Unfortunately I seem to be unable to provide functionng links to Dean Baker's Beat the Press, and I am overwhelmingly most of the time on board with him as beats the press for its many errors and sins. However, today he seems to have gotten himself confused in a post aimed not at the press but at Ben Bernanke and statements in his memor, entitled "Of course Ben Bernanke could have saved Lehman," which very accurately argues that indeed Bernanke and the Fed could have saved Lehman in September, 2008 but did not do so. I have not read Bernanke's memoir, but I shall take it as true that Bernanke indeed makes this false claim. So, so far so good for our usually intrepid Dean.
But there is a problem here, which several commenters on his blog have pointed out. For years he has beaten a drum that there should have been no bank bailouts, especially not TARP. His favored outcome was to let whatever big banks were in deep doo doo to go down, to fail, with their depositers being paid off. Now to pay off those depositers would have certainly made the FDIC go bankrupt, but indeed probably Congress would have come through, if perhaps with some lag, and paid off all those depositers. This would have indeed probably at a minimum led to the careless and venal managements of those big banks being removed, if not necessarily being sent to jail as both Dean and Ben Bernanke also say they wished had happened (as have many of the rest of us as well). Dean has also regularly dismissed the concerns of Bernanke that failing to bail out the big banks would lead to any further failures of banks or other problems in the financial system that might have led to a 1931 style outcome, which Bernanke feared, an outcome that did give us Adolf Hitler and all that followed (uh oh, have I broken Godwin's Rule, or whatever that is? note official self hand slap).
Now one clear reason why it might not have been as bad as 1931 was indeed that we now have the FDIC, which was not put in place until 1935. The wave of bank failures after Fall 1931 (and before as well) wiped out the savings of many people who were not at all insured. Probably the scale of wipeouts would not have been nearly as bad. OTOH, the degree of interbank connectedness now around the world is much greater and more opaque when the shadow banking system is taken into account than was the case in 1931. That global financial collapse took many months, having started in May with the failure of the Creditanstalt in Vienna, then spreading across Germany and France over the summer to UK by end of summer and finally to the US by Septermber (and on to Japan later). It remains not widely reported, although I think Dean knows it (in fact I think he and I have personally discussed this), that the really serious thing that was going on that September was the Fed bailing out the ECB, which was having trouble propping up top German and Franch banks that were threatening to go under due to their exploding AIG problem. This was truly an enormous mess, and the threat to the full global financial system appears to have been extreme, with all this brought on by the fall of Lehman, which Dean now says should indeed have been propped up. I guess maybe if it had been propped up, we would not have had to prop up the rest, but who knows?
One final trivial note. TARP ended up making money for the US Treasury. A massive bailout of depositers in failed banks after an FDIC bankruptcy would have certainly cost the Treasry and taxpayers money, as was the csse with the S&L bailouts of an earlier decade. But this is trivial compared to the possible losses that might have occurred if there were no bailouts of the big banks. In any case, I think Dean has a bit of an inconsistent story going on here, whether or not Ben Bernanke did well or ill.