Last summer, Wall Street seemed to try quite hard to avoid seizing collateral from a Bear Stearns mortgage hedge fund, hammered by margin calls. The fear then was that a forced liquidation of all those complex securities might spark a panic. The banks are more battle-hardened now. As the highly-leveraged Carlyle Capital fund, with about $21bn in assets, started to default on its debt, the banks moved in quickly. This is, after all, repo land: a financing market where there is no wriggle room. If the value of the collateral falls, the banks have to protect themselves with extra cash. Repo desks are not paid to take on masses of market risk.

What is shocking is that Carlyle Capital has been done in by wobbles in agency triple-A mortgage-backed securities, the only assets in its portfolio, the fund said on Thursday. These securities carry the implicit guarantee of the US government. But even these have not been immune from the stress in the credit markets. Counterparties may not seriously worry about the creditworthiness of these securities – or the risk that the US government might one day allow one of the agencies to fail. But that still leaves other types of risk, such as liquidity or interest rate risk, to chew over and to feed into valuations. Even these worries might have been surmountable had it not been for the leverage Carlyle Capital piled on, at roughly 30 times. That makes even small moves in prices extremely painful – even fatal.