I think it was the Yeti that brought CDS to our attention.
The way I understand it, CDS are a "hedge" against the value of "bundled subprime mortgages"- which were structured as "securities". They were insurance policies against the mortgage bundles dropping in value. AIG assumed (morons) that housing prices would always rise.
The 150 billion IMO acted as a "buffer"; It offset the losses of AIG and at the same time, let AIG honor the CDS so securities holders wouldn't be left holding the bad.
What a bunch of shit.