The word "credit" itself is derived from a Latin root meaning "belief" ("credible", "credulous"). The system only operates on faith, its a house of cards with no solid foundation to it.

The only reason it functions at all is because everyone is convinced they aren't the anchor man on the Ponzi scheme. Finance started out in Renaissance Italy, where insurance companies guaranteed merchants that, for a reasonable premium, they would replace your ship and its cargo if it never came home. But what happens when pirates, war or storms wipe out the whole fleet? The underwriters just can't make up the losses. And you know the insurers were loaning their own money back to the merchants to build more ships and buy more cargo.

So what happens when the insurance companies/bankers don't have enough cash on hand to replace even a few losses because they've loaned it all out? What you get is Lehman Brothers.