In business circles, they had been called "the piranhas" ever since they first launched corporate takeovers from the modest offices of a small Santiago bank.

But it was not until Gen. Augusto Pinochet took power in Chile that two entrepreneurs named Javier Vial and Manuel Cruzat--the protagonists of one of the country's greatest financial shakeups--truly began to devour private enterprises.

They worked within a rightist government's effort to reshape society with free-market economics, and they ended with massive holdings. In two separate conglomerates, they controlled Chile's biggest banks, pension systems, insurance companies, and mutual funds along with manufacturing, construction, electronic media, and fuel distribution firms.

As their holdings grew, they became the partners of economic ministers and the exemplars of the new, bold Chilean entrepreneur. "We were trying," said Javier Vial, "to make Chile a country of private capital and freedom."

But nine years after their boom began, Chile's two greatest business success stories under military rule have crashed. With their banks under government operation and their companies crippled by unmanageable debts, the "piranha" groups of Vial and Cruzat-Larrain have become the most serious indictment of Chile's widely watched economic system.

The failure of the two groups became official in January, when the Pinochet government announced the liquidation or takeover of over 60 percent of the Chilean banking system. The action marked a disastrous end to Chile's deregulated private financial market, and it centered on four banks owned by the Vial and Cruzat-Larrain groups, including the country's two largest.

Even government officials appeared to have underestimated the extent of the subsequent shock. The four banks of the two groups now under government control, central bank officials reported, had sunk up to 44 percent of their loan portfolios into other firms of the conglomerates, and a domino chain of industries fell into default on an estimated $1 billion in debt.

Now, as official commissions seek to bail out the groups, many businessmen and economists are describing their rise and fall as a consequence of the rapid opening of Chile's economy under "the Chicago boys"--monetarist economists, some trained at the University of Chicago, who were said to have a model for developing countries.

The concentration of private capital in a few conglomerates, experts here say, was made possible only by the severe measures adopted by Pinochet and enforced by military rule. And that monopolization, combined with a poor response to world recession, helped turn several years of economic growth into one of Chile's most severe recessions.

Government officials, already burdened with a 15 percent drop in output last year and unemployment of over 20 percent, have blamed the crash on the unethical exploitation of Chile's economic freedoms. In March, Pinochet promised new laws to prevent the concentration of bank-based conglomerates and their "almost monopolistic use of credit" and added, "these excesses. . .were committed in betrayal of the faith that the government has put in private enterprise."

But the leaders of the groups have refused to accept such responsibility. "We have been made scapegoats," Vial said in an interview, "because the government doesn't want to face its mistakes."

Opponents of the government have been quick to point out a history of close partnership between the big economic groups and the government's highest authorities. A host of high economic officials, including three Cabinet ministers, moved between posts in government and private-sector jobs with Vial and Cruzat-Larrain. Until the groups began to falter, government officials described reports of excessive concentration as "Marxist myths."

"What Vial and Cruzat did could not have happened under any other government," said one close associate. "They were created by the military's model, and they went down with it."

Before Pinochet seized power in a coup against Socialist President Salvador Allende in 1973, Vial and Cruzat were secondary figures in big Chilean business. After Vial and another entrepreneur, Fernando Larrain, gained control of a small bank in the mid-1960s, Cruzat joined the group and the three built a conglomerate of some 40 companies.

But Pinochet's free-market program changed the rules of Chilean finance, and even as traditional family-based conglomerates declined, the aggressive new businessmen soared. After splitting up their operations in 1974, Vial built an empire in only five years that included 93 companies worth $2.2 billion, while Cruzat, the manager of the new Cruzat-Larrain group, built his holdings to 102 companies and $1.9 billion in assets, according to a study by independent economist Patricio Rozas.

The first step in the process was the new government's move to sell off some 500 companies owned by the state under Allende's Socialist government. Few private businessmen in Chile had the capital to buy the larger firms, and internal interest rates had soared to extraordinary levels, meaning that only large businesses with access to capital abroad could compete.

The result was that Vial and Cruzat, with a corporate base and ample lines of foreign credit, gained control of the biggest former state banks, then used their profits and loans to take control of some of Chile's largest companies--often at rock-bottom prices. In a 1981 interview, Vial estimated that the assets he obtained from the government were worth eight times what he had paid six years before.

To generate the funds for expansion, Vial and Cruzat took advantage of government financial deregulation that left them free to take complete control of banks, lend unlimited amounts to their own companies, and charge whatever rates of interest the Chilean market would bear.

While the government's monetary policy, cuts in state spending, and other anti-inflation measures helped raise the rate of interest, studies by Chilean economists have shown that the average profit margin for banks on loans between 1975 and 1981 was 15 percent, or more than three times higher than the norm in other Western countries.

The result, economists here pointed out, was that as the economic conglomerates expanded, smaller firms weakened because of the credit squeeze, leading in many cases to the absorption of medium and small corporations by the big groups.

The Cruzat-Larrain group, for example, bought major cellulose companies and Chile's largest firm, the gasoline distribution monopoly, from the government, but gained nearly complete control over the beer and milk industries by buying out smaller owners weakened by costly loans and foreign competition.

Vial, for his part, bought the government's wood-production industry and other large firms, but by 1980 was swallowing whole networks of smaller companies, including cattle interests, wine production, metallurgy and fishing fleets.

By 1981, the last year of Chile's overall financial expansion, Vial controlled at least 173 companies and Cruzat-Larrain held 145, according to Rozas. And in Chile's small market, such holdings meant almost unlimited economic power.

According to a study by Fernando Dahse, a professor at the University of Chile, the Vial and Cruzat groups controlled 62 of the largest 250 foreign and national companies in Chile in 1978, 42 percent of the total assets of the 100 largest firms, and 50 percent of the total assets of all the companies listed on the Chilean stock exchange.

By 1981, Dahse calculated, the two groups were responsible for 51 percent of the foreign loans granted to all Chilean banks and controlled 57 percent of the life insurance market, 73 percent of pension funds, and 81 percent of all mutual funds. What brought the conglomerates down, say economists and business experts, was partly their own rapid expansion and risky banking practices. In constantly moving to buy new firms, the groups invested relatively little in productive growth and left many of their own companies heavily indebted both to the group's banks and to foreign lenders.

At the same time, the high interest rates began to backfire on the large banks. By last year, foreign competition and world recession had severely weakened much of Chile's national industry, and banks found that up to 15 percent of their loan portfolios were uncollectible.

The weakening economy forced the Chilean government into major devaluations of the currency last year, greatly increasing the relative amount Chilean banks and companies had to earn to pay their foreign loans in dollars.

In the end, the groups simply ran out of cash, and as new credits from abroad dried up, the government was forced to intervene.

"They were too risky, and they were playing with huge sectors of the economy," a leading businessman here said. "Everyone here just went a little further than they should have--and in this, the state has a lot of blame. Because nothing was ever done to stop it."