The collapsed fund
When a bank tried to collect from the collapsed fund, on its outstanding loans, there was nothing there. When it tried to sell the collateral that had been deposited for the loan, nobody wanted it, as this too had become largely worthless. This attempted sale started a chain reaction that collapsed the value of all related assets across the board so deeply that the sale was quickly stopped. The investment house itself, that had owned the collapsed fund, collapsed too. The result of it all caused major tremors in the system, because the entire system was essentially as bankrupt as the investment company that had collapsed.
In order to hide the global bankruptcy of the system, and to prevent the further collapse of financial values across the entire financial industry, the government was essentially 'ordered' to buy up all the worthless junk of all the banks at face value, just to keep the junk off the market.
This particular type of bailout process was called the Troubled Assets Recovery Program. But it didn't solve the underlying cause. It didn't solve the systemic failure. Nobody had any intention to change the system that was defective at the core, and was dying. Thus more and more bailout programs were called for, with ever greater haste, in order to create the illusion that the corpse was still alive.