lostjobWhen Bear Stearns and Lehman started to collapse in 2008, we were warned that without a federal bailout the rest of the investment banking structure would follow, and we’d be facing a second Great Depression.

Not quite, says economist Dean Baker in this article on Truthout. The kind of banks that most of us use—basic commercial operations that handle our checking accounts and mortgages, would have been operational in short order, as they are whenever the FDIC has to take over a failing bank.

The real danger in an investment banking collapse, says Baker, is that the crisis could have provided the nation’s 1% with a very good excuse for instituting some classic austerity measures–gutting Medicare and Security, and other programs that working people depend on, rather than upping public spending, as the US did to get out of the last Depression. (Hopefully we would be spending on something other than a world war.)

“So the long and short is that we only need to have worried about a Second Great Depression if the bad guys got their way,” Baker writes. “And most of the people who warn about a Second Great Depression were on the list of bad guys. The prospect of a second Great Depression was not a warning, it was a threat.”

It’s a threat that helps make a case for democratized finance—both for public banks run so that they are accountable to the public interest, instead of a handful of powerful stakeholders, and for community commercial institutions like local banks and credit unions. North Dakota, with a state-level public bank, has managed to weather both economic and natural disasters. We should have the same kind of protection for communities, families, and small businesses here in Massachusetts.