The equation was once simple: the more debt you took on, the wealthier you became. Home owners to hedge fund managers and private equity barons got rich quick by gearing up to buy assets in a rising market. But many flew too close to the sun.

Subprime borrowers are now defaulting in their hundreds of thousands. This week, Carlyle Capital, with an eye-watering $31 of debt to each dollar of equity, became the latest hedge fund to go down in flames.