Hey folks, I saved you all from a Martian invasion, you really should be thankful. And Robert Samuelson says we were saved from a second Great Depression by the actions of the Federal Reserve Board. Yes, both claims are lies, but Samuelson's lie is more transparent than my lie.

The point here is a simple one, we know how to get out a depression. It's called "spending money." We got out of the last Great Depression by spending lots of money on fighting World War II. But guess what, the economy doesn't care what we spend money on, it responds in the same way. So if we instead had spent 20 percent of GDP on building highways, housing, hospitals, and providing education and child care it also would have led to double-digit economic growth and below 3.0 percent unemployment.

So anyone who claims that we risked a second Great Depression if the Fed and the Treasury Department had not saved the Wall Street banks is saying that the politicians in Washington are too brain dead to figure out how to spend money even when the alternative is double-digit unemployment. Note that tax cuts count in this story too. So the second Great Depression argument is that the Democrats and Republicans could not possibly figure out a mix of tax cuts and spending that would provide a large boost of demand to the economy.

I will confess to not having a great deal of respect for most politicians, but I have seen many of them tie their shoes. I find it more than a bit far-fetched to claim that they would not ever (a second Great Depression implies years of double-digit unemployment, not just a short downturn) figure out that they need to agree to a package of tax cuts and spending to boost the economy.

Anyhow, this proposition is at the core of the second Great Depression claim, so if you don't think that the members of Congress are complete morons, then you can't believe the second Great Depression story. The point is important because in the fall of 2008 we had the option to clean out the Wall Street cesspool in one fell swoop by allowing the market to work its magic. Most, if not all, of the major Wall Street banks would be out of business.

We could have restarted the financial system along lines more suited to meet the needs of the productive economy. Of course if the second Great Depression was the alternative than the massive Wall Street bailout was the better option, but since the second Great Depression is simply a children's story for gullible reporters, well, we got ripped off. We ensured that the Wall Street high rollers could keep their millions and billions — great use of public funds. (If you tell me we made a profit, I'll give you a free arithmetic lesson.) 

Anyhow, let's move on to Samuelson's other point. He argues that the next time we face a financial crisis the Fed won't be able to act because of the Dodd-Frank reforms:

"The treasury secretary must approve all nonbank loans, there can be no nonbank programs for a single borrower, collateral requirements are toughened and loans must be disclosed within a year. Some of these may be sensible alone; together, they create an obstacle course for crisis lending."

Okay, lets go through these one by one. The treasury secretary must approve all nonbank loans. To humor Mr. Samuelson, let's assume that a second Great Depression looms if the Fed doesn't make a loan to major insurer (think AIG). Should we expect that our Treasury Secretary will be too dumb to recognize the importance of the loan? (Why are the Fed people so much smarter?)

There can no nonbank programs for a single borrower. This means that the Fed can't set up special lending facilities like it did for AIG (also Citigroup and Bank of America). The Fed could of course offer loans that an otherwise bankrupt AIG could use. It would just have to offer the loans on the same term to other insurers. Since the other insurers would not be on the edge of bankruptcy, they would presumably not be interested in taking advantage of loans offered on punitive terms, but if they were, the Fed would have to give the the option. And the problem is?

Collateral requirements would have to be tightened. Hmmm, suppose the Fed gave loans on bad collateral in the middle of a crisis, what would happen? I suppose that someone (who?) might be able to sue, and years later the Fed officials who made the call would get a harsh slap on the wrist. Alternatively, a congressional investigation could lead to the same result. Let's see, a second Great Depression or the risk of slap on the wrist years down the road. That should be a tough call.

Finally, we have "loans must be disclosed within a year." Imagine that, the public would get to know what happened with its money. I'm sure there is some way that this can be turned into a problem for those trying to fend off a second Great Depression, but offhand it's hard to see why.

So the basic story is that the big Wall Street banks like to be able to do what they want and to have the Fed save their ass when they get themselves in trouble. And Robert Samuelson is unhappy that Dodd-Frank might make this a hair more difficult.