The hedge fund Carlyle Capital all but collapsed last night, stunning investors with the speed of its fall from being one of the biggest-name investment vehicles spawned by the late credit bubble to its latest victim.

Bloomberg reports the public company said late Wednesday it has defaulted on $16.6 billion in debt after its banks withdrew their money from the fund. Carlyle’s pleas to its lenders failed to prevent them from issuing margin calls (requirements to put up more collateral for investment loans) because of the plunging value of Carlyle’s investments, which spiraled uncontrollably until it wiped out all of the company’s cash.

The Wall Street Journal drops the news on C2 and third from the bottom of its Business & Finance column A1—presumably based on the notion that everyone saw this coming? It seems like bigger news to us than that, though the WSJ does play it higher than The New York Times, which doesn’t have the story at all and doesn’t even list it on the business section of its Web site.

The Financial Times appears to have put the paper to bed before the news broke late last night, but does manage to splash a Reuters story across the top of its Web site.

Carlyle is a spinoff vehicle of famed private-equity investor David Rubenstein and his Carlyle Group, long beloved for the conspiracy theories it has inspired, in part because of the close connections it has had to the Bush and Bin Laden families, and in part because everyone loves a leveraged-buyout company.

The fund went public in July and was in trouble right from the start, the WSJ reports, despite what seemed like a solid business plan—to borrow big money to buy mortgage-backed bonds that paid somewhat more than the cost of borrowing. Carlyle simply borrowed way too much on investments it thought were safe but were in fact far from it. It took $670 million in equity and borrowed more than $21 billion to juice its returns. That’s a leverage rate of more than thirty-two times. Leverage can magnify small returns into huge ones, but it’s a two-way street: small losses can turn into routs just as easily.

The papers say the debacle is a major wound for the Carlyle Group, though we suspect it’ll be just fine somehow. The real implication of this story is if even the most sophisticated gods of finance are getting sucked in and spit out of the deleveraging machine, when will it stop? Bloomberg says not any time soon.

“Carlyle won’t be the end of it,” said Greg Bundy, executive chairman of Sydney-based merger advisory firm InterFinancial Ltd. and a former head of Merrill Lynch & Co.’s Australian unit. “There’s more to come. The problem is no one can give you an educated guess about how much.”

As if to prove Bundy right, three more hedge funds shut down or blocked investors from withdrawing their money in the last twenty-four hours or so, the FT reports. Drake Management, which has $12 billion in assets, said it would allow investors to vote on liquidating three of its hedge funds after more than half tried to withdraw their money. A $900 million Amsterdam hedge fund called Global Opportunities Capital shut down investor withdrawals for a year, and Blue River Asset Management of Colorado also shut down.

We like this Journal lede:

Many investors in a hedge fund run by Drake Capital Management LLC are trying to pull their money out. They are finding out hedge funds love to take investors’ money but can’t always give it back.

Bloomberg gives us the best context:

At least a dozen hedge funds have closed, sold assets or sought fresh capital in the past month as banks and securities firms tightened lending standards. The industry is reeling from its worst crisis because bankers—staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the subprime-mortgage market—are raising borrowing rates and demanding extra collateral for loans.
What we’re seeing right now is the so-called Great Unwind of the massive debt of hedge funds and others, it’s accelerating at an alarming rate, and it’s going to get much, much nastier.

Here’s how the WSJ presciently described it last April:

No one is sure what will happen to this complex brew in the event of a serious market downturn. When markets turn bad, leverage can create a snowball effect. Lenders and derivatives dealers demand that investors provide them with more collateral—the stocks, cash, or other assets they pledge to cover potential losses. Sometimes investors dump stocks and bonds to raise cash. Prices drop more, losses accelerate, and more selling ensues. Some Wall Street analysts have taken to referring to a nightmare version of this scenario as “The Great Unwind”…

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. Follow him on Twitter at @ryanchittum.