. Dems and libs have none.

kell8b 07:33:21 AM Aug 28 2007

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This is all due to the liberally educated people in the loan and mortgage business.They are as big a threat as terrorists to the economy.The "me generation" marches on, America falls behind. Just get your dog a ss number,they will loan that dog money,Lmao.

mparks3303 07:17:18 AM Aug 28 2007

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the smart keep getting richer. the dumb work for the smart

kittenkamando 06:18:00 AM Aug 28 2007

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janetfn............you are delusional........

the economy is fine thank you.........

for every down in the stocks...........comes great bargains........

for every downward spiral in the housing market brings great bargains......

bought my house in 2000 for $ 85 thousand......

three years later sold it for $ 235 thousand and bought a nice house in idaho.

some dems and libs want their thinking done for them !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

janetfn 05:25:59 AM Aug 28 2007

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Dsweldon

Everything in this Bush/fascist admnistration is 'smoke and mirrors.' With a nice GOP spin put on it for good measure.

Our economy is in terrible shape and if Bush keeps concealing we are in recession.....by the time he can no longer conceal it, it will be so deep that pulling out will be very difficult.

janetfn 05:22:38 AM Aug 28 2007

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Our government is not honest about inflation. They calculate inflation with a 'basklet of services' that does not include food or energy. (Gas, heating etc) Since those are major budget items for most Americans, not to include them in the calculations is grossly misleading.

But is it nice to know that the cost of a new yacht or diamond tiara is not rising as rapidsly as a gallon of milk.

arjayrabar 05:08:40 AM Aug 28 2007

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Made a drastic cut in spending this year, however, still need to dip into savings each month to pay for standard items such as utilities, pharmacy, food, etc. Thought it was just us, see it's nationwide. Doesn't make us feel better, but at least we know we're not alone.

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171 comments