In 2008, the financial markets and banking system of the United States nearly collapsed completely as a result of the issuance and securitization of subprime mortgages. When the housing market began to collapse in 2008, defaults on subprime mortgages began to undermine the value of the mortgage-backed securities, and the crisis spread from the United States to the major financial markets in the rest of the world. The problem was that no one knew which mortgages were represented in other financial institutions’ assets. Because all of the U.S. investment banks either failed or were changed into commercial banks, and one of the country’s largest commercial banks, Lehmans, was allowed to fail by the Treasury, the Fed, and the FDIC, there was enormous fear that it was not safe to lend to anyone in the financial sector for fear that the borrower would go out of business. To stop the collapse of the financial sector, the Fed created hundreds of billions of dollars when it made loans to banks, engaged in large purchases on the open market, and made billions of dollars of loans to major corporations in the commercial paper market. These billions of dollars eventually went into bank reserves. Thus, bank reserves increased by a large amount. The money supply increased slightly. At the same time interest rates increased. How was it possible for interest rates to increase when bank reserves increased as much as they did?