Credit crisis far from over despite Bear's collapse

By Jennifer Ablan - Analysis

NEW YORK (Reuters) - The acute phase of the crisis in financial markets may be over, marked by the near collapse of Bear Stearns, but the fallout leaves the United States vulnerable to recession.

The vicious combination of the banking industry's tighter lending standards, rooted in the monstrous rise in mortgage defaults, and falling American home prices could continue into 2009.

That could eat into already slowing economic growth and push the United States into a recession -- albeit one that might be mild yet last longer than the eight-month-long recession of 2001, speakers at the Reuters Investment Outlook Summit said this week in New York.

"We have fundamental uncertainty about what is going to happen with house prices," Martin Feldstein, head of the influential National Bureau of Economic Research, told the summit.

Those words are hardly comforting.

Earlier this year, Ben Bernanke, chairman of the Federal Reserve, warned that consumers are bearing the brunt of the effects of the current downturn because housing wealth has been tied strongly to spending and their homes are their biggest assets.

HOUSING HEADACHES TO LINGER

The U.S. housing market's morass has also resulted in more than $300 billion of write-downs at financial institutions globally so far, as banks have been huge holders of risky securities tied to the appreciation or depreciation of housing prices.