The most hospitable mortgage market in history has suddenly turned frosty. If the new, tougher lending standards now in force had prevailed in 2006, according to the banking firm of Credit Suisse, one in five of last year’s home sales could not have closed. It is destined to get worse. “One can only marvel,” Ronald Utt, senior research fellow at the Heritage Foundation, was quoted by Grant’s Interest Rate Observer as saying the other day, “[when Congress] sees a disaster sweeping through financial markets and tries to figure out how it can be a part of it.”

One would suppose that the politicians would show a little more sympathy with the lenders. Like politicians, the dispensers of credit are herding creatures. They tend to think the same thought at the same time. One year, it’s “Not one dime.” Another, it’s “Anything goes,” where lenders and borrowers have been happily tarrying. It’s been three years, by our count. The no-money-down, no-income-verification, interest-only mortgage loan is only one example of the spirit of openhandedness. The corporate and governmental debt markets furnish many others.

Speculative-grade companies borrowed — and can still borrow — at interest rates remarkably close to those paid by the U.S. Treasury. So can speculative-grade countries. All one has to know about the still-complacent state of credit is that the government headed by the Trotsky-spouting, U.S.-bashing, and not-very frugal Hugo Chavez could borrow at just 6.83%. Bankers to the Chavez regime must reason that the Venezuelan economy will grow even faster than the financial requirements of the despot’s personal foreign policy.

What a contrast to 1998, when, during the tumult brought about by Russia’s default and the failure of Long-Term Capital Management, Venezuelan debt traded at a price to yield 24%. In 2002, in the wake of a U.S. recession and a nasty bear stock market, it was quoted at 15%. Defaults, slumps, and bear markets are as old as financial history. It would seem that wise creditors would make allowances for them. Individual creditors are often wise, but the creditor herd is not infrequently unhinged.

By the looks of things, that herd is making ready to decamp for the place called “Not one dime.” Mortgage lenders are announcing the end of no-down-payment loans. Corporate lenders are beginning — albeit just beginning — to give the fish eye to the riskier kinds of speculative-grade bonds and bank loans. The withdrawal of the marginal dollar of easy credit would be a signal financial event. It would mean lower prices for the things that easy money finances, such as, among others, houses, commercial real estate, and corporations.

Congress is calling the perpetrators to account by demanding an end to “abusive lending” or, in nongovernmental English, “lending.” No doubt, some mortgage underwriters cut corners and violated the trust of borrowers. But it was Congress itself which, in 1986, eliminated tax deductions on consumer debt besides home mortgages. And it was the Federal Reserve that, in 2003 and 2004, slashed interest rates in the name of staving off an imagined deflation. House prices went to the moon, with mortgage debt providing the rocket fuel.

Late in the 1880s, the prices of houses and farms boomed on the Great Plains. Eastern savers, starved for income by low market interest rates, gladly lent to any and all, and the Western settlers just as eagerly borrowed. Before long, real-estate prices had surpassed any reasonable economic justification. The subsequent bear market sent the settlers trekking back East, some with banners reading, “In God we trusted, in Kansas we busted.”

There was as yet no Federal Reserve and no Federal Deposit Insurance Corp. There was as yet no federal income tax. Borrowers and careless lenders simply overdid it. These days, overdoing it in the private sector is usually met with excessive and misdirected effort in the public sector. Already, weak house prices and a blight of foreclosures have prompted demands that the government do something to prevent the market itself from sorting things out. Sadly, on form, the government will.