AP reports, “GMAC Financial Services . . . loosened its tight lending standards . . . the first time that a financial institution has said it will use money from the $700 billion bank bailout to offer more affordable credit to consumers.” Since loose lending standards were a major contributor to the enormous credit bubble that has left many Americans enslaved to their debts, like indentured servants of bygone ages, does it seem, uh, prudent to be selling new cars to people who would not otherwise be able to afford them, cars that are worth less than the amounts of their loans the minute they are driven off the showroom floor, cars driven by people who are at risk of losing their jobs in the coming months?  Have we forgotten already why we are on the brink of a Depression?

It gets worse. AP also reports today that “rates on 30-year mortgages fell to a record low for the third straight week and borrowers took advantage of the drop, sending new applications soaring. . . . Interest rates have plunged since the Federal Reserve pledged last month to buy up mortgage-backed securities in an effort to bolster the long-suffering housing market. The Fed, starting early next month, will buy up to $500 billion in securities guaranteed by the government-controlled home loan giants Fannie Mae, Freddie Mac and Ginnie Mae.” This is like one of those offensive Polish jokes, in which one guy says “we’re losing money on every one we buy,” and the other guy says “we’ll just have to buy MORE.” You thought nobody could be that stupid, but it turns out somebody can. Except it’s not the Poles, it’s the Americans.

Let me refresh memories. Housing was priced far beyond what average buyers could afford, but they bought anyway, counting on prices to continue rising, so they could unload their houses for a profit and then buy other even more overpriced homes, expecting to repeat that scheme for decades, aided and abetted by realtors, mortgage brokers, financiers, politicians, and other co-conspirators, until it was finally time to unload the last of their astronomically overpriced suburban Megalomansions for a final multimillion dollar payday–one of the three pillars of American retirement planning (the others being lottery tickets and Social Security).

Do we all remember what happened? The housing market collapsed, values dropping 10%, 20%, 30% and more. Owners owed more than their houses were worth and their monthly incomes were insufficient to make their monthly payments, so they tried to sell at a loss or they defaulted or they somehow scraped together enough cash from pawn shops and friends and relatives to keep making payments, hoping against hope that they could hang on until somehow someone would bail them out one more time . . . .

What should America do? Wait for the market to find its bottom and for owners and investors to take their losses? Isn’t that what free-market capitalists would do? Maybe them, not us. We’re artificially propping up the sagging market by pumping billions of taxpayer dollars into financial institutions, the ones that got us into this mess with their bad loans and fraudulent securities, and we’re buying up a lot of that worthless paper, and we’re cutting interest rates back to those historic lows that fueled the housing bubble, so that sellers can sell and banks can lend and buyers can buy houses NOW, even if they’re still overpriced, even if within months buyers could owe more than the houses are worth, even if a lot of those buyers are likely to be out of work before long. How is it possible to forget the housing bubble when we’re still in the middle of it, like passengers of a crashed hot air balloon that is deflating onto them? Should we try to reignite the burner or run for our lives?