Baboon’s Blood Offers Davos Leaders Shakespearian Market Magic

Jan. 26 (Bloomberg) -- That old black magic has even the World Economic Forum in its spell.

“Double, double, toil and trouble, fire burn and caldron bubble,” says WEF delegate Richard Olivier, one of the 2,500 global business and political leaders starring at the forum’s 39th annual meeting this week in Davos, Switzerland.

The son of Shakespearian actor Laurence Olivier isn’t conjuring up Wall Street’s Triple Witching Hour before its next scheduled appearance in March. He’s hosting a seminar titled “Leadership Lessons From Macbeth” for WEF delegates who include Russian Prime Minister Vladimir Putin, News Corp. Chief Executive Officer Rupert Murdoch and Chinese Premier Wen Jiabao.

“Cool it with a baboon’s blood,” the 47-year-old Olivier advises, reciting the witches’ recommendation to the troubled Thane of Cawdor in Shakespeare’s play.

The WEF’s theme this season is “Shaping the Post-Crisis World.” Yet Olivier reckons the kettle of fiscal crises currently heating up WEF delegates from JPMorgan Chase & Co. CEO James Dimon to American International Group Inc. Vice Chairman Jacob Frenkel makes the Davosian stage an ideal venue for the princes of Wall Street to delve into the magic of “Macbeth” and discuss how they persuaded people, including themselves, to believe in things that were not real.

Disappearing Funds

When magic involves money, some call it economics, a sometimes illusory undertaking that 2008 showed to be big on vanishing acts. U.S. mutual funds declined by $2.4 trillion, according to the Investment Company Institute, losing a fifth of their value from a year earlier. Last year, the value of global stock markets shrank by almost half to around $30 trillion. A recent study by Morgan Stanley foretells of hedge- fund assets valued at some $1.8 trillion in early 2008 dematerializing into $900 billion by the end of this year.

As for the prestidigitators of profit, more than 200,000 of them dissolved into thin air in 2008, including 52,000 layoffs at Citigroup Inc. Foremost among the sleight-of-hand experts is Bernard Madoff, shaman-in-chief of a New York-based investment securities firm federal prosecutors have charged with running a Ponzi scheme, charming clients out of some $50 billion.

“The dark black magic of Macbeth has a particular resonance this year at Davos,” says Olivier, artistic director of Olivier Mythodrama in London, a corporate-leadership- training outfit that has coached executives at Nokia Oyj and Royal Dutch Shell Plc. “It’s about ambition, about how people who have bloody, murderous or greedy thoughts attract bloody, murderous or greedy spirits.”

Master Sorcerer

Whenever hobgoblins get in on the act, Greg Frewin takes note. The 44-year-old Canadian from Niagara Falls is the International Grand Champion of Magic, a title awarded by his peers in the $250-million-a-year illusion industry to the professional sorcerer who wins first prize in the world’s top three magic competitions.

Frewin, who manages his own $2 million theater and a staff of 50 assistants, has played the Tropicana and Caesar’s Palace in Las Vegas, and staged command performances for Toronto- Dominion Bank and the Canadian Imperial Bank of Commerce. Right now, he’s turning $100 bills into $1 bills.

“This routine is so popular that they used it at Lehman Brothers,” Frewin jokes.

As he tells it, there’s no difference between him levitating a scantily clad showgirl on stage and a credit-rating company elevating a subprime security on Wall Street.

“In both cases, the audience is led to believe they’re seeing the impossible become true” he says. “Illusionists call it misdirection.”

Somber Forces

Adam Smith described it as a mysterious force.

“They are led by an invisible hand,” the Scottish economist and theoretician of capitalism wrote in “An Inquiry Into the Nature and Causes of the Wealth of Nations” (1776), referring to the supernatural power that would compel the market to disavow demons like the credit-default swap in favor of promoting trustworthy Treasury bills.

“Macbeth also allowed the darkness to overcome the light,” Olivier says. To do so, the tragic Scottish hero, fatally possessed by ambition, summoned the invisible hand for help.

“And with thy bloody and invisible hand cancel and tear to pieces that great bond which keeps me pale,” Macbeth says.

“Macbeth is asking evil spirits to cut the bond between his soul and his conscience, so that he can carry out his dark deeds,” Olivier explains. “Smith was a professor of morality at the University of Glasgow and certainly aware that the invisible hand represented a link between the natural and the supernatural.”

Rogues, Necromancers

Likening rogue capitalists to necromancers already has gained acceptance in legal circles. Consider the U.S. vs. Marc Dreier, founder of the New York law firm Dreier LLP and now in jail on criminal charges that allege he swindled hedge funds and investors out of $380 million. Dreier hasn’t responded to the charges.

“He is the Houdini of impersonation and false documents,” Assistant U.S. Attorney Jonathan Streeter said when Dreier’s lawyers in December tried to spring him for a $10 million bail.

The analogy holds for more tranquil money managers, too.

Ian MacDonald in Bristol, England, says legerdemain is a powerful investment tool. “My wife Sue is clairvoyant, the best I’ve ever come across,” MacDonald says.

Mickles and Muckles

Sue is so good that the 69-year-old Scotsman named his investment partnership after a hallucination and employs the ancient highland incantation “every mickle makes a muckle” -- the ability to turn nothing into something -- as the motto for Mirage Asset Management LLP.

George Magnus, senior economic adviser at UBS AG, Switzerland’s biggest bank, says all the hocus-pocus will be a “hard concept” for the WEF to quantify.

“But the invisible hand clearly came back and slapped the free market in the face, so we have a big audience ready to discuss it,” says Magnus, whose own institution in October rematerialized with a $5.3 billion Swiss government bailout package and permission to transfer as much as $60 billion of toxic assets to a fund supported by the country’s central bank.

Even Alan Greenspan found himself bewitched.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief,” the former U.S. Federal Reserve Board chairman, 82, said last October in Congressional testimony on the causes of the subprime crisis.

“The invisible hand pushes people into doing crazy things,” Magnus says.

Economic Exorcism

Gregory Berns says he can help with the exorcism. He holds the Distinguished Chair of Neuroeconomics at Emory University in Atlanta and he’s hosting a WEF seminar that explores the relationship between fiscal judgment and brain waves. “Most traditional economists believe this endeavor is a waste of time,” the professor says.

Berns and his colleagues at the 120-member Society for Neuroeconomics nonetheless study human perception and how the brain represents the value of any asset.

“Subprime was a collective illusion,” the 44-year-old Berns explains. “The market said subprime investments weren’t all that risky. A neural adaptation, what magicians call a cognitive illusion, took place. People stopped valuing the asset based on their own perceptions and reasonable assumptions.”

Back in Niagara Falls, the loudspeaker atop Screamers House of Horrors blares “This jittery journey is not for the squeamish.” Inside the theater across the road, Frewin is shoving fire-tipped spears into a box that contains a woman in a bikini. He removes the lances, opens the carton, and a Bengal tiger leaps out instead.

“Money illusions actually create the most powerful magic,” Frewin says. “Money always triggers an extremely personal and emotional response, but a magician or an investment banker must believe in the illusion or it won’t work.”

Frewin snaps his fingers and a $100 bill falls out.

“That was their illusion,” he says.