Since the 1930s, the typical story about Herbert Hoover’s presidency has been that he stood by and did nothing while the economy crashed. Hoover was a firm believer in laissez-faire, so the story goes, and believed that the “invisible hand” would solve everything if only the government would step back and let the process take care of itself.

This story has become holy writ to Democrats, and their academic and media allies. They cite as “proof” that Hoover followed Andrew Mellon’s advice to “liquidate” everyone; of course, Mellon was giving advice that Hoover openly rejected, but that part is not repeated.

I always thought that the most important political masterstroke for Franklin Roosevelt was putting journalists and other writers on the WPA payroll, thus ensuring that he would have a legion of paid propagandists who for the next several decades would write of FDR with awe and reverence. And like the “bold” FDR, the chief executive is someone who needs to “take charge” of a crisis.Thus, no president wants to be seen as another Hoover, a “do-nothing” leader who de facto abdicates his role. Thus, we have the latest “bold” or “not bold enough” moves from the Treasury and Federal Reserve, depending on who is making the comments.

The latest howler comes from (Who else?) Paul Krugman, who in his perch from the New York Times declares that we are at a “moment of truth.”

It always is interesting to me how Krugman gets away with declaring himself to be the Great Financial Prophet, and he does it again:

Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson, the Treasury secretary, was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman’s failure caused the world financial crisis, already severe, to get much, much worse.

The consequences of Lehman’s fall were apparent within days, yet key policy players have largely wasted the past four weeks. Now they’ve reached a moment of truth: They’d better do something soon — in fact, they’d better announce a coordinated rescue plan this weekend — or the world economy may well experience its worst slump since the Great Depression.

You see, it was the fact that Treasury did not go whole hog and have a coordinated effort to de facto take over the entire U.S. financial system. But, Krugman (as always) has the answer, as he is the Great Prophet:

The United States should have been in a much stronger position. And when Mr. Paulson announced his plan for a huge bailout, there was a temporary surge of optimism. But it soon became clear that the plan suffered from a fatal lack of intellectual clarity. Mr. Paulson proposed buying $700 billion worth of “troubled assets” — toxic mortgage-related securities — from banks, but he was never able to explain why this would resolve the crisis.

What he should have proposed instead, many economists agree, was direct injection of capital into financial firms: The U.S. government would provide financial institutions with the capital they need to do business, thereby halting the downward spiral, in return for partial ownership. When Congress modified the Paulson plan, it introduced provisions that made such a capital injection possible, but not mandatory. And until two days ago, Mr. Paulson remained resolutely opposed to doing the right thing.

But on Wednesday the British government, showing the kind of clear thinking that has been all too scarce on this side of the pond, announced a plan to provide banks with £50 billion in new capital — the equivalent, relative to the size of the economy, of a $500 billion program here — together with extensive guarantees for financial transactions between banks. And U.S. Treasury officials now say that they plan to do something similar, using the authority they didn’t want but Congress gave them anyway.

The question now is whether these moves are too little, too late. I don’t think so, but it will be very alarming if this weekend rolls by without a credible announcement of a new financial rescue plan, involving not just the United States but all the major players.

Yes, yes, once again we have the “too little, too late” theme. Krugman has written gushing prose about the 1930s, calling it the “Great Compression” in which the “gap” between those with high and low incomes was greatly reduced. Leave it to a fraud like Krugman to tell us that the Great Depression, a cataclysmic event that drove millions into poverty, was the thing that helped to “create” the middle class.

And, don’t forget that Krugman has been the main shill for Fannie and Freddie, claiming that they were paragons of virtue and solid finance, and it was “deregulation” and “private enterprise” that was reckless and ultimately undermined the sound financial practices of the “mortgage giants.”