Lots of scary news yesterday, including the implosion of a major UK hedge fund from Peloton Partners.

In a sign of how quickly things can go wrong in leverage land, just last month Peloton was named “best new fixed-income hedge fund” and it gained 87 percent last year on bets against dodgy mortgages, the Financial Times reports. What went wrong? It appears the fund decided to call a market bottom and started buying up what it believed were “deeply discounted” mortgages.

Oopsy, smart guy.

Peloton holds upwards of $10 billion in assets which “could send ripples through credit markets,” if the manager is forced into a fire sale, The Wall Street Journal says, though in its lead the paper tells us the fund isbeing forced into a fire sale. The paper says investors in the $2 billion fund (it had debt of about four to five times its equity, thus the nearly $10 billion in assets) will probably lose just about all of their money.

Interestingly, Bloomberg and the WSJ report that Peloton is blaming its liquidation in part on banks reducing their exposure to hedge funds by lending them less money. The New York Times is nowhere to be seen on this story.

It looks as if Peloton’s other major hedge fund won’t survive either. It suspended withdrawals after a run on the bank. The FT:

“It is the classic story of when leverage goes wrong,” one investor in the fund said. “But I can’t believe this problem is confined to these guys alone.”

Insurance behemoth AIG announced yesterday it is writing down nearly $15 billion in assets yesterday. About $11 billion of that comes from declines in the value of credit-default swaps—a kind of insurance—on collateralized debt obligations. The rest is from declines in the value of its mortgage investments. That led to a fourth-quarter loss of more than $5 billion.

What does this all mean? Hard to tell from the business pages. The WSJ says AIG “left open the possibility that actual losses on the portfolio could be ‘material’ in some future reporting period,” while the NYT says “A.I.G. did not expect the portfolio deterioration to be material in the long run.” The FT says “Based on its latest analyses, it believed credit impairment losses realised over time would ‘not be material to AIG’s consolidated financial condition.’”

And another story from the trading house of horrors: futures firm MF Global Ltd. announced a $142 million loss on wheat-price bets after its risk-management processes broke down, reminding jittery markets of the Societe Generale debacle, though this is on a much smaller scale. The WSJ headline says it all: “Safety Net Breaks Again.”

A trader in Olive Branch, Mississippi, Evan Dooley, bet against wheat prices before sunrise on Wednesday. By that morning, his position had gone badly wrong as wheat prices moved higher and the trader tried to liquidate his positions in a panic, helping push prices up a record 25 percent on the day, the Chicago Tribune reports.

The Trib does some terrific first-day reporting, digging up information that raises questions about Dooley’s background. After reading its story, we’re inclined to think there’s much more to come out of this one.

Public records paint a more complex picture of Dooley than the one provided thus far by the brokerage, whose roots date to 1783. Dooley filed for bankruptcy in 2002. He owned the Dooley Trading Co. between 1995 and 2005. And two months after he joined MF Global, Dooley founded the Global Equity Exchange, according to Tennessee corporate filings.

The Global Equity Exchange bills itself as “the #1 Source of Private Equity Investors Worldwide!” and offers real estate investments, according to its Web site.

The NYT does some quick background digging, too, but turns up fairly uninteresting stuff, like “Former classmates said he played intramural basketball and football and held several officer titles at his fraternity.”

The Journal’s spadework finds that Dooley was betting for himself and that he had just one client, who MF Global said hadn’t done any business with him in “some time.”

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.