What we do agree on is that the present system is a Ponzi scheme, we just differ on where the extra money flowing into the pyramid is coming from.

You haven't explained, for example, why Freddie and Fannie needed to be created. I claim it was because traditional banks couldn't attract enough capital due to their constraints how much profit they could make.

If you have another explanation, I missed it in your remarks. 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.

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.

This week Merrill sold $33 billion of mortgage-backed instruments for $7 billion and lent the buyer $5 billion to make the purchase. Obviously these bonds were not based upon actual assets, no part of the housing market is experiencing an 80% loss rate.

I'm assuming that firms borrowed 10% and then used this to issue bonds with a 100% nominal value, this is what Jay Gould did in his heyday. It's just plain old fraud.

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