Davos 2010 Is Just a Sideshow to Governments' Business

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During boom times, investors looked enviously at the annual World Economic Forum meeting in Davos, Switzerland. The most high-powered ski vacation in the world, after all, offered glimpses into what business titans would be up to in the year ahead.But this time around, as governments around the world scramble to clean up the mess created by many reckless executives, the ceremonies in the snowy village are being greeted with yawns rather than the usual rapt attention. And for good reason: The policy decisions coming out of world capitals -- Washington and Beijing in particular -- are likely to have far greater impacts than any maneuvering by industry chieftains.

The Davos kickoff, for example, seems like a sideshow to the congressional hearings examining U.S. Treasury Secretary Tim Geithner's role in bailing out insurance giant AIG (AIG). The contentious hearings -- some in Congress are challenging everything from Geithner's integrity to his intellect -- will be instrumental in shaping public perception as controversial new proposals to regulate banking get advanced by the Obama administration.

And Geithner's showdown with the House committee sets the stage for the State of the Union speech on Wednesday night, where investors will be listening eagerly for President Obama to lay out a plan for creating jobs as high unemployment continues to batter the U.S. economy.

Gurus Fear Political Waves May Swamp Recovery

In the wake of the Democrats' surprise beating in Massachusetts, where the Senate seat held for almost five decades by liberal stalwart Ted Kennedy fell into Republican hands, President Obama has introduced a new plan for a partial government spending freeze. Many on the left, including widely respected economist Paul Krugman, see the move as hastily assembled political damage control that threatens to undermine the economic recovery by dampening already weak demand.

Indeed, the shifting political winds seem to be on the top of the mind of Davos participants. Billionaire investor George Soros told the convention that undue concerns about government debt loads -- and a premature pullback in the stimulus spending that governments around the world have enacted -- would plunge to global economy into another recession.

But some governments may not have as much choice in the matter as they would like. Chinese officials have hustled through a series of moves to rein in credit as economic growth in that nation surges toward double digits. Property values have ballooned in China following a massive surge in state-sanctioned bank lending as the country attempted to use lending to provide a substitute for collapsing export demand.

Credit rating agencies, meanwhile, are getting more bearish on Japan's huge debt burden as that country faces the unpleasant prospect of continuing economic malaise.

As for the masters of the universe assembled in Davos, they will be treated to lectures from the likes of Nobel laureate economist Joseph Stiglitz that hammer at their inflated senses of self-worth. Rather than being innovators and clever deal-makers, those responsible for devising esoteric financial instruments actually created "negative value" while collecting their fat paychecks, Stiglitz plans to inform them.

For once, the Davos crowd may actually envy those of their peers who aren't in attendance.
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