For nearly a decade, Americans acted as though taking on more debt posed no problem. After all, they owned real estate, and all the experts told them that real-estate prices always go up. The mightiest magnates of finance acted as if they believed this stupid story — I say stupid because the merest child might easily have confirmed that real-estate prices have always risen and fallen cyclically and that real-estate booms have often been the precursors of financial crashes and economic recessions. But things are always different this time, are they not? At least, all the experts say so, just as they said so during the past however many booms, each of which was said to have heralded a “new era.” So, we can hardly blame the nearly destitute wannabe homeowner who signed up for the mortgage proffered to him by the agent of one of those Wall Street moguls. After all, the borrower put nothing down, made interest-only payments at a low teaser rate, and cheerfully anticipated seamlessly refinancing the loan when the time came for the interest rate to be adjusted upward. Couldn’t lose, eh?

Moreover, you could use your house as the basis for a line of credit and live high on the hog while you waited for your house to appreciate as surely as the sun rises in the east.

Thus, real estate loans at all commercial banks increased from January 2002 to January 2009 by 110 percent, and the banks’ total consumer credit outstanding increased during the same period by 37 percent. Household credit-market debt outstanding rose between the first quarter of 2002 and the third quarter of 2008 by 77 percent. Got the picture? The country was, and remains, awash in debt. Of course, these huge increases in real-estate and consumer debt would not have been possible had the Fed not engineered a great increase in the money and credit coursing through the system: thus, the money stock (M2) increased from January 2002 to January 2009 by 51 percent. Greenspan and Bernanke, you gotta love ‘em — real good-time Charlies.

It was paradise, or as close to paradise as we’re likely to come in this vale of tears, but it was a fool’s paradise, which has long since become obvious to anybody with more than half a wit. Once the real-estate prices turned around and headed south, everything pyramided on top of them began to crumble — mortgages, mortgage-backed securities, real-estate-related derivatives of various sorts, credit default swaps, bank balance sheets, big investment banks, stock prices (especially financials), interbank lending, you name it. About the only things that have risen appreciably in the past year or more are fear and despair. (The smart money has taken a long position in them.)

Now, before we lose our focus, allow me to remind you that this whole sad story is a tale of excessive debt. If householders, banks, businesses, and, of course, governments at every level had not become so outrageously overleveraged, the piper would not be in a position, as he is now, to demand such extreme payment. But debt and more debt and still more debt formed the stairsteps by which the U.S. economy (and others) ascended to the dizzying heights from which the world is now in the process of plunging.

But never fear: our government will save the day. Or so it promises us. Especially since last September, the Fed and the Treasury have scarcely stopped for a decent night’s sleep. They have frantically seized upon one “plan” after another (God save us from the central planners!) to “thaw the frozen credit markets,” to “prevent the credit-market meltdown,” to restore the flow of credit to one and all — in short, to make sure that we do not reduce our excessive, unsustainable indebtedness, but instead resume our all-out borrowing whether it is prudent to do so or not, and for most individuals and businesses at present, it most emphatically is not.

This morning’s New York Times announces the latest installment in this cavalcade of cuckoo crisis-fighting, something called the Term Asset-Backed Securities Loan Facility, or TALF. The headline reads: “U.S. Tries a Trillion-Dollar Key for Locked Lending.” The article explains that

The Treasury Department and the Federal Reserve plan to spend as much as $1 trillion to provide low-cost loans and guarantees to hedge funds and private equity firms that buy securities backed by consumer and business loans.

The Fed is expected to start the first phase of the program, which will provide $200 billion in loans to investors, in early March.

The program . . . does not try to change securitization practices that, many investors say, spread risks throughout the world and destroyed financial institutions. Policy makers acknowledge that for now, fixing credit ratings, reducing conflicts of interest and improving disclosure can wait.

Under the program, the Fed will lend to investors who acquire new securities backed by auto loans, credit card balances, student loans and small-business loans at rates ranging from roughly 1.5 percent to 3 percent.

Depending on the type of security they are borrowing against, investors will be able to borrow 84 percent to 95 percent of the face value of the bonds. Investors would not be liable for any losses beyond the 5 percent to 16 percent equity that they retain in the investment.

In the initial phase, the Treasury will provide $20 billion and the Fed will provide $180 billion. Treasury Secretary Timothy F. Geithner said last week that the Treasury could increase its commitment to $100 billion to allow the Fed to lend up to $1 trillion.

Well, there you have it. If you can imagine anything more idiotic in the present circumstances, your imagination is more powerful than mine.

I have this recurring nightmare in which Tim Geithner is lying in a dark corner of a saloon. His bosom buddy Ben Bernanke comes in, sees him lying there in a heap and rushes to his side. He finds his comrade breathing heavily and reeking of a warehouse worth of booze. He shouts for help: “Bartender, get over here quick. Bring this man a whiskey. And make it a double!”

Into such hands has fate delivered us. May God have mercy on our souls.

