When it comes to the subprime debacle, CFOs are pretty certain they know who is to blame. In the 2007 third-quarter CFO Outlook Survey, conducted by Financial Executives International (FEI) and BaruchCollege's Zicklin School of Business, about 86% of the 224 CFOs responding identified brokers and lenders as the prime culprits behind the recent wave of defaults on high-risk mortgage loans and the credit crunch that is currently disrupting the markets. The second most culpable group was the credit rating agencies, which 40% cited in the poll that allowed them to choose all groups that applied. “We are experiencing a challenging market environment characterized by uncertainty and turbulence around interest rates and credit markets, the value of the dollar and employment and, therefore, increasing anxiety about recession and/or inflation,” explains John Elliott, dean of the Zicklin School of Business, in interpreting the results. “CFOs face real and perceived challenges in coming quarters.”

Indeed, the convergence of concerns helped push the CFO Optimism Index down to its lowest level in three years, according to FEI. The index stood at 62.85 compared to 67.60 in September 2006 and 67.46 at the end of the second quarter. In the third quarter, 56% of the CFOs admitted to being more concerned about recession than they were in the second quarter, and 34% reported being more concerned about inflation. “The ripple effect from the sub-prime mortgage meltdown is undoubtedly being felt by both companies and investors in the global marketplace,” says Michael Cangemi, FEI president and CEO. “We have left behind a period of easy credit, apparently too easy, which led to excesses. The challenge for the Federal Reserve is to manage a balance.”