The numbers are staggering and their implications massive. But the audacity of the men who corrupted the financial system eclipses even monumental numbers and global implications.

In Rogue Traders, Scott E.D. Skyrm chronicles the chicanery of seven very smart, cunning traders whose gaming of the system for profit, between 1982 and 2009, had a variety of disastrous effects: prison terms; enormous fines,  the closing of venerable banks,  and  in part, causing the 2008 financial meltdown.

“Risks were being taken by low-level employees in banks with thousands of employees. There was little reason to avoid risk: The traders had no skin in the game. The system rewarded those traders who took huge risks and made equally huge profits,’’ Skyrm says.

One of the more colorful of these highly talented and even greedier characters is David Heuwetter, considered a rock star in the government bonds department. He joins the 75-year-old Drysdale Securities Corporation in 1979 and transforms the firm from stable to volatile and mega profitable.

“He (Heuwetter) found a way to play one system against the other and make a lot of money very fast. He realized that he could short-sell Treasury bonds in the outright market and receive the accrued interest on the bonds, then turn around and borrow the bonds in the repo market without having to pay that interest,’’ Skyrm writes.

Heuwetter’s scheme generated about $1.5 million in interest income monthly, Skrym says, and the higher-ups approved. As long as the bond market remained stable and interest rates kept rising (this was a double-digit inflation era), the scheme worked. But Federal Reserve chairman Paul Volcker’s money supply-restricting program, aimed at restraining inflation, became effective and Drysdale’s fortunes changed.

On May 16, 1982, Drysdale owed a $160 million coupon interest payment on $3.2 billion in U.S. Treasury bonds. Chase Manhattan Bank was appealed to for a $200 million loan. The bank refused; Drysdale collapsed, just one year shy of its 80th anniversary.

Skrym notes the positive outcome from the debacle: “The repo market, a major cog that moves the global financial markets as a whole, was made efficient as a result of the fallout from Heuwetter’s actions and Drysdale’s resulting collapse.’’

Equally explosive is Skrym’s profile of trader Joe Jett and the fall of Kidder Peabody (1994). This saga shows that even the hardest-nosed  business minds -- Jack Welch, CEO of GE -- are vulnerable to the “perfect scam.’’

“He (Welch) knew something was wrong, but he was looking in the wrong place,’’ Skyrm writes of Welch missing that profits had been booked improperly on the Treasury security desk.

GE acquired the 121-year-old Kidder Peabody in 1986; five years later, Jett was hired to be head trader of the Treasury security Separate Trading of Registered Interest and Principal of Securities (STRIPS). Within six months, Jett was making the firm $3 million a month, with a trading book of $8 billion in open STRIPS positions.

Skrym says Jett’s numbers were too good to be true: The SEC found that Jeff had aided and abetted in recordkeeping violations, by recognizing a computer glitch that  “made it possible to post a profit from forward reconstitutions.’’

“In other words, Jett was guilty of being the smartest guy in the room,’’ says Skyrm.

Jett had booked $338.7 million in phantom profits; his net loss was $74.7 million; he was fired and later found criminally liable for his actions.

In October 1994, just one year shy of its 130 anniversary,  Kidder Peabody was acquired by Paine Webber, which dropped the firm’s name, laid off most of its employees and retained only its retail brokerage business.

“One of Wall Street’s most esteemed names in investment banking ceased to exist right then and there,’’ says Skyrm.

Elsewhere, Skrym revisits the fall of Baring Brothers, “known as the world’s first modern-day merchant bank,’’ founded in  England in 1763 (it collapsed in 1994, from a 385 million (pounds) loss, primarily at the hands of the bank’s futures exchange trader Nicholas Leeson. He covered spiraling losses from bad or mistaken trades by stealing from customers’ margin accounts.

Even the London Interbank Offered Rate (LIBOR), which daily sets the primary interest rate benchmark for the world, affecting hundreds of trillions of dollars in loans and financial contracts, was gamed by traders at Royal Bank of Scotland and UBS.  Losses in the United States alone from the scam amounted to about $9 billion, affecting individuals and financial behemoths such as Fannie Mae and Freddie Mac.

In his closing chapter, Skyrm says reforms such as deferred bonuses or giving traders equity stakes in the business have merits and disadvantages. He advises another way for investors to protect their interests:

“The best protection available to an investor who wants to steel himself against the calamitous destruction that can be wrought by rogue traders is education. And that’s why I have written this book. Knowing the right warning signs can keep you safe. Your best defense is to learn from the mistakes made by others and use that knowledge to shield yourself.’’

ROGUE TRADERS by Scott E.D. Skyrm. Brick Tower Press. $35.95.

Eleanor O'Sullivan is an award-winning freelance journalist who has written for USA Today and Gannett newspapers. She can be reached at [email protected].