That may no longer be true. Using mortgage backed securities in the way that triggered the financial crisis of 2007 effectively allows banks to bypass the fract

That may no longer be true. Using mortgage backed securities in the way that triggered the financial crisis of 2007 effectively allows banks to bypass the fractional reserve mechanism. With this process, the bank lends $1 creating a new $1 new deposit from thin air as they always have, but then start using the mortgage certificate as money to by selling it. This allows a $1 loan to create an extra $2 in new money instead of an extra $1. If we only allow a fractional reserve of 80%, then $1 would previously have created an 80c new deposit, which in turn would create a 64c deposit on the next cycle and keeps diminishing. However, with the mortgage certificate thrown in too, $1 becomes $1.60 (80c of new deposit and 80c of sellable mortgage certificate), which becomes $2.56, which becomes $4.10 etc. This process is detailed by Greg Pytel here: https://gregpytel.blogspot.co.uk/2009/04/largest-heist-in-history.html https://gregpytel.blogspot.co.uk/2009/04/largest-heist-in-hi...