ThE epicentre of the financial turmoil that engulfed the United States this summer lies in a small country town rather than on Wall Street.

For months the country had seemed unscathed by the crisis reverberating around the Far East. When it came, the 15 per cent fall in the Dow Jones index and the seachange in the business community's mood from exuberance to self-doubt were triggered on the Atlantic shores around Greenwich, Connecticut.

In harbour-front office buildings sit the powerful American financiers who run hedge funds that bet billions of dollars in the markets. Greenwich's Steamboat Road is also known as Hedge Row.

Apart from the move away from the urban canyons of Manhattan, however, little has changed in American finance since the crash of 1987, when many small investors lost their savings. Hubris still drives the markets with no regard for gravity. John Wallace, a fund manager at Robertson Stephens, described recent market activity as "a tug of war between fear and greed".

Greenwich was put on the map of international finance last month when Long Term Capital Management (LTCM), the richest local employer and one of America's biggest hedge funds, had to be saved from bankruptcy by Wall Street banks. The firm had displayed greed on a scale not seen since the mythical Gordon Gekko in the late 1980s. In the most breathtaking piece of financial brinkmanship, the fund used its $4 billion (£2.5 billion) of capital as security to borrow another $120 billion. Still not content, the fund managers then used the $120 billion to borrow about $1 trillion (a million millon dollars). The fund's 150 employees oversaw money equivalent to the gross domestic product of China.

John Meriwether, the fund's founder, and his partner were driven to such extremes because they had their own fortunes tied up in the fund. Million-dollar bonuses they had earned on Wall Street in the 1980s flowed into the fund, along with the money of their former colleagues who stayed behind at the big banks.

Investment opportunities in a hedge fund are by invitation only. And at Long Term Capital, invitations were extended to the bankers whose Wall Street houses lent the fund billions. The partners also included a former deputy chairman of the Federal Reserve, the industry regulator. When Long Term Capital's risky bets on emerging and European markets faltered this summer, bankers and regulators were forced to bail out the fund, fearful that, if it collapsed, it could take much of the international banking system with it.

Details are still emerging of the extent to which major finance houses were betting on the hugely risky strategy employed by LTCM. The biggest exposure to be admitted so far is that of the leading Swiss bank, UBS, which has had to write off £415 million to pay for its gamble. But Merrill Lynch, Credit Suisse, First Boston, Bear Stearns and a string of their Wall Street comrades had backed Meriwether. Even Barclays Bank had lent £350 million to him.

Merrill Lynch, the top bank that led the rescue, denies its executives acted to protect personal investments of $22 million. But Wall Street watchers and congressmen have attacked the banks for their "cronyism" that undermined US business confidence. By letting Long Term Capital borrow without restraint, the banks endangered the financial health of the American economy.

The Federal Reserve has also been criticised for neglecting its regulatory duties. Hedge funds are not supervised since it has been presumed that billionaires should be able to look after their own money. David DeRosa, a finance professor at Yale University, said: "The Fed, and by extension, the entire economic policy team of the US Government, will have less credibility the next time they want to preach the favoured laissez-faire advice to broken-down Asian countries and Russia."

DAVID KOMANSKY, chairman of Merrill Lynch, is a postal worker's son from the Bronx. Merrill executives, including Komansky, have $22 million of their own money tied up in Long Term Capital Management. If he loses the lot, it will barely dent his $100 million fortune.

MATHIS CABIALLAVETTA, a Swiss banker, is the most high-profile casualty in the LTCM affair. Until last Friday he was chairman of UBS, Europe's biggest bank, having successfully guided Union Bank of Switzerland through a merger with the Swiss Bank Corporation. UBS lost $700 million from its involvement in LTCM. Cabiallavetta, although not personally responsible, lost his job.

ABBY COHEN, chief equity strategist at Goldman Sachs, describes herself as "a suburban mom". She says a US recession is unlikely and the current conditions are caused by financial "volatility" and the psychology of traders.