One of the myths that global policymakers and financial regulators have tried to spread is their response to the 2007/2008 financial crisis saved us from a second Great Depression. They argue, by saving the banks and adopting extraordinary monetary policies, they have spare the real economy the consequences of another depression.

In his Financial Times column, Martin Wolf succinctly lays to rest the myth the policy response did in fact result in our avoiding a second Great Depression.

The depression has been contained. But it is a depression, all the same.

By their actions, the global policymakers and financial regulators saved the banks and contained the depression in the real economy.

As I discuss at length in Transparency Games, the global financial system was redesigned during the Great Depression to save the real economy and as much of the banking system as is needed to support the real economy.  It did this by containing the impact of another Great Depression to bank balance sheets and banker bonuses.  By design, bankers and investors in banks were supposed to suffer the consequences resulting from the bankers originating more debt than borrowers were capable of repaying.  By making the bankers and investors absorb the losses, the real economy was protected.

However, in our current crisis, global policymakers and financial regulators intervened to save the investors, the bankers and their bonuses. By doing so, the global policymakers and financial regulators contained the depression to the real economy where even though it has been contained, it is a depression all the same.