Which of the following best describes the policy of "extend and pretend"? Multiple Choice Leading up to the financial crisis, the Federal Reserve ignored signs of trouble and continued to keep interest rates at historically low levels. In its role as lender of last resort, the Federal Reserve did not distinguish between insolvent and solvent firms Leading up to the financial crisis, financial institutions would extend loans to borrowers with poor prospects for repayment. Financial institutions use securitization to sell off subprime loans.