Meanwhile, 20 yards away was Meriwether. When I think of people in American life who might have been like him, I think not of financial types but creative ones -- Harold Ross of the old New Yorker, say, or Quentin Tarantino. Meriwether was like a gifted editor or a brilliant director: he had a nose for unusual people and the ability to persuade them to run with their talents. Right beside him were his first protgs, four young men fresh from graduate schools -- Eric Rosenfeld, Larry Hilibrand, Greg Hawkins and Victor Haghani. Meriwether had taken it upon himself to set up a sort of underground railroad that ran from the finest graduate finance and math programs directly onto the Salomon trading floor. Robert Merton, the economist who himself would later become a consultant to Salomon Brothers and, later still, a partner at Long-Term Capital, complained that Meriwether was stealing an entire generation of academic talent.

No one back then really knew what to make of the ''young professors.'' They were nothing like the others on the trading floor. They were physically unintimidating, their bodies merely life-support systems for their brains, which were in turn extensions of their computers. They were polite and mild-mannered and hesitant. When you asked them a simple question, they thought about it for eight months before they answered, and then their answer was so complicated you wished you had never asked. This was especially true if you asked a simple question about their business. Something as straightforward as ''Why is this bond cheaper than that bond?'' elicited a dissertation. They didn't think the same way about the markets as Craig Coats did or, for that matter, as anyone else on Wall Street did.

It turned out that there was a reason for this. On the surface, American finance was losing its mystique, what with ordinary people leaping into mutual funds, mortgage products and credit-card debt. But below the surface, a new and wider gap was opening between high finance and low finance. The old high finance was merely a bit mysterious; the new high finance was incomprehensible. The financial markets were spawning vastly complicated new instruments -- options, futures, swaps, mortgage bonds and more. Their complexity baffled laypeople, and still does, but created opportunities for those who could parse it. At the behest of John Meriwether, the young professors were reinventing finance, and redefining what it meant to be a bond trader. Their presence on the trading floor marked the end of anti-intellectualism in American financial life.

But at that moment of panic, the young professors did not fully appreciate their own powers. All their well-thought-out strategies, which had yielded them profits of perhaps $200 million over the first 10 months of 1987, wilted that October day in the heat of other people's madness. They lost at least $120 million, which was sufficient to ruin the quarterly earnings of the entire firm. Two years before, they were being paid $29,000 to teach Finance 101 to undergraduates. Now they had lost $120 million! And not just anybody's $120 million! One hundred twenty million dollars that belonged in part to some very large, very hairy men. They were unnerved, as you can imagine, until Meriwether convinced them that they should not be unnerved but energized. He told them to pick their two or three most promising trades and triple them.

They did it, of course. They paid special attention to one big trade. They sold short the newly issued 30-year U.S. Treasury bond of which Craig Coats had just purchased $2 billion and bought identical amounts of the 30-year bond the Treasury had issued three months before -- that is, a 29-year bond. (To ''short'' a stock or bond means to bet that its price will fall.) The young professors were not the first to see that the two bonds were nearly identical. But they were the first to have studied so meticulously the relationship between them. Newly issued Treasury bonds change hands more frequently than older ones. They acquire what is called a ''liquidity premium,'' which is to say that professional bond traders pay a bit more for them because they are a bit easier to resell. In the panic, the premium on the 30-year bond became grotesquely large, and the young professors, or at any rate their computers, noticed. They laid a bet that the premium would shrink when the panic subsided.

But there was something else going on that had nothing to do with computers. The young professors weren't happy making money unless they could explain to themselves why they were making money. And if they couldn't find the reason for a market inefficiency they became suspicious and declined to bet on it. But when they stood up on Oct. 19, 1987, and peered out over their computers, they discovered the reason: everyone else was confused. Salomon's own long-bond trader, the very best in the business, was lost. Here was the guy who was meant to be the soul of reason in the government-bond markets, and he looked like a lab rat that had become lost in a maze. This brute with razor instincts, it turned out, relied on a cheat sheet that laid out the prices of old long bonds as the market moved. The move in the bond market during the panic had blown all these bonds right off his sheet. ''He's moved beyond his intuition,'' one of the young professors thought. ''He doesn't have the tools to cope. And if he doesn't have the tools, who does?'' His confusion was an opportunity for the young professors to exploit.

Years later it would be difficult for them to recapture the thrill of this moment, and dozens of others like it. It was as if they had been granted a more evolved set of senses, and a sixth one to boot. And they had nerve: they were willing to put money where their theory was. Three weeks after the 1987 crash, when the markets calmed down, they cashed out of the Treasury bonds with a profit of $50 million. All in all, the bets they placed in the teeth of one of the greatest panics Wall Street had ever seen eventually made them more money than any bets they had ever made, perhaps $150 million altogether. By comparison, all of Merrill Lynch generated $391 million in profits that year. The lesson in this was not lost on the young professors: panic was good for business. The stupid things people did with money when they were frightened was an opportunity for more reasonable people to exploit. The young professors knew that in theory already; now they knew it in practice. It was a lesson they would regret during the next big panic, far bigger and more mysterious than the Crash of October 1987 -- the panic of August 1998. They would still be working together, but at Long-Term Capital Management.