What's a bank? [View All]

I just caught the tail end of an episode of Book TV on Cspan and the author was talking about the need for regulation to constrain our banks. As the fellow spoke I reflected on just what it was that I thought constituted a bank. And I thought about it and I thought about it and for the life of me I can not tell you just what a bank is today. The old notion that they are institutions that take in deposits that they mix with their own capital to make loans. Interest from the loans, it is immagined, then pay the cost of operation of the institution, some reasonable rate of interest on the lent deposits, and income on the owner's capital. That of course is a story-book version of what a bank is and does, but if not that, then what? They make loans, but they have little to no deposits, they act as clearing houses for all those minor transactions we, the great unwashed, make from day to day, and what, they play the stock market? They create and deal in unfathomable financial instruments, they conger evil and do magic for all I know, but it just stuns me to realize I do not understand anything about their business model. I do not know what a bank really is, I do not understand how it does its business, I do not understand where all the billions and trillions of dollars that seem to make up our disaster of a banking system come from or how it ends up in the hands of these institutions.

Can someone help me. Explain it all, make it simple, but please, make it factual, because I'm really stumped here. What are these damnable things we have allowed to come to life and how is it that they hold us hostage?