An example is the Royal Bank of Scotland, which by mid-2008 had written "credit default swaps" to the tune of more than £400 billion compared with its own capital of £40 billion. RBS ought in an average year to make a few hundred million pounds from its CDS business. Contrary to rumour, the activity is not that risky, despite the huge face value of the transactions. Like a bookie, RBS might accept a bet that a particular credit risk/horse would win and then offset that by accepting another bet that the same credit risk/horse would lose, taking money from two sets of customers and having quite a small net exposure.

But bookmaking can go wrong. In extreme conditions several outsiders, for each of which it has been difficult to match positive and negative bets and significant uncovered risk remains, might win a sequence of races. The bookie is then bust. When markets start to worry and keep on worrying, the fear becomes - as Roosevelt might have said - a fear of fear itself. Even organisations as diversified and massive as RBS, Citibank or Goldman Sachs might then have difficulty in funding their business. Leverage leads to fear and, when things go wrong, people scurry for safety.

Second, Soros saw that the contagion of fear would hit the banks worst of all. Over the last 40 years banks have built up huge claims on each other, much of it in the so-called "offshore markets". Since summer 2007, they have been cancelling these claims. Any bank dependent on financing its assets by inter-bank indebtedness has had to shrink its lending to genuine non-bank customers, causing the global "credit crunch". Banks with large books of CDS business or holding exotic securities (such as supposedly triple-A bonds priced at huge and puzzling discounts to their original cost) were most vulnerable.