Homeland Security's threat level for terrorism has largely been in the stand-by yellow "Elevated" mode pretty much since 9/11.

But if you could put subprime mortgage fallout on the same scale, it would stand at orange, "High" or perhaps even red, "Severe," the highest level possible because of the threat it poses to the economic foundation of the nation.

The National Association of Business Economics (NABE) said yesterday the credit crunch spawned by the mortgage market is wreaking havoc on the nation, much more than originally thought.

Mortgage company and investment failures, federal reaction, and related economic fallout issues dominated media stories this weekend as a growing number of economists say they are convinced years of bad lending has created, not just froth in local markets, but a national housing bubble that's out of air.

"The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the U.S. economy," according to the NABE's Economic Policy Survey, a consensus of 258 NABE members, largely business economics professionals.

The semiannual survey found just 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. Together those related concerns got 34 percent of the what-will-doom-us-first vote.

"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 at La Salle Bank/ABN-AMRO.

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

Energy was of greatest concern to 13 percent, current account deficit to 8 percent; inflation to 6 percent, employment issues to 5 percent and government spending, 3 percent.

The NABE also says it's members' interpretations of the early-2000s housing boom have shifted.

Compared to the August 2005 survey, more NABE members now view the boom as a "credit-induced bubble" enabled by risky loan pushers. That banging in the nation's head is a morning-after financial hangover. It feels a little better than a drunken stupor, but not much.

This August's survey revealed more than 29 percent of those surveyed now consider the boom a "serious national bubble," compared to only 14 percent two years ago. Most, about 59 percent still perceive the market as just frothy with local bubbles only.

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

And just over 60 percent of those surveyed agreed new mortgage lending rules issued by federal banking regulators are "necessary and appropriate."

However, among supporters of the new regulations, more than 90 percent said the action was "a little late."

In a surprising find "substantial percentages" of NABE economists who hold advanced degrees in economics and other business-related disciplines said they had little or no familiarity with some of the now failing financial investment vehicles spawned by the subprime market.

Admitting to having little or no familiarity with the structure, activities, and risks associated with hedge funds were 45 percent of those surveyed; private equity funds, 40 percent; asset-backed securities, 48 percent; credit default swaps, 68 percent; and collateralized debt obligations, 51 percent.

The general lack of knowledge of the risks of vehicles untested at levels used during the housing boom may create some culpability among those who actually packaged the investments.

The good news to come out of the survey was continued resilience and flexibility in the labor markets, productivity, technology and deep capital markets.

Also the economic risks were deemed short term for housing market.

The survey said 40 percent of those surveyed believe national home prices will rise from 2 percent to more than 6 percent in the next five years; 42 percent believe the range will be minus 2 percent to plus 2 percent; 12 percent say minus 6 percent to plus 2 percent and 4 percent say prices will fall by more than 6 percent.

Published: August 28, 2007

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.