system
Given the following post, respond as if you're commenting on Reddit:
human
I just can't understand how banks lending money to buy homes is a productive thing for the economy

I've been thinking about it a lot, and can't seem to find an answer, which annoys me greatly. 

I get that banks allocate capital to the most efficient businesses, they grant loans to buy equipment, they facilitate payments for the average individual, etc. I get that banks are very useful institutions for the economy, but how does them lending money out of thin air to individuals looking to buy homes being a productive thing or adding value to the economy? They literally only artificially raise the price of homes. I also get that it's historically been one of the best ways for a central bank to do QE through lower interest rates, that people use to refinance and get cash on hand with a HELOC or whatever.

But again, how is it fair that they get to lend money created out of nothing, either through fractional reserve or directly from the central bank, and then lend it at an interest rate? Sure, they must charge a premium for the risk of default and to pay the central bank's borrowing cost, but what about the other portions? And as we've seen in 2008, the thing with the banking system when it comes to mortgage on housing is that they banks are basically immune to systematic risk, because if the whole thing fails, they will need to get bailed out in order for the economic system to keep going. 

And doesn't this system eventually inevitably lead to liquidity issues? By default, by lending money you increase M3 while not necessarily increasing M1. Unless the interest rates lower every couple of years, I believe liquidity crises are inevitable, because loans effectively ask for money that is not even part of the economy. If all the loans were recalled at once, the whole economy would collapse. 

The system feels so fragile and so unstable, and while some properties of this economic system are desirable, its innate stability doesn't seem desirable for Tier 1 civilizations, or economic superpowers like the USA. 

Tl;dr: Why do banks "deserve" to make profits off of loans on residential properties when they add zero value for the borrower, unlike loans for businesses, investments, etc. Residential mortgages seem like a huge ripoff, and artificially raise the price of all homes, which then raises the borrowing amount needed to buy a property, which means more interests to the bank.
gpt
The median sale price of a house in the United States is about 375K. The median household income is about 70K, which means waiting over 5 years to afford a home if you had zero expenses. The value of loans (and thus banks) is being able to buy a house now and pay it off over time as opposed to having to wait years until you can pay for the whole thing in cash. 

The interest you're paying the bank is based on the value of having money now versus having money in the future, plus some risk premia because you might default.