Then there was Long Term Capital Management (LTCM), run by brilliant market people. The idea was to hedge and protect their bets, using $3 billion they had been lent to buy derivatives with a notional value of $1,250 billion. But the Russian debt crisis of 1998 upset their complex mathematical predictions and they were soon losing $500 million a day. The US Federal Reserve was afraid for the world's banking system and bailed them out with $3.6 billion.
Even so, by 2001, an astonishing $44,000 billion was invested in derivatives in Wall Street alone, more than half of that in the powerful bank JPMorganChase - including so many options on gold that they controlled the entire world's output for two and a half years ahead.
Even the Bank of England was warning about the threat to global financial stability. To put JPMorganChase's derivatives into perspective: the entire losses on the world's stock markets between 2000-3 were only $7,000 billion. No wonder the bank was nervous.
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