The exponentially increasing violence as a result of the Mexican government’s ill conceived attempt to crack down on the drug cartels is finally garnering some attention. The television program Sixty Minutes had a segment on it Sunday night. However, as per usual the piece had plenty of questionable scary sensationalism with virtually no analysis of the root of the problem, the drug laws. There was also no mention of the recent statement by former leaders Fernando Henrique Cardoso (Brazil), César Gaviria (Colombia) and Ernesto Zedillo (Mexico) calling for a paradigm shift in drug policy. Instead, CBS attempted to blame U.S. demand for drugs and lack of gun control laws for the problem.

Meanwhile Defense Secretary Robert Gates is praising Mexican President Felipe Calderon for initiating the chaos and he promises more U.S. assistance, including joint military operations, to keep the violence going.

On the other hand, essayist for the Orange County Registrar, Alan Bock places the blame for the killings squarely where it belongs on drug prohibition. He asks us to substitute the phrase “drug law related violence” for the misleading drug related violence now commonly in use. Bock is arguing that so called successes in this war are actually failures when he points out that those “who have sought to win the ill-considered War on Drugs by main force have discovered time and time again, that the drug cartels are hydra-headed monsters. Kill or imprison the head of a particularly brutal cartel, as the authorities were able to do recently with the notorious Felix Arellano organization in Tijuana, and a half dozen contenders for leadership quickly emerge, all of them skilled to one extent or another in the dark arts of violence, concealment, intimidation, and cruelty.”

Cross posted on The Trebach Report

"We get so pissed off when politicians portray us as victims," says Anna Read of the New Zealand Prostitutes Collective.

Read here how legalizing brothels in 2003 worked out.

In modern democracies freedom is usually construed as freedom from contraint by others. The same was true in ancient Athens, the opinions of Plato and Aristotle notwithstanding. However, the Athenians belived that preserving freedom depended on the fulfillment of civic responsilbiities. Freedom, in other words, was both a prequisite and a product of citizenship.

But why is the citizen motivated to participation? This is something I would consider essential to preserving democracy and preventing the rise of an entrenched elite. Citizens must take the initiative. But we find less and less of that today, especially in the universities, which have become holding pens for inert and essentially passive consumers-in-training.

The difference between American universities and ancient Athens is that the latter depended on the willingness of members to take the initiative. 'Ho boulomenos," that is,"he who wishes" is a key figure in the operation of the Athenian democracy. He stands for office, speaks in the assembly, and brings charges in cases of injustice.

We do not possess a similiarly institutionalized role in the American university, nor do we attempt to inculcate the free exercise of responsible citizenship necessary to the preservation of liberty. Instead, we have"food courts," and the only decision we expect to be exercised is in the choice of high-fat foodstuffs. A course catalogue, these days, is the food court's intellectual equivalent -- and often contains roughly the same nutritional value. The Athenian"He who wishes,", however, was more than a consumer of cheese-doodles.

What might this mean for us? To institionalize the mechanisms of deliberative democracy, I suggest, requires that every citizen of a local rea has an equal change to participate. It matters that these citizens come to see themselves as connected, and not primarily transients for whom exit is an easy option. The local unit, therefore, must have a plausible claim to being an functional boundary. People must"feel" themselves to part of something both political and economic. I would therefore propose that within a locality a randomly selected group of citizens be invited to participate in a deliberation about a significant policy question.

The nature and functions of their deliberation -- and how they might contribute to the rehabilitation of the 'ho boulomenos' I will describe in a subsequent message.

Atheist Brendan O'Neill explains why he"would far rather go back to the little church in north London this weekend and listen to the priest talk about 'love' and 'redemption' than watch or read or listen to any more shrill New Atheist propaganda."

"Huge job cuts" for the British public sector.

Mind you, I'll believe it when I see it.

Bereaved father commends the"brave" decision to release Abdelbaset Ali al-Megrahi and questions the official version of what happened.

Tuesday’s Guardian carries a long dispatch from Ed Vulliamy who has written by far the most complete account of the Uzbek massacre of May 13. That’s the one where President Islam Karimov—protege of Vladimir Putin and, until recently, a crucial ally to Britain and America in the"war on terror"—dispatched his troops to kill hundreds, possibly thousands, of innocent civilians at Andijan in eastern Uzbekistan.

The massacre received comparatively little coverage both at the time and in the months that followed. Far less coverage, it might be added, than any ballot-rigging by Viktor Yanukovych that precipitated the Orange Revolution in Ukraine. It's also noteworthy how little the American, British and other European governments have protested the massacre. Yet from all accounts it can only be described as government terror of the worst sort. So, George Bush and Tony Blair, where is the outrage? Or are the demands of U.S. and Nato policy in Central Asia determining whose rights are worth protesting and whose rights can be ignored?

Harvard Law School is hosting a conference entitled"The Free Market Mindset: History, Psychology, and Consequences," on March 9, 2009. It is part of its"Project on Law and Mind Sciences," all sponsored by Harvard Law School.

I noticed that the previous years' conferences were not on the ideologies of other schools of economics, but perhaps future years' conferences will be. Anyone going?