Your first paragraphs are entirely correct. "Shadow banking," for example, has created a notoriously complex and opaque credit market. Your last paragraph, tho

Your first paragraphs are entirely correct. "Shadow banking," for example, has created a notoriously complex and opaque credit market. Your last paragraph, though, is completely at odds with basic financial and economic theory. Loans make mathematical sense because you don't make just one of them; you aggregate capital and take calculated risks on a broad variety of prospects. Many of them are low-risk (e.g. loans backed by substantial assets), others are high-risk, and you adjust the interest charged so that to take on high-risk investments you must be compensated with high interest rates. Maybe you take the full downside on one or two investments (e.g. you invest in two outright frauds), but if you have fifty other loans that offset those losses by paying high rates of interest, then you still make a profit. Also to your point in the second paragraph: equity is a bad tradeoff in many cases. If I'm starting a business that I expect to be hugely profitable, but I need $100,000 in startup costs, would I rather give up a big chunk of my company and pay out dividends for decades (or in perpetuity), or borrow the money and pay it back with a comparably small amount of interest quickly?