The idea of finance, as explained by this post from The Baseline Scenario (which I’m now subscribed to) is pretty simple:
The financial sector connects savers and borrowers – providing “intermediation services”. You want to save for retirement and would obviously like your savings to earn a respectable rate of return. I have a business idea but not enough money to make it happen by myself. So you put your money in the bank and the bank makes me a loan. Or I issue securities – stocks and bonds – which you or your pension fund can buy.
What happens when you put a lot of money in one place, however, is quite a bit more complex and that’s what the author tries to explain. The more I read this stuff, the more I think we’re bound to swing back to the simplicity of something like peer-to-peer lending.