Jassim Mutawa and several cronies sat in his small, tacky broker's office on the ground floor of the Souk Manakh, Kuwait's infamous unofficial stock market, telling his multibillion-dollar tale of woe.

Short and stocky, with a round, cherubic face framed by the traditional shoulder-length goutra, or headdress, Jassim, 40, seemed a highly unlikely candidate for Madame Tussaud's wax museum in London of history's most famous characters.

But the word around town is that the museum is sending an envoy to take his picture and measurements and plans to add him to its collection as the biggest single bankruptcy ever recorded--roughly $5.2 billion in net debts. Jassim, who is delighted with the report, said with a broad smile, "She is welcome."

Jassim, together with seven other big stockbrokers known locally as "the knights of Manakh," stands at the center of last year's gargantuan $92 billion stock market crash. Today he awaits a decision by Kuwait's badly divided government and National Assembly on a bill that will decide his fate and that of probably at least 300 others, all facing bankruptcy.

He and many other Manakh wheeler-dealers could go to jail, or their huge debts could be scaled down to the point where many could bail themselves out--mostly by canceling their debts to each other.

For two years, virtually all of Kuwait was addicted to the Alice in Wonderland-like world of the Souk Manakh, where most selling and buying was done with postdated checks, and share values in a host of brand new gulf companies skyrocketed by 200 to 400 percent annually. Upstarts like Jassim Mutawa, once a government clerk earning $900 a month, became millionaires or even billionaires overnight by playing the market.

To this day, Jassim professes his innocence and claims he was simply a victim of circumstances and jealous rivals.

"They call us gamblers," he said sitting in his nearly empty office at the Souk Manakh, a new shopping complex just behind the Justice Ministry in downtown Kuwait. "But those who call us this are the real gamblers. I am a victim of the gamblers. They used me.

"It is the greedy ones who are responsible, the ones who control the market and set up the companies," he asserted.

Jassim, who hails from a well-known Kuwaiti family, seems somewhat bewildered at all the outside publicity he is getting and still believes he can avoid bankruptcy if the government gives him a chance to settle his debts.

In the meantime, Jassim, like 62 other big stock dealers, has had all his assets frozen, his passport taken away and been put on a government allowance of $5,200 a month pending legislation on the Souk Manakh crisis.

It was Jassim, who owes $12.1 billion in postdated checks but could call on only $6.9 billion in similar assets, who brought the house down last August. Suddenly $259 million in checks came due all at once, but he could not collect on $431 million owed to him by some of his many debtors.

The questions of who was responsible for what is widely regarded here as a "national catastrophe" that has badly undermined traditional Kuwaiti values and social cohesion and, how they should be punished, have become agonizing issues.

"This has divided families and neighbors," commented Shamlan Alessa, head of Kuwait University's political science department. "In old Kuwait, if someone went bankrupt, everyone tried to help him. Today it's brother against brother and cousin against cousin."

It is now 10 months since the Great Crash, and still no decision has been forthcoming on how to deal with the financial earthquake that has struck this tiny city-state of 1.4 million people whose per capita income is the highest in the world. Instead, the government has taken a series of partial measures.

It has spent around $5.7 billion bailing out 5,000 to 6,000 small-fry investors with losses of $7 million or less, propping up prices on the badly hit regular stock market and buying land to help out heavily mortgaged debtors.

But it could be in for many billion dollars more, depending on how the National Assembly decides to deal with the 1,500 to 2,100 other investors, particularly the top 63 Kuwaiti players who alone account for an estimated $62 billion of the total $92 billion outstanding in 28,878 postdated checks that are in default.

Meanwhile, the private sector of Kuwait's usually booming economy is temporarily in a state of paralysis.

The consensus among outsiders, shared by most Kuwaitis, is that the government and National Assembly are essentially grappling with a political, rather than an economic, problem. "They have the money to pay for it," remarked one western diplomat, "but they realize it is not wise to bail everyone out. The question is, what to do with the big guys."

Analysts here say the issue to some extent has cut across all the major social and political groups of Kuwait's closely knit society--the ruling Sabah family, the old merchant class, the Bedouins, and the oil-generated nouveau riche--because some from all sectors have their hand in the market.

The government has proposed a bill aimed essentially at limiting bankruptcy to the smallest number possible but virtually assuring that the biggest Souk Manakh players, such as the eight "knights," go bankrupt and probably to jail as punishment.

The bill provides for the government to take over the assets of all those in bankruptcy until creditors are paid.

One extremely controversial point is whether the validity of postdated checks should end on Dec. 31, 1983, as the government has proposed, or be cut back a full year. The earlier date would automatically wipe out about $34.5 billion in debts, according to some estimates and probably avert bankruptcy for all but a small number.

Increasingly, the issue of social justice has become central to the debate over the cutoff date, with enormous pressure on the government and National Assembly from small investors, old merchant families and even some Sabah family members to take a tough stand punishing the big players.

Oil Minister Ali Khalifa Sabah, the central figure in the government committee dealing with the crisis, and Finance Minister Abdel Latif Hamad, of old merchant family stock, are regarded as leading hard-liners within the government.

In a recent interview, Sabah seemed unperturbed by the social and economic fallout from the Manakh crash.

"There would normally be a certain amount of social friction but nothing that this society is not capable of taking in its stride . . .

"It is essentially a tremendous amount of transfers of wealth among nationals," he said. "Certain people will be richer, certain people will be poorer. But from a national economic point of view that will essentially have no bearing."

But he agreed with other Kuwaitis worried about the effects of the crash on Kuwaiti social values.

"To a certain degree, I was not unhappy this thing occurred. It allowed people once again to concentrate on productive employment. I think what was going on was a corruption of values. People made a lot of money in short periods of time and therefore disregarded work," he said