The Federal Reserve staved off recession in 2001 by lowering the Federal funds rate from 6.5% in May 2000 to 1.75% in December 2001. A flood of liquidity ensued, and restless borrowers with no income, job or assets began pursuing their dream of buying a home. Banks were more than willing to help.Easy credit and increasing home prices made investments in high-yielding subprime mortgages resemble a new rush for gold. The Fed continued slashing interest rates, all the way to 1% in June 2003, the lowest in 45 years. Bankers repackaged these loans into collateralized debt obligations, then sold them to investors. The SEC relaxed net capital requirements at five large investment banks, freeing them to leverage their initial investments up to 30 or 40 times. Trouble appeared when interest rates started rising. Many subprime borrowers could not afford the higher rates, and started defaulting. Subprime lenders began filing for bankruptcy in 2007 -- more than 25 during February and March, alone. Financial firms and hedge funds owned more than $1 trillion in securities that were backed by failing subprime mortgages, enough to cause a global financial tsunami if the defaults continued. By August, it was clear financial markets couldn’t solve the crisis, and problems spread beyond the U.S. Central banks and governments around the world began to band together to prevent further financial catastrophe. The Fed slashed the discount and funds rate, but bankruptcies and collapses persisted. Finally, the U.S. government enacted the National Economic Stabilization Act of 2008, which created $700 billion to buy distressed assets, including mortgage-backed securities. Other governments followed with their own bailout packages.