This post first appeared on Minyanville.

Freedom is back in vogue: Americans are finally growing tired of living in the shackles of debt.

According to the Wall Street Journal, government-led efforts to jumpstart lending are being derailed by weak demand for new loans. As the recession rolls on, an increasing percentage of consumers are opting to pay with cash or (gasp) save their hard-earned money.

Initiatives like the Term Asset-Backed Securities Loan Facility (TALF) aim to free up consumer credit by supporting the market for asset-backed securities. The Federal Reserve and Treasury Department hope their efforts will enable American consumers to start spending again.

During the boom, fixed-income investors snatched up bonds backed by all types of debt – credit cards, auto loans, and, of course, mortgages. High demand for these seemingly safe investments pushed down interest rates, which stretched consumers’ budgets to the brink – and beyond.

But now that investors have been badly burned by such investments, they’re shying away from the market almost entirely. Without Wall Street’s securitization machine, there’s simply nowhere to put new consumer loans.

After years of gorging on cheap credit, Americans are reverting to more responsible fiscal lifestyles. Savings are up, spending is down – which is as it should be. This is reducing the urge to borrow and thwarting Washington’s plans to pass the bailout buck down to taxpayers.

Every dollar we don’t spend or don’t borrow is another that could potentially be handed over to effectively insolvent financial firms like Citigroup (C), Bank of America (BAC) and American International Group (AIG), or failed automakers like General Motors (GM) and Chrysler.

That task is growing increasingly dicey, as it becomes clear that using debt to fix a system already crippled by debt is patently absurd. And even as the US government loads up on borrowing, consumers are doing the right thing: getting out of hock.

This post first appeared on Minyanville.

For anyone wondering where the billions of dollars in worthless mortgage-backed securities will wind up, look no further: The mirror.

Fannie Mae (FNM) and Freddie Mac (FRE), the formerly quasi-public, now taxpayer-owned mortgage behemoths, are stealthily sopping up the worst of the structured mortgage debt Wall Street churned out during the boom.

In a story that barely made the back pages of the nation’s newspapers, Bloomberg reports Fannie and Freddie will start purchasing $40 billion per month of “underperforming mortgage bonds.” For its part, the Federal Housing Finance Agency, which oversees the two firms, issued a statement saying it hasn’t set a specific dollar target for the initiative.

If this program is indicative of the care with which Washington plans to deploy taxpayer money to clean up the mortgage mess, we’re going to need a lot more than $700 billion.

In September, Treasury Secretary Hank Paulson rationalized the seizure of Fannie and Freddie by saying, “It’s very possible for not only the taxpayer not to be hurt or to make money, but for the shareholders to have some value restored to them.” It’s unclear how targeting the worst quality assets on the market will achieve this end.

The initiative — which is outside the scope of the recently announced bailout plan — intends to bring liquidity to the frozen mortgage markets. Regulators hope the effect will be lower rates on new mortgages, softening the blow of tumbling home prices.

Policy-makers are desperate to find ways to make buying a house easier, as banks continue to tighten lending requirements to shield themselves from further losses. From big banks like JPMorgan Chase (JPM) and Wells Fargo (WFC) to small, regional players like Gateway Bank in San Francisco, lenders are making it harder to take out mortgages, auto loans, credit cards and just about every other type of consumer debt.

The inevitable regulatory reaction in the coming years is likely to make getting a mortgage even harder.

Coupled with the growing belief in Washington that freezing the foreclosure process is necessary to stem the tide of repossessions decimating communities across the country, mortgage rates aren’t likely to fall any time soon.