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Economist Slams Obama Administration Steps

A prominent economist says the recent actions taken by the Obama administration have done little to reassure Wall Street. Peter Morici, an economist at the University of Maryland, said the Obama Administration needs to "listen" to the markets.

"Obama's plans to raise taxes -- while we can discuss the merits of who should pay taxes and how income should be distributed -- is very wrong-headed at this time. Timothy Geithner's financial stability plan scared the market. Obama's stimulus plan scared the market. And now Obama's budget has scared the market. The Obama people should understand what Bill Clinton learned, to listen to the markets. They're a good sounding ground for what you're proposing."

Morici spoke with CBS Early Show co-anchor Harry Smith on Monday morning, a day in which the AIG insurance firm broke records with its $61.7B fourth quarter loss, the biggest quarterly loss for a U.S. company in history.

Smith noted the additional $30 billion that AIG has been pledged by the U.S. government, and asked Morici the question on many people's minds: Is there any end to the amount of money that these financial institutions are going to need to stay propped up?

Said Morici: "With the policy the Obama administration is pursuing, no. He's not dealing with the fundamental problem in the market, and that is all these mortgages that are failing and the freefalling housing prices which is creating the losses. AIG misfinanced because it guaranteed mortgage-backed securities along with good businesses suffering because no one has competence in the AIG insurance companies so people are steering away from it. It's losing business. The company's melting down."

Morici said the federal government should create a bad-bank like the Resolution Trust that was used during the savings and loan crisis of the 1980s and 90s, which would sweep all the bad securities off the books of the banks and resolve them.

"Until that's done, these one-offs at Citibank, Bank of America, AIG, one after another … We'll end up putting $2 trillion into all this instead of $750 billion before we're done."