Sub-prime crisis primer

BBC has the sub-prime explained

Update
"Kilo Funding" explained
Kilos are CDOs raised initially by top Bear Stearns fund manager Ralph R Cioffi, to fund two hedge funds operated by Bear Stearns. Unlike other CDOs, Kilos sold commercial paper and other short term debt (tapped into the $2 trillion money market accounts in which indivduals and corporations stash their spare cash) to buy higher yielding, longer term asset backed securities. The Kilos helped raise cash for the hedge funds, which were owned by the owners of the Kilos. The money was also used to purchase billions of mortgage backed securities owned by the Kilo itself (through its hedge funds), thereby driving up the returns for these funds. The Kilos also allowed the hedge funds owned by the Kilo issuers the freedom to lock in long term financing. (Typically hdge funds borrow for short periods - days and weeks)

The Kilos offered higher than normal money market yields and repayment was also guaranteed by Wall Street Banks (through what is known as a "liquidity put"). The Wall Street Banks benefitted from the substantial fees paid for the liquidity put, and the purchases of their mortgage backed securities and other debt by the hedge funds owned by the Kilos.

In many ways, Kilos were the fore-runners for the Special Investment Vehicles (SIVs). For a long time, the Cioffi run Kilos were the sole funding source for the Cioffi run hedge funds of Bear Stearns.