You do realize that very few people agree with your framing of the way finance works.

The framing is dependent on the assumptions, and I am well aware that mine are unconventional, but that does not make them "right" or "wrong".

But leaving the framing to one side - which is a matter of "paradigm" - where exactly am I wrong in relation to the mechanics of how the current system works?

You say that Deposits lead to Loans: if that were the case, there could be no new money, since interest-bearing Debt created by Credit Institutions is our money, which is a fact people may not like having pointed out, but a fact nonetheless..

rdf:

You haven't explained, for example, why Freddie and Fannie needed to be created.

I didn't because I hadn't considered the point, which was remiss of me. From your concluding remark re rates of return, I think you are probably right on the button.

rdf:

It is also a detail whether banks get their working capital from depositors directly or from inter-bank deals which are just intermediaries to the ultimate depositors.

A "detail"?

The entire system is falling down around our ears because of this "detail" of wholesale credit intermediation.

...and I thought the Brits were the masters of understatement!

rdf:

The multiplicative effect of fractional reserves is a big talking point among the right wing libertarians in the US right now, but their alternatives don't make much sense - we are not going back to a gold standard.

It always has been, and that view goes way back to silver dollars, the "Cross of Gold" and all the rest, over a hundred years ago.

It represents a profound misunderstanding of how the system works, as I think you and I agree.

I'm proposing what would be de facto monetisation of land rental values and energy value through the pervasive and networked spread and use of "Peer to Peer" investment within frameworks other than "the Corporation".

ie a variation on a "Debt/Equity" swap.

These would operate within a "Clearing Union" approach to monetary exchange and credit - very close to that proposed by Keynes at Bretton Woods.

Such an approach may not be conventional, but "asset based" variations on  conventional equity eg REIT's, ETF's, Income and Royalty Trusts, Hedge Funds constituted as LP's, Sukuks, are becoming pretty mainstream these days.

If you don't think such an "asset-based" approach could work, I'd be interested in your reasoning...

"The future is already here -- it's just not very evenly distributed" William Gibson

I, for one, would never argue for a gold standard.  

But in a sustainable world, interest (a.k.a. usury) is a crime, and compliance is enforced with popular enthusiasm.  

Of course, our world is not sustainable.  

The Fates are kind.