Atrios nails it as always:

I really do hope that Larry and Timmeh get that turning the machines back on and returning to a world where massive amounts of cheap credit are available regardless of ability to repay is actually a bad idea.

And this idea that banks just need to lend more... to whom? For what?

The whole massive bailout program was sold to the American people on the idea that there was an unprecedented and catastrophic "credit freeze." That was narrowly defined as banks refusing to lend to each other because they didn't believe each other's balance sheets and didn't think they would get their money back. And that problem was described as mestastasizing outward to denial of credit to creditworthy businesses who couldn't get short-term loans to make payroll or ship goods, thus bringing the real economy to a screeching halt. 

And for a few months after the collapse of Lehman Brothers last September 16, there was in fact a "credit freeze" that could be measured in terms of LIBOR rates and LIBOR-OIS spreads and other arcane measurements that only Atrios and CalculatedRisk understand (see graphs below from FinancialStability.gov).

But over time that "credit freeze" actually thawed according to those same measures. CalculatedRisk used to update them daily, but now those updates are becoming as rare as Black Swans.

So we no longer have a "credit freeze." What we have instead is a pullback in risky lending to both businesses and consumers who aren't creditworthy enough for lenders who have naturally - and rightly - become more conservative in their lending standards.

So the "credit freeze" is over and we are now in an entirely different "credit pullback." But you'll never hear Tim Geithner, Ben Bernancke, or President Obama say those words. Why? Because of what Atrios says: they want to "turn[] the machines back on and return[] to a world where massive amounts of cheap credit are available regardless of ability to repay."

The deliberate confusion of two entirely different issues - credit freeze and credit pullback - could be called the Great Conflation.

And it's a terrible strategy that needs to stop now or the economic crisis will continue at infinite cost forever.

Update 1: Here's the data. I think the LIBOR x-axis labels are off by a year. The LIBOR-OIS spread shows the "credit freeze" pretty much ended at the start of 2009.

LIBOR Rates

The London Interbank Offered Rate (LIBOR) is an indicative interbank borrowing and lending rate. It provides a measure of the cost of dollar-based credit.

LIBOR-OIS Spreads

Another indicator of funding market pressure is the difference between LIBOR and Overnight Index Swaps (OIS). The difference between these two rates is an indicator of counterparty credit risk and liquidity pressures, with a lower spread suggesting diminished concerns about credit risk.