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Obama Will Need to Lead in Global Crisis: El-Erian

Recent government intervention has helped boost the stock market, but more will need to be done both domestically and around the world, said Mohamed El-Erian, co-CEO of bond titan Pimco.

Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co.
Photo: Oliver P. Quillia for CNBC.com
Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co.

The announcement of President-elect Barack Obama's economic team, along with more aggressive government intervention in the mortgage markets, helped give stocks their biggest winning streak in 75 years last week.

But Obama's toughest work lies ahead as he tries to help lead the global economy out of its recessionary environment as well, El-Erian said on CNBC. (To hear the full interview, watch the video below.)

"Last week was an important evolution in the policy response, and that's why the market responded so well," he said.

The Federal Reserve announced it would buy $600 billion in mortgage-backed securities and launched another $200 billion program targeted at asset-backed securities in an effort to unclog the financial markets.

At the same time, Obama unveiled the cadre of advisers who will help shape his policies, with New York Fed President Timothy Geithner tapped to lead the Treasury Department. El-Erian said the market was pleased with Obama's choices and optimistic that the next White House will shape global economic policies in a positive way.

"It requires an international solution," he said. "With the president-elect coming in there's a lot of hope he can galvanize and lead global policy reaction."

But the new president has his work cut out for him, said El-Erian, who attributed much of the current stage of the financial crisis to the Sept. 15 collapse of Lehman Brothers.

"I think the outlook ... for the rest of the world changed dramatically on Sept. 15," he said. "Confidence dissipated and people weren't able to get just daily routine transactions done, so you had cardiac arrest to the system."

But the recent moves by the US government indicate that a turnaround can happen with the proper level of intervention, he said.

"Now we're recognizing that the public balance sheet has to step in," El-Erian said. "The public sector has to buy assets. It has to contribute to the process."