Fractional Reserve Lending Constitutes Fraud

I was asked to reply to Karl Denninger's Rebuttal To Mish On Fractional Reserve Lending.

Here goes: Denninger does not phrase my arguments correctly on points 2-5, however he thinks they are immaterial so the points are somewhat moot. The crux of the matter is not whether assets are backed by collateral as Denninger suggests, but rather whether the same money has been lent out multiple times.

Let's follow through with a real life example.

Fannie Mae makes a loan of $1,000,000. Let's be more than reasonably fair and assume Fannie Mae issued bonds for the entire amount, not borrowing a single cent into existence. So far there is no fraud. (more)