Keynes on bankers

A “sound” banker, alas! is not one who foresees danger, and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can readily blame him. It is necessarily part of the business of a banker to maintain appearances, and to confess a conventional respectability, which is more than human. Life‐long practices of this
kind make them the most romantic and the least realistic of men.

John Maynard Keynes, Consequences to John Maynard Keynes –
the Banks of a Collapse in Money Values (1931)

This is always a good quote to remember when thinking about policy and problem solving. Do we want to do the conventional thing or take some risks? There has to be a balance between convention and innovation. Right now we have to think about making sure that we do not create zombie banks which stay alive but do not add to the recovery or have a level of risk aversion which will restrict lending. 

We also need to think about using the rest of the TARP money and this will not be effective if policy-makers bash banks. Right now we are seeing institutions trying to determine how to give TARP money back as fast as possible. The only way for this to happen is if the banks cut their lending and shrink their balance sheets. Is this what we want?