Financial Crisis Isn't Over Yet, Nobel Economist Granger Says

By Fergal O'Brien

Sept. 8 (Bloomberg) -- The U.S. financial crisis isn't over a year after it began, and more institutions will probably report losses tied to the collapse of the subprime-mortgage market, Nobel prize-winning economist Clive Granger said.

``The amount of repackaged mortgage debt is much bigger than anyone realized,'' Granger said yesterday by telephone from Tralee in southwestern Ireland, where he is attending a conference. ``Every month, we think that's it and then we find some more, so I have no idea how big the problem is.''

Banks and securities firms worldwide have reported losses of more than $500 billion tied to the subprime market. The U.S. government said yesterday it will take control of Fannie Mae and Freddie Mac. after the biggest surge in mortgage defaults in at least three decades. In March, the U.S. Federal Reserve provided financing for Bear Stearns Cos.'s sale to JPMorgan Chase & Co.

Banks ``haven't searched everywhere for where the problem is,'' said Granger, 74, who won the 2003 Nobel economics prize for work in developing techniques for analyzing economic data. ``That's the worrying part.''

New York University economist Nouriel Roubini last month said in an interview with Barron's that hundreds of U.S. banks will fail and predicted almost $2 trillion in credit losses.

Almost all the damage from the subprime crisis has occurred at companies based in Europe and the U.S. For Granger, a professor emeritus at the University of California, San Diego, the global economic outlook over the next two years depends largely on Asia.

``It's going to be critical as to how China and India get on,'' he said. ``If they're not badly affected by all this, and their demand for U.S. goods and European goods continues to be high, they will stop the slide, though not totally.''

To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.