I have spend the last two days talking with a good friend of mine who just bought a house.  His job is to secure loans for people with low income and bad credit.  He explained to me his theory of how the banks work.

I know this can't be right.  God, please don't let this be right.

Here goes:

When a person goes into a bank and asks for a loan, the bank does not print a new bill or mint a new coin.  All that happens is that a person (probably my friend) types the amount of the loan into the person's account.

From that moment on, the person is paying interest to the bank on what is no more than figures typed on a screen.

If, however, the person fails to pay back on that non-existent loan, the bank can -quite legally- come and take your your wealth that does exist:  house, car, land and all your possessions.

Did I mention that you are also paying interest on top of all that?

Is that how this works?  I am sure I will be blamed for presenting a simpleton version of what happens.  But still, is this the meat and bones of this operation? 

Please correct me on this.

Because what I see at the moment is a house of cards that is ready to fall at any second.

Oh wait, it already did.