'Early Show' Expert Blasts Obama Economic Proposals

Not everyone in the media is sold on the idea the President Barack Obama has all the answers to America’s economic woes.

Throughout the 2008 presidential campaign, media pundits dwelled on how Democrat candidates traditionally fared better in times of economic malaise. But running for office is one thing. Actually governing is another.

CBS “The Early Show” host Harry Smith asked University of Maryland economics professor Peter Morici on March 2 if there was any end in sight for all the bailout money needed for the large banking institutions facing dire circumstances.

“With the policy the Obama administration is pursuing, no,” Morici said. “He’s not dealing with the fundamental problem in the market and that is all these mortgages that are failing and the free-fall in housing prices, which is creating the losses that AIG mis-financed because it guarantees the mortgage-backed securities, along with the fact that it’s good businesses that are now suffering, because no one has confidence in the AIG insurance companies. So, people are steering away from it. It’s losing business. The company is melting down.”

Morici proposed the Obama administration proceed with creating a “bad bank” to get the troubled assets of the banks books. And although the first Troubled Asset Relief Program (TARP) passed by Congress under the Bush administration’s watch last fall was intended to do that, the federal government has struggled to put such a plan in place.

“The federal government is refusing to create a bad bank, like the Resolution Trust we had in the Savings & Loan crisis to sweep all these securities off the books of the banks, work them out, do triage and put a floor under the housing market,” Morici said. “Until that’s done – these one-offs at Citibank, Bank of America, AIG – one after another, will fail. We’ll end up putting $2 trillion into all of this, instead of $750 billion, before we’re done.”

Morici was also very critical of Obama’s intent to raise taxes at a time when the U.S. economy is struggling.

“I don’t believe the stimulus package will be nearly enough because it’s poorly structured,” Morici said. “And I believe Obama’s plan is to raise taxes. While we can discuss the merits of who should pay taxes, how income should be distributed – it’s very wrongheaded at this time.”

The key, according to Morici, is to look at the markets when the government has proposed policies to improve the economy. Since Obama took office on Jan. 20, the Dow Jones Industrial Average (DJIA) has lost over 1,000 points, including a nearly 400-point drop on Feb. 10 after a disappointing speech by Obama’s Treasury Secretary Timothy Geithner on how to sort out troubled assets.

“Timothy Geithner’s financial stability plan scared the market,” Morici said. “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.”