This gave rise to Collateralized Debt Obligations (CDOs). “A CDO is a type of asset-backed security, in which assets are securitized by bonds issued by companies or countries” (Hull, 2009). This securitized product seemed safe since the credit rating, assigned by agencies like Moody and Standard & Poor, was triple A. Low interest rates encouraged banks and investors to take more risks and earn higher returns. students. CDOs accounted for 42% of the total depreciation of financial institutions worldwide. The whole problem started when the defects started to increase (Benmelech, 2009). This happened when the US Federal Reserve raised interest rates from 1% to 5%. There was a sharp decline in real estate markets and many losses due to CDOs and mortgage debt led to a liquidity problem. All mortgage-backed securities and CDOs became worthless, leading to huge losses for banks and other financial institutions. In November 2007, the Federal Reserve had to inject $41 billion so that banks could borrow at low rates. But even then, the big banks posted losses and began merging with other banks. There was a certain level of distrust that permeated the market. Banks stopped trusting other banks, which ended interbank lending. This led to worldwide fear and panic with a stock market crash.