Timothy Geithner's book "Stress Test" does a great job of explaining this, IMO. The trouble with derivatives is that they are contractually bound to reflect some price that is locked to the price of a primary asset. If the derivatives are linked to the price of a security, which is in itself linked to a certain risk-bundle of assets (e.g. the AAA rated CDO with the most senior debt) then it was not exactly clear what happened to the derivative, because it wasn't clear whether people were going to make their payments on their mortgages, or whether the derivative counterparties could pay. The market responses was to try to sell all the derivatives, rather than wait to see what they'd be worth. Effectively, the liquidity which those derivatives and CDOs had prior to the crisis disappeared entirely, which meant that their true value fell much faster than it really should of since people were selling at a discount just to get them off their balance sheets.