The mountain is still there…but where's the magic?

"This year the politicians are the real stars," says a commentary in the International Herald Tribune this morning. Which gives you a hint about how bad the show is…

"It's worse, quite frankly…then everyone thought it was…and it's getting worse every day," says America's new Vice President, Joe Biden.

Mr. Biden is talking about something he knows nothing about - the worldwide financial crisis. And this week, a large group of people who know nothing about it are going to travel to Davos, Switzerland, to talk about the financial crisis.

Davos was once made famous by Thomas Mann's book, The Magic Mountain. Now it is made famous by the movers and shakers who gather at the place each year to move and shake. Recent years have seen an explosion of glitz and glamour at Davos - led by Hollywood celebrities and big-spending financial firms. Goldman Sachs, for example, provided the money, hosting a party that was always the talk of the town. Brad Pitt and Angelina Jolie brought the intellectual gravitas. And politicians provided a comic element.

But no one is laughing at the politicos now. The whole world is making a shift…from the "innocent fraud" of the free market to the armed robbery of politics. People are taking politicians seriously again.

"The pendulum has swung and power has moved back to governments," says Davos organizer Klaus Schwab.

All over the world, capitalism is out…politics is in. Obama is a hero…Fuld is a schmuck. Politicians are taking control of banks. They - not investors - are deciding which firms survive and which perish.

For example, this morning brings news that the auto parts sector needs a bailout too. If it doesn't get $10 billion of somebody else's money, it will be in big trouble, it says. And there's Larry Flynt, over in the porno business. He says the bump and grind industry has fallen on soft times too. Will the feds rise to the occasion and pump in a little cash, he wants to know? We will see.

The problem is, practically every industry needs cash.

Leverage is a two-way street. When the going was good, a small addition to the financial sector's capital would be multiplied many times. The limit for Wall Street's investment firms was 12 to 1…until it was increased to 33 to 1 in 2004. Thereafter, if you put $100 into an investment bank…counterparties would soon have about $3,300 worth of credits.

Easy come…easy go! When the financial system rolled over last year, the banks lost money. Suddenly, $100 less in bank capital forced the banks to reduce outstanding credit by as much as $3,300. Cash disappears and everyone is forced to cut back.

The guy who was going to buy a new car decides he should wait a year or two…and then Detroit is hurting. And then, the assembly-line worker is laid off…so he cuts back on his porno purchases… Pretty soon, no one has any money.

Even the best companies - such as Microsoft - say that the days of easy-spending customers are over. (See below…)

So Obama is trying to come up with a global solution - tax cuts, infrastructure spending, rebates, handouts, bailouts, stimulus spending…a little of this…a little of that…anything that will get cash back into peoples' hands again.

The logic of it is so simple we can't understand it. People spent too much. Now the feds want them to spend some more. The crowd at Davos ought to put down their champagne classes and think about that. Instead, they will learn the latest claptrap theories and return home inspired by the latest self-serving hokum.

"Governments need to take a more aggressive stance," they will say. "We need to regulate more…we need to control more…we need to spend more! We need a worldwide, coordinated program of economic stimulus."

But when Republicans saw the details of Obama's big spending project - $825 billion worth - they weren't stimulated at all. Instead, they lost interest. Not that they mind throwing cash around wantonly…nor does it seem to bother them that the U.S. government doesn't have any cash to throw around…instead, they just thought they could do a better job of chucking it out.

"At the end of the day, we want him to succeed," said the Republican minority leader. "Because America needs him to succeed."

Will Obama's plan get the economy going again? Even one of his aides says it "may not be enough."

Here at The Daily Reckoning, however, we take a different view: to us, it is not too little; it is too much. It is bad money after good. Mistakes need to be corrected, not hidden behind the new furniture. Bad investments need to be reckoned with…not propped up with someone else's money. The mountain of debt is still there; there's no magic that will make it disappear.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.