The truth is, yes, banks lend out money they don’t actually own. This is called leveraging. In principle, if they have 1000 dollars, they can fairly safely make two 1000 dollar loans, especially if they are lending you money that you will give to another person that saves at that bank. Bank gives money to person A, person A gives money to person B, Person B gives money to the bank as a deposit. There’s still only $1000 when you go looking for actual currency, but there is now $2000 in assets, half of which is in debt from person A.

This surprises _no one_ who has had a basic econ course. We don’t usually teach basic econ in grade school or high school (just personal finance type econ), so it might surprise a lot of people.

This is also not a bad thing. Economies grow because there is capital flowing. Companies survive by taking out a small debt today to cover expenses, then paying it back tomorrow when they get their incomes. (The corporate paper market, which you might have heard of).

This is not a license for banks to print money and become fabulously wealthy. They’re always risking that the person they gave money to won’t pay them back. In fact this is what happened. Banks went out of business, or were taken over by the government. If all they did was make money, they’d never o out of business.

Now, the past 25 years _was_ a good time for the financial industry. This is because they’d managed to hide the risks from even themselves (credit default swaps).

The video does show what happens when you are on the gold standard, and have a bank run, ut that’s _not_ the problem we’re having now, that’s the problem they had in the 30s.

I recommend NPR’s Planet Money. I listen to the podcast version, but their blog is pretty good as well. It’ll give you a much better hold on how things actually work these days, why they work that way, and what’s going wrong this time around.