Daily Telegraph – The funds collapsed as billions of dollars of bets made on mortgage-backed bonds and collateralised debt obligations (CDOs) unravelled, and when the time came to try to sell some of the funds’ sub-prime mortgages, no one wanted to buy them.

At the centre of those funds sat two men – hedge fund manager Ralph Cioffi and Matthew Tannin, the chief operating officer of Bear Stearns Asset Management (BSAM) – who were arrested a year later and charged with several counts of wire and securities fraud, following the loss of $1.4bn of investors’ money.

They face possible 20-year prison sentences, though both have consistently pleaded their innocence. The case against them will be set out at a trial slated to start in October. It centres on emails between the two – and with investors – in which both funds were referred to as "an awesome opportunity", despite allegations that both men knew of the problems within them.

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Tags: allegations, asset-management, bear-stearns, bets, billions of dollars, bsam, chief-operating-officer, collateralised debt obligations, daily-telegraph, innocence, investors, money, mortgage-backed-bonds, prison sentences, ralph cioffi, securities fraud, sub prime mortgages, tannin, two men

FOXNews – MR. LENO: Tell people what happened. I know people have been over it, just –

MR. OBAMA: Well, look, here’s what happened. You’ve got a company, AIG, which used to be just a regular, old insurance company. Then they insured a whole bunch of stuff and they were very profitable and it was a good, solid company.

Then they decided — some smart person decided, let’s put a hedge fund on top of the insurance company and let’s sell these derivative products to banks all around the world — which are basically guarantees or insurance policies on all these sub-prime mortgages.

And this smart person said, you know, none of these things are going to go bust; this sub-prime thing, it’s a great deal, you can make a lot of profit. So they sold a whole bunch of them — billions and billions of dollars. And what happened is, is that when people started going bust on sub-prime mortgages you had $30 worth of debt on every dollar worth of mortgage — and the whole house of cards just started falling down.

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Tags: aig, banks, billions and billions, billions of dollars, bust, derivative products, dollar worth, foxnews, guarantees, house of cards, insurance, insurance company, insurance policies, mortgage, smart person, sub prime mortgages