Low interest rates encouraged borrowing and therefore there was an increase in demand for various types of financial assets, leading to an increase in prices of these assets while lowering interest rates. This led to the deflation of the housing bubble. Low rates have been made worse by modern financial instruments, for example collateralized debt obligations (CDOs) and MBS. The Federal Reserve responded to the crisis by lowering its major federal funds rate to provide additional liquidity to the financial system, offering direct lines of credit to more financial institutions, and expanding the range of guarantees that she was prepared to accept. in exchange for loans. These measures taken by the Fed helped the financial system maintain confidence and liquidity, as a measure to mitigate the effects of the financial crisis (Claessens, Valencia, Kose, Claessens & Laeven, M. (2011). The government also provided direct aid to several large financial companies. It strengthened the real estate agencies. The Treasury promised to add $100 billion to the agencies in order to provide short-term liquidity, maintain positive growth. if they needed to, to obtain mortgage securities on the free market stability of the financial markets. The solutions to the crisis were short-term since they consisted only of minimizing the crisis in the